The record date for the determination of the shareholders entitled to vote at our 2015 Annual Meeting of Shareholders, or any adjournments or postponements thereof, was the close of business on March 23, 2015.
Important Notice Regarding the Availability of Proxy Materials for our Annual Meeting to be held on May 21, 2015. Our Proxy Statement, 2014 Annual Report to Shareholders and other materials are available on our website at www.gs.com/proxymaterials.
Your vote is important to us. Please exercise your shareholder right to vote. By April 10, 2015, we will have sent to certain of our shareholders a Notice of Internet Availability of Proxy Materials (Notice). The Notice includes instructions on how to access our Proxy Statement and 2014 Annual Report to Shareholders and vote online. Shareholders who do not receive the Notice will continue to receive either a paper or an electronic copy of our proxy materials, which will be sent on or about April 14, 2015. For more information, see Frequently Asked Questions.
You are cordially invited to attend the 2015 Annual Meeting of Shareholders of The Goldman Sachs Group, Inc. We will hold the meeting on Thursday, May 21, 2015 at 8:30 a.m., local time, at our offices in San Francisco, California. We hope that you will be able to attend.
Enclosed you will find a notice setting forth the business expected to come before the meeting, a letter from our Lead Director, the Proxy Statement, a form of proxy and a copy of our 2014 Annual Report to Shareholders. Your vote is very important to us. Whether or not you plan to attend the meeting in person, we hope that your shares are represented and voted.
While the global economic recovery has remained fragile, we were pleased that our firm performed well, generating solid results for 2014 despite uneven conditions. Our performance benefitted from the strength of our global client franchise, the diversity of our businesses and our culture of adaptability.
We continue to focus on driving returns in a challenging macroeconomic environment while emphasizing the need to protect our ability to provide significant upside to our shareholders as the economic cycle turns. The basis for meeting these goals rests on a strong financial profile and a sustained operating discipline. Since the end of 2007, our balance sheet is down while our equity is up, resulting in gross leverage that has been cut by more than half. Over the same period, we have improved our capital and liquidity measures while maintaining our commitment to serve our clients through our core set of businesses over the cycle.
These efforts not only protected near-term returns, they have also positioned the firm to benefit from operating leverage when the environment improves. In this vein, we see a number of growth opportunities across our major businesses, which Gary Cohn, our President and COO, and I detail in our 2014 Letter to Shareholders. I hope you have a chance to read the letter, which also includes additional discussion on our performance, financial stability, strategy and culture of client focus and teamwork.
Lastly, I want to pause to remember my fellow director and trusted adviser, James J. Schiro, who passed away last year. Jim was an important voice on our Board, serving as an exemplary Lead Director. His wisdom, judgment and probing questions had a significant impact on our Board and our firm. He was an exceptional individual and I was deeply saddened by his passing.
Following Jim's retirement, Adebayo O. Ogunlesi was appointed Lead Director and the Board and our shareholders are very fortunate to benefit from his experience, intellect and energy.
I would like to thank you for your confidence in Goldman Sachs. I look forward to welcoming many of you to our Annual Meeting.
It was a great honor to be elected by our independent directors as the Lead Director in July 2014 when James J. Schiro left our Board. Jim was a committed and proactive Lead Director, who developed a sound foundation for shareholder engagement that I intend to follow. Jim was known for his advice, which was much sought after for being both balanced and candid. We were very saddened by his passing and we will miss him, his dedication, his precision and his genuine kindness.
It has been an active eight months, and I wanted to update you on some of the key areas that I have been focused on.
As a Board, we are committed to open and constructive dialogue with our shareholders and other key constituents. Engaging directly with our shareholders was one of my first priorities upon assuming my responsibilities. As a result, a few months after taking on the Lead Director role I met with many of our largest shareholders, representing approximately 35% of our shares outstanding, in New York, Boston, Sacramento, San Francisco and Los Angeles. These meetings allowed me to gain valuable insights and be better positioned to serve your interests. I was able to receive direct feedback from you on a wide range of issues, including board composition, board leadership structure, succession planning, executive compensation, the impact of regulation and reputational risk. These conversations proved to be critical inputs to the Board's deliberations. And, as you will read in more detail in the accompanying Proxy Statement, our Board listened carefully to your feedback and made changes that advance our shared goal of building an increasingly valuable and enduring firm.
