Goldman Sachs Group Inc. linked bonuses and promotions to employees’ success in protecting the firm’s reputation and put new restrictions on some client transactions to avoid a repeat of the damage to its standing in the wake of the financial crisis.
A “new-activity committee” will evaluate and approve suitability when clients undertake transactions that carry new risks, New York-based Goldman Sachs said today in a report. When setting year-end pay, the firm is reviewing employees’ efforts to protect its reputation and win clients’ trust, according to the report.
Goldman Sachs, which is holding its annual shareholders’ meeting today in Salt Lake City, created a business-standards committee in May 2010 as it faced a lawsuit from the Securities and Exchange Commission over a mortgage-related security called Abacus 2007-AC1. The firm settled that suit by agreeing to pay $550 million, and said it made a mistake in omitting disclosures to investors in the product.
“If an Abacus transaction came today, it would encounter a completely different framework of processes, practices, procedures, transaction approval and review than what we had before,” said J. Michael Evans, a Goldman Sachs partner who led the business-standards committee with E. Gerald Corrigan. “It might have the same name, but it would look a lot different.”
Today’s report was titled the “Business Standards Committee Impact Report” and detailed actions taken following a January 2011 paper that laid out 39 recommendations. Chief Executive Officer Lloyd C. Blankfein, 58, led 23 three-hour sessions in 2011 and 2012 with partners and managing directors that stressed personal accountability and included a case study about communications within the firm and with clients, according to the report.
“The work underlying the BSC is part of a much larger, ongoing commitment to be open to change and to learn the right lessons from recent experiences,” Blankfein said in a statement today.
Evans, 55, is a vice chairman and oversees Goldman Sachs’s emerging-markets businesses. Corrigan, 71, is chairman of Goldman Sachs’s deposit-taking bank and joined the firm in 1994 after a 25-year career at the Federal Reserve, culminating as president of the New York Fed.
Goldman Sachs already had policies in place that would claw back compensation based on individual misconduct that caused legal or reputational harm. The firm has increased the emphasis on protecting its reputation in performance reviews, Evans said.
“We will look at the way they deal with clients and we will look at the way they protect the firm’s reputation when thinking about promotions and compensation,” Evans said.
The requirements go beyond an employee’s own behavior, he said. “If he’s a desk manager or division head or project manager or investment-banking professional, is he enforcing that through his team?”