October 26, 2020
$174 Million Quasi-Clawback
– Lynn Jokela
Late last week, Goldman Sachs announced in a Form 8-K filing that it agreed to pay more than $2.9 billion to resolve investigations into the 1MDB matter. With that, the company also released a statement from the board of directors saying it’s taking action that impacts $174 million in compensation of current and former employees. Liz blogged about this when the matter first emerged almost two years ago and noted at that time, that the board added a forfeiture provision to equity awards granted as part of the company’s 2018 year-end compensation decisions.
The $174 million pales in comparison to the $2.9 billion settlement, but for compensation it’s a large and notable amount. As much as news report headlines refer to this as a claw back, some of it is claw back of compensation, but not all. Some of the amounts relate to potential forfeitures (as payment of some long-term incentive awards were deferred) and other amounts relate to compensation reductions. The board’s statement describes the breakdown:
For those former employees implicated in the criminal scheme, the Firm has undertaken clawback actions to the full extent of its contractual entitlements with respect to three individuals and the amounts the Firm is seeking to forfeit from these individuals total approximately $76 million, of which the Firm is currently holding approximately $24 million.
For other former senior executives, to the extent not already paid, they will be asked to forfeit all or a majority of their outstanding Long-Term Performance Incentive Plan Awards that were granted in 2011 and which have a performance period that includes 2012 and 2013 when the 1MDB bond underwritings took place, and forfeit a portion of other previously awarded compensation, if applicable. One of these former senior executives has voluntarily agreed to return the majority of their 2011 award. The amounts for these individuals represent a portion of the pre-tax value of these awards granted or paid and total approximately $67 million.
In addition, we think it is appropriate that the current executive leadership team, the Chief Executive Officer, the Chief Operating Officer and the Chief Financial Officer, as well as the current CEO of Goldman Sachs International, have their overall compensation reduced by $31 million for 2020.
Even with the company’s announcement, the matter will likely continue for a while. Seeking the return of previously paid compensation from former employees isn’t a slam dunk and the board’s statement says that it has formed a special committee to oversee and review the company’s remediation efforts.