Given the importance of the regulatory environment in which we operate, I, along with my fellow directors, also meet with our regulators often to provide direct insight into our Board's operation and effectiveness and receive their feedback. In addition, the Board remains as focused as ever on our oversight of the firm's risk management, including such key matters as our Capital Plan submitted as part of the Comprehensive Capital Analysis and Review as well as our Risk Appetite Statement.
We also used the occasion of the change in leadership to take a fresh look at our Board's effectiveness. It has always been our aim to operate our Board in the most efficient and effective manner possible.
Each year, our Governance Committee, which I chair, conducts an evaluation of the performance of our Board; each of our committees also conducts an annual self-evaluation of its performance. To keep the evaluation process fresh and focus our attention on key topics, we enhanced our process this year. We also added an individual assessment of director performance, as further described in the Proxy Statement. These evaluations, coupled with the one-on-one meetings I conducted with each of our non-employee directors, provided invaluable feedback on the operation of our Board and committees that translates into specific changes.
This past year we also conducted an additional analysis of our historical committee structure, which had consisted of each of our independent directors serving on each of our standing committees. While there is no doubt that this structure served us well in the past, our Board and its committees have continued to grow, increasing from three committees to five in recent years. In addition, each committee's remit has expanded, in part due to increasing regulatory requirements. We decided that more focused committees would enable each director to expand his or her focus and expertise in critical areas of the Board's oversight, such as Audit, Risk and Compensation. Further, in recognition of the exceedingly important work of our Public Responsibilities Subcommittee, we changed the Subcommittee to a standing committee of our Board.
We are keenly aware that our shareholders, regulators and other constituents are focused on who our directors are. Our review of our Board's composition is an ongoing, year-round process, focused on ensuring that our Board has the right mix of skills and qualifications to carry out its duties. To this end, we welcomed our two newest directors to our Board in December 2014, Mark Flaherty and Mark Winkelman, who are each also members of our Audit, Governance and Risk Committees. Our evaluations led to us seeking additional directors who had an understanding of risk for the financial services industry and an institutional investor perspective. Mr. Flaherty, with more than twenty years of experience in investment management, including as a former leader of one of the largest institutional investors, brings a wide range of understanding of all of these matters. Mr. Winkelman has worked in a variety of different capacities in the capital markets and has demonstrated keen judgment, market knowledge and effective risk management over his career. I look forward to their continued contributions to our Board.
I also want to take the opportunity to thank our colleague, Claes Dahlbäck, for his many years of dedicated service to our Board. For over a decade, our Board has benefitted from his international perspective, sound judgment and constant counsel. I am glad we will continue to benefit from his dedication to our firm as he continues to provide insight to the board of Goldman Sachs International, a subsidiary of the firm.
In addition to making recommendations regarding new directors, our Governance Committee has also enhanced its processes regarding succession planning for leadership positions on our Board, such as Committee Chairs and the Lead Director. We understand the importance our shareholders and other constituents place on having the right people serving in these integral positions, and are focused on ensuring smooth transitions.
In conclusion, I look forward to continuing our active dialogue with you and other key constituents around important issues facing the firm. I thank each of you for your support.
This summary highlights certain information from our Proxy Statement for the 2015 Annual Meeting of Shareholders (Annual Meeting). You should read the entire Proxy Statement carefully before voting.
For additional information about our Annual Meeting, see Frequently Asked Questions.
Leverage Ratio is calculated as total assets divided by total shareholders' equity.
U.S. peers comprised of Bank of America Corp. (BAC), Citigroup Inc. (C), JPMorgan Chase & Co. (JPM) and Morgan Stanley (MS).
Net revenues from business and investments we have exited reflect both operating net revenues and gains on sales in 2012.
