Security Police and Fire Professionsals v. Blankfein: Executive Compensation and Fiduciary Obligations

by J. Robert Brown, for The Race to the Bottom, January 21, 2010.

We are a bit behind in corporate governance developments.  Back in December, shareholders filed a derivative suit challenging Goldman Sach‘s compensation practices.  The complaint essentially alleges that compensation practices were not performance based.  As the first operative paragraph alleges:

  • the members of Goldman’s Board of Directors (the “Board”) abdicated their responsibility to administer the Company’s compensation plans in the best interests of the Company and its shareholders, and instead have blindly “rewarded” executives for corporate performance that has absolutely nothing to do with the skill of the Company’s employees. Over the last decade, Goldman’s directors have reserved and issued as compensation to employees an amount approaching 50% of the Company’s annual net revenues. Because the majority of the Company’s revenues depend on the reported values of the firm’s investments, however, these revenues are impacted by market forces and not necessarily the productivity of Goldman Sachs employees. Nevertheless, year after year, Defendants have caused the Company to pay billions of dollars in incentive based compensation, regardless of whether the Company’s performance could be attributed to the skill of the employees Defendants determined to so generously compensate…(continue reading)

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