Goldman Sachs Group Inc (NYSE:GS) one of the stocks in my portfolio, generates, transmits, and distributes electric energy in the United States and Canada. Their annual meeting is coming up on 5/21/2015. ProxyDemocracy.org had the votes of two funds when I checked and voted on 5/14/2015. I voted with Board recommendations 42% of the time and assigned the Goldman Sachs Group a proxy score of 42.
View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the Goldman Sachs Group 2015 proxy to enhance corporate governance and long-term value.
Goldman Sachs Group: ISS Rating
From Yahoo! Finance: The Goldman Sachs Group, Inc.’s ISS Governance QuickScore as of May 1, 2015 is 9. The pillar scores are Audit: 10; Board: 7; Shareholder Rights: 5; Compensation: 10. ISS scores range from “1” (low governance risk) to “10” (higher governance risk). Each of the pillar scores for Audit, Board, Shareholder Rights and Compensation, are based on specific company disclosures. That gives us a quick idea of where to focus…. Audit and Compensation.
Goldman Sachs Group: Compensation
Goldman Sachs Group Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO/Chair Lloyd C. Blankfein at about $22.2M in 2014. I’m using Yahoo! Finance to determine market cap ($91B) and Wikipedia’s rule of thumb regarding classification.
Goldman Sachs Group is a large-cap company. According to Equilar (page 6), the median CEO compensation at large-cap corporations was $10.1 million in 2013, so Goldman Sachs Group’s pay was higher than median. Goldman Sachs Group shares show mixed results, outperforming the S&P 500 over the most recent one, two and ten year periods but underperformed in the most recent five year period. CEO pay has risen more dramatically from $13.3M two years ago.
The MSCI GMIAnalyst report I reviewed gave Goldman Sachs Group an overall grade of ‘F.’ According to the report:
- Unvested equity awards partially or fully accelerate upon the CEO’s termination. Accelerated equity vesting allows executives to realize pay opportunities without necessarily having earned them through strong performance.
- The CEO’s annual incentives did not rise or fall in line with annual financial performance, reflecting a potential misalignment in the short-term incentive design.
I voted Against the pay and omnibus stock plans.
Goldman Sachs Group: Board of Directors and Board Proposals
I voted against the directors on the compensation committee, since they recommended the pay package to the full board: James Johnson, Michele Burns, William George, Lakshmi Mittal, and Debora Spar. Another reason for voting against Lakshmi N. Mittal, is overboarding. Four boards is too many to give full attention.
Additionally, the Goldman Sachs Group board of directors does not currently include a fully independent audit committee, a serious concern for shareholders. 87.1% of company boards in this market maintain a fully independent audit committee, which is critical in providing appropriate oversight of financial reporting. I voted against Mr. Winkelman who, although the Goldman Sachs Group calls him independent, previously worked in various positions at Goldman Sachs, including as a member of the Management Committee, co-head of the fixed income division and head of the J. Aron Division, having joined the firm in 1978 and retired in 1994. Given the golden parachutes the Goldman Sachs Group gives to executives moving to government service, I think there is every expectation that once you work for the Goldman Sachs Group in an executive capacity, you owe undying loyalty to management.
Goldman Sachs Group: Auditor
I voted to ratify the auditor, since I saw no potential conflicts of interest, although, as discussed above, the audit committee does not appear fully independent.
Shareholder Proposals at Goldman Sachs Group
I voted in favor of Proposal 5 Adopt Simple Majority Vote, submitted by Equality Network Foundation. See this informative fact sheet on the subject. Abstentions should never count as votes against. Votes should be counted as cast, not switched without permission. Boards shouldn’t stuff ballot boxes. Instead of reading the Board’s opposition statement, see their statement on page 98 of the proxy regarding how they turn your abstention into a vote against. Why shouldn’t an abstention stay an abstention?
If you choose to abstain in voting on the Election of Directors, your abstention will have no effect, as the required vote is calculated through the following calculation: votes FOR divided by the sum of votes FOR plus votes AGAINST.
If you choose to abstain in voting on any other matter at our Annual Meeting, your abstention will be counted as a vote AGAINST the proposal, as the required vote is calculated through the following calculation: votes FOR divided by the sum of votes FOR plus votes AGAINST plus votes ABSTAINING.
I voted in favor of the AFL-CIO Reserve Fund’s Item 6, Report on Certain Vesting Program. The proposal actually seeks a report to shareholders regarding the vesting of equity-based awards for senior executives due to a voluntary resignation to enter government service (a “Government Service Golden Parachute”). For more information on these crazy golden parachutes, see my post, Government Service Golden Parachutes at C, GS, JPM, MS.
Of course I also voted For my own Proposal 7 to seek to allow written consent by shareholders. This is simple good governance that could be crucially important in times of emergency.