Since 2012, we undertook several strategic initiatives to respond to new regulations and at the same time reduce risk for the firm.
We sold a majority stake in our Americas Reinsurance and European Insurance businesses and liquidated our investment in Industrial and Commercial Bank of China Limited. We also sold our hedge fund administration business and our ownership stake in the REDI trading technology platform.
The firm adapted and sourced new revenue opportunities and was able to maintain stable revenues, despite a $2.3 billion decrease since 2012 of net revenues and gains on sales from exited businesses and investments.
* For definitions of certain terms used in this Executive Summary, see Frequently Asked Questions.
Graphic shows impact of the firm's share buybacks during 2010-2014 on the firm's 2014 performance metrics as compared to the calculation of these metrics if no such buybacks had occurred.
U.S. peers comprised of C, JPM and MS; reflects total repurchases of common stock and total dividends to common shareholders; payout ratio is equivalent to dividends and buybacks divided by net income to common shareholders. BAC is excluded because significant losses during the period resulted in a cumulative payout ratio that is not comparable. The U.S. peer average total payout ratio (2010-2014) including BAC is 36%.
U.S. peers comprised of BAC, C, JPM and MS; reflects total repurchases of common stock and total dividends to common shareholders during 2010-2014 as a percentage of 2010 beginning common shareholders' equity.
Benefit of Past Five Years of Buybacks on our 2014 Performance1 Over time, we have seen improvement across all of our capital ratios. For example, since our initial disclosure of our 2nd quarter 2013 Basel III fully phased-in advanced ratio, we have improved the ratio by 180bps.
We continue to focus on expense discipline, including compensation expense. Our 2014 compensation ratio of 36.8% is our second-lowest since becoming a public company.
We provide highlights of our compensation program below. It is important that you review our Compensation Discussion and Analysis and compensation-related tables for a complete understanding of our compensation program.
Our 2014 Named Executive Officers (NEOs) are: Lloyd C. Blankfein (CEO), Gary D. Cohn (COO), Harvey M. Schwartz (CFO), Mark Schwartz (a Vice Chairman and Chairman of Goldman Sachs Asia Pacific) and Michael S. Sherwood (a Vice Chairman and Co-CEO of Goldman Sachs International). We also refer to the individuals (currently six in total) serving as CEO, COO, CFO or Vice Chairman of the firm as our Senior Executives or SEOs.
Continued Shareholder Outreach. We continued to engage with our investors in 2014, meeting with shareholders representing approximately 55% of our shares outstanding. Our prior advisory votes to approve NEO compensation have received the solid support of our shareholders (average support of approximately 87% of votes cast over the past three years and 83% last year), which our Compensation Committee believes indicates support for our program. Shareholders have consistently expressed the desire for the firm to introduce an element of metrics-based compensation into our annual compensation program.
* Mr. Sherwood, who is based in the U.K., received a cash salary of $1.85 million and a fixed allowance of $9.15 million, payable entirely in equity-based awards. This fixed allowance was provided as a result of applicable U.K. regulatory guidance. See page 48 for more details.
Each NEO's individual performance, including his focus on risk management and the firm's safety and soundness (described on pages 40-42 ).
For more detail, see page 38.
U.S. peers comprised of BAC, C, JPM and MS.
Goldman Sachs ranked first in worldwide announced and completed mergers and acquisitions and also ranked first in worldwide equity and equity-related offerings and common stock offerings for the year per Thomson Reuters.
Significant Portion of Annual Variable Compensation Paid in Equity-Based Awards. Two-thirds of 2014 annual variable compensation was awarded to each of our NEOs in equity-based awards, other than Mr. Sherwood, who received approximately 83% of his annual variable compensation in the form of equity-based awards as a result of applicable U.K. regulatory requirements. For more information regarding the terms of these awards, please see pages 49-50.
Shares generally are delivered over three-year period following RSU grant.
Five-year transfer restrictions (from RSU grant date) apply to all or substantially all Shares at Risk that are delivered to NEOs after applicable tax withholding (other than shares underlying certain RSUs granted to Mr. Sherwood as a result of applicable U.K. regulatory guidance).
