April 14, 2009
Goldman CEO’s Remarks on Wall Street Pay Reform
– Dave Lynn, CompensationStandards.com
Last week, at the same Council of Institutional Investors meeting where Chair Schapiro laid out the SEC’s new regulatory agenda, Goldman Sachs CEO Lloyd Blankfein called for changes to the compensation model on Wall Street. As noted in this story appearing in the LA Times, Blankfein faced some angry protestors while delivering his address – certainly a sign of these times of extraordinary public anger.
Blankfein noted that compensation decisions must be made in the context a multi-year evaluation of risk to get a full picture of an individual’s decisions, and that performance should not be judged in isolation. Among the specific guidelines that he suggested are:
1. Compensation should include salary and deferred compensation, which is “appropriately discretionary” because it is based on performance over the year.
2. The proportion of equity comprising and individual’s compensation should increase significantly as total compensation increases.
3. Senior employees should get most of their compensation in deferred equity, while junior people should get most of their compensation in cash.
4. Individual performance should be evaluated over time to avoid excessive risk taking and to allow for a clawback effect.
5. Equity awards should be subject to future delivery and/or deferred exercise over at least a three-year period.
6. Senior executive officers should retain the bulk of their equity until they retire, and equity should not be accelerated once someone leaves the firm.