Goldman Sachs Group Inc. wants to claw back millions of dollars from five executives as part of an overhaul of employee bonus policies designed to curb short-term investment bank profits, people with knowledge of the matter said.
The firm initiated the process following its poorly received effort to increase market share in 2007 with a program that bestowed average annual bonuses of $5 million on high-earning employees.
The practice backfired, hurting profits while the executives cashed in big paychecks. Goldman Sachs has since undertaken a full review of its compensation policy, encouraging divisional and unit executives to sacrifice some or all of their bonus, and withheld payouts from some employees who merely provided “intellectual and conceptual support” for the 2007 program.
“The bad decision-making that took place at Goldman Sachs in 2007 had far-reaching consequences for many, including some of the senior individuals involved,” said one person familiar with the matter.
Goldman Sachs spokesman Michael DuVally declined to comment.
In a letter to the firm’s risk committee in late 2018, filed with the Securities and Exchange Commission on Thursday, Goldman’s compensation committee said it needs to remove executives from the final decision-making on compensation and identify individuals who “are responsible for the poor decision-making at the time.”
Goldman wants to recoup $174 million of 2017 incentive compensation from five executives, the New York Times reported last month. On Friday, the firm filed a lawsuit in Manhattan against the five executives who were a part of the 2007 decision-making process. The suit describes the executives as “key decision-makers” in the program and places a finding of “cause” on their names.
The remaining $1.8 billion of restricted stock and options could be paid out in 2019 or 2020, the letter said.
In 2013, Goldman brought in new management after the firm suffered setbacks in trading and fixed income, and some prominent executives received reduced pay. But the pay cuts weren’t enough to stop a rash of mistakes the following year. The lender incurred another record $5.9 billion loss.
The 2017 compensation-policy revision builds on work from 2017. When a trading loss is a “material” event that affects its business, as defined in the 2017 letter, employees are to forfeit at least half of the money they receive from their bonus, subject to clawbacks and reductions in total compensation. In some cases, other forfeited compensation could be reduced further.