CorpGov Recommendations for Goldman Sachs Group – Votes Against Board Position in Bold
| # | PROPOSAL TEXT | CorpGov | CALVERT | CBIS |
|---|---|---|---|---|
| 1a | Elect Director Lloyd C. Blankfein | For | For | For |
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | ||||
| 1b | Elect Director M. Michele Burns | Against | For | For |
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | ||||
| 1c | Elect Director Gary D. Cohn | For | For | For |
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | ||||
| 1d | Elect Director Mark Flaherty | For | For | For |
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | ||||
| 1e | Elect Director William W. George | Against | For | For |
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | ||||
| 1f | Elect Director James A. Johnson | Against | For | For |
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | ||||
| 1g | Elect Director Lakshmi N. Mittal | Against | For | For |
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | ||||
| 1h | Elect Director Adebayo O. Ogunlesi | For | For | For |
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | ||||
| 1i | Elect Director Peter Oppenheimer | For | For | For |
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | ||||
| 1j | Elect Director Debora L. Spar | Against | For | For |
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | ||||
| 1k | Elect Director Mark E. Tucker | For | For | For |
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | ||||
| 1l | Elect Director David A. Viniar | For | For | For |
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | ||||
| 1m | Elect Director Mark O. Winkelman | Against | For | For |
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | ||||
| 2 | Advisory Vote to Ratify Named Executive Officers’ Compensation | Against | Against | For |
| Calvert Social Index Fund: The company’s long term incentive compensation is not sufficiently tied to financial performance. | ||||
| 3 | Approve Omnibus Stock Plan | Against | Against | Against |
| Calvert Social Index Fund: The plan’s dilution exceeds 10 percent. | ||||
| 4 | Ratify PricewaterhouseCoopers LLP as Auditors | For | For | Against |
| Calvert Social Index Fund: Less than 25 percent of total audit fees paid to the auditor were attributable to non-audit work. | ||||
| 5 | Adopt Simple Majority Vote | For | Against | Against |
| Calvert Social Index Fund: A vote AGAINST this item is warranted because the company has adopted a consistent vote threshold for management and shareholder proposals, both of which count abstentions. | ||||
| 6 | Report on Certain Vesting Program | For | For | For |
| Calvert Social Index Fund: A vote FOR this item is warranted because shareholders could benefit from additional information about the extent of a compensatory program of questionable benefit to investors. | ||||
| 7 | Provide Right to Act by Written Consent | For | For | For |
| Calvert Social Index Fund: A vote FOR this proposal is warranted given that the ability to act by written consent would enhance shareholder rights. | ||||
Corporate Governance Issues at Goldman Sachs Group
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- No action can be taken without a meeting by written consent.
- Special meetings can only be called by shareholders holding not less than 25% of the voting power.
Goldman Sachs Group Proxy Proposal Deadline for Next Year
Mark your calendar to submit future proposals:
Shareholders who, in accordance with the SEC’s Rule 14a-8, wish to present proposals for inclusion in the proxy materials to be distributed by us in connection with our 2016 Annual Meeting of Shareholders must submit
their proposals to John F.W. Rogers, Secretary to the Board of Directors, at The Goldman Sachs Group, Inc., 200 West Street, New York, New York 10282. Proposals must be received on or before Saturday, December 12, 2015. As the rules of the SEC make clear, however, simply submitting a proposal does not guarantee its inclusion.
Be sure to vote each item on the proxy. Any items left blank are voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime). I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions if warranted. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from 5 percent of earnings in 1993-1995 to about 10 percent in 2001-2003.
Few firms admit to having average executives. They generally set compensation at above average for their “peer group,” which is often chosen aspirationally. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average, with their collective pay spiraling out of control. We need to slow the pace of money going to the 1% if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs.
Economic performance explains only 12% of variance in CEO pay. More than 60% is explained by company size, industry, and existing company pay policy. None of those are performance driven. Additional findings by Mark Van Clieaf of Organizational Capital Partners, as reported in The Alignment Gap Between Creating Value, Performance Measurement, and Long-Term Incentive Design:
- Some 75% of companies have no balance sheet or capital efficiency metrics in their disclosed performance measurement and long-term incentive plan design.
- Only 17% of companies specifically disclose return on invested capital or economic profit as a long-term performance measure for long-term executive compensation.
- Some 47% of S&P 1500 companies over the last five years (2008 – 2012) did not generate a positive cumulative economic profit or return on invested capital greater than their cost of capital.
- More than 85% of the S&P 1500 have no disclosed line of sight process metrics aligned to future value such as innovation and growth drivers.
- Only 10% of all long-term incentives have a disclosed longest performance period for named officers of greater than three years.
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