ü Shares at Risk remain subject to our new Stock Ownership Guidelines, as well as contractual retention requirements, even after transfer restrictions no longer apply.
ü Clawback provisions can result in forfeiture or recapture of equity-based awards and underlying Shares at Risk.
ü Executive officers are prohibited from hedging or pledging equity-based awards and any shares of Common Stock subject to transfer restrictions.
Executive officers are, in fact, prohibited from hedging any shares, including those that may be freely sold.
None of our executive officers has shares of Common Stock subject to a pledge.
Further Long-Term Alignment through LTIP Awards. Shareholders have told us that they continue to support a longer-term, metrics-based program that incentivizes our NEOs. Our Compensation Committee agrees.
– Given that the LTIP awards are intended to be longer-term, LTIP payout thresholds are more aspirational than the payout thresholds used for the PSUs.
Setting an upfront expectation that these awards will have an eight-year performance period, except in limited circumstances.
– In January 2015, we granted LTIP awards to each of our NEOs with initial notional values as follows: $7.0 million (Mr. Blankfein); $6.7 million (Messrs. Cohn, Harvey Schwartz and Sherwood); and $4.0 million (Mr. Mark Schwartz). The structure, terms and metrics of these LTIP awards are generally consistent with prior LTIP awards.
Sound Compensation Practices. Our Compensation Committee considers our firm's safety and soundness in making all executive compensation determinations. We have no guaranteed payments or other severance or "golden parachute" payments for executive officers.
We are seeking shareholder approval for a new equity plan one year prior to the expiration of our existing plan as a matter of prudence.
Equity-based awards play a fundamental role in aligning our compensation program with the interests of our shareholders and the requirements of our regulators. We believe a substantial portion of variable pay should be delivered in equity, rather than cash, which also reinforces our long-term risk-management orientation. Accordingly, our Compensation Committee believed it was appropriate to seek shareholder approval for renewal of the plan one year in advance of expiration.
The terms of our new equity plan are unchanged from those previously approved by our shareholders, other than (1) an increase of 50 million in the number of shares authorized for issuance under the plan and (2) an extension of the term of the plan through our 2019 Annual Meeting (i.e., an additional three years). This proposed share increase is consistent with, and based on the same award assumptions that we used in setting the number of shares available for grant under, our shareholder-approved 2013 equity plan.
We generally expect to continue this prudent approach of submitting our equity plan for shareholder approval one year prior to expiration.
We believe our equity plan should be viewed in the context of our disciplined and thoughtful management of compensation expenses (see page 4 ).
We understand many shareholders look at burn rate or other similar metrics when assessing equity plan proposals.
We believe our active capital management and focus on equity in our compensation framework provide significant value to our shareholders, despite the impact on our burn rate calculations.
Burn rate is calculated as the number of equity-based awards granted under our equity plan in a given year divided by the weighted average basic share count in that year.
Based on weighted average basic share count used in the calculation of basic earnings per common share and grants of equity-based awards as reported in public filings. GS weighted average basic share count includes common shares outstanding and restricted stock units granted to employees with no future service requirements. Calculation methodologies for U.S. peers may vary.
C based on grants of unvested share-based awards disclosed in Form 10-K.
– Broad-based participation. We grant equity-based awards (which would otherwise be delivered in cash) to a significant number of our employees; equity-based awards represent a larger portion of our compensation expense than for any of our U.S. peers (BAC, C, JPM or MS).
– Peer share count growth. Many peers have significantly increased their weighted average basic share count due to share issuances and lower share repurchase amounts (see below). This inflates the denominator of the burn rate calculation and results in a lower peer average burn rate.
– Our share buybacks. Our history of managing capital through our share buyback program has been favorable for shareholders, even though it has increased our burn rate.
Based on weighted average basic share count used in the calculation of basic earnings per common share. GS weighted average basic share count includes common shares outstanding and restricted stock units granted to employees with no future service requirements. Calculation methodologies for U.S. peers may vary.
% Change in Weighted Average Basic Share Count1 (2007-2014) (Calculated based on public filings) Our strong track record of managing our capital is indicated by a weighted average basic share count that is only 6% higher than our full year record low in 2007; most of our peers have seen significant weighted average basic share count increases over the same period.
¡ We strive to maintain a well-rounded and diverse Board that balances both financial industry expertise and independence and the institutional knowledge of longer-tenured directors with the fresh perspectives brought by newer directors.
¡ We have a robust onboarding process for our new directors, which includes a multi-part orientation session about our business, strategy, governance and Board.
– Director Retirement: After approximately 12 years of dedicated service on our Board, Claes Dahlbäck determined not to stand for re-election at our 2015 Annual Meeting. We are grateful for his many contributions and unfailing commitment to our Board and our firm. We are pleased we will continue to benefit from his insights through his continued service as a director of Goldman Sachs International.
Remembering our colleague and friend, James J. Schiro With great sadness, in 2014 we mourned the passing of our esteemed colleague and dear friend, Jim Schiro. As our Lead Director, Jim was a vocal advocate for sound governance practices, and was firmly committed to shareholder engagement. Our firm benefited greatly from his valuable contributions, judgment and insights and he will be remembered by all who knew him for the example he set as a leader of our firm.
Marsh & McLennan Companies, Inc., Mirant Corp. and Delta Air Lines, Inc.
Since our IPO, each of our independent directors has served on each of our standing committees. While this common knowledge base has served us well, given that the number of our standing committees has increased and the size of our Board has expanded, our Lead Director initiated a review of our committee structure.
As a result, our independent directors determined that it would be in the best interests of our firm and our shareholders to decrease the number of directors serving on each of our Audit, Risk and Compensation Committees.
This change allows our Board to better harness specific director skill sets and permits directors to deepen their focus on committee matters.
In addition, we converted the Public Responsibilities Subcommittee to a standing committee, reflecting the importance of these matters.
For more information on our committee structure changes, see page 24.
Includes 5 executive sessions of our independent directors chaired by our Lead Director and 10 additional sessions led by the chairs of our Audit, Risk and/or Compensation Committees during which our independent directors met without management present.
In addition to formal Board and Committee meetings, our Committee Chairs and Lead Director meet and speak regularly with each other and with members of our management, as well as meet with our regulators, meeting in 2014 over 200 times in the aggregate.
Recently Enhanced: Process regarding succession for Board leadership positions.
Recently Enhanced: Annual Board and Committee evaluations, which incorporate feedback on individual director performance.
Recently Enhanced: Focus of our independent directors on executive succession planning.
Frequent executive sessions of independent directors.
Comprehensive process for Board refreshment, including a focus on diversity.
Candid, one-on-one discussions between the Lead Director and each non-employee director supplementing formal evaluations.
Shareholders are welcome to recommend director candidates to our Governance Committee.
CEO evaluation process conducted by our Lead Director with our Governance Committee.
Board committee oversight of environmental, social and governance (ESG) matters, including online ESG Report.
Directors may contact any employee of our firm directly, and the Board and its committees may engage independent advisors at their sole discretion.
Director share ownership requirement of 5,000 shares or RSUs, with a transition period for new directors.
– Directors may not hedge shares of Common Stock; none of our directors has shares of Common Stock subject to a pledge.
– All RSUs granted as director compensation must be held for the director's entire tenure on our Board. Directors are not permitted to hedge, pledge, or transfer these RSUs.
Across our shareholder base, there are a wide variety of viewpoints about the corporate governance issues affecting our firm. We, including our Lead Director, meet and speak with our shareholders and other key constituents throughout the year.
After a review of the individual qualifications and experience of each of our director nominees and his or her contributions to our Board, our Board determined unanimously to recommend that shareholders vote FOR all of our director nominees.
Our 13 director nominees have a great diversity of experience and bring to our Board a wide variety of skills, qualifications and viewpoints that strengthen their ability to carry out their oversight role on behalf of shareholders.
Diversity is an important factor in our consideration of potential and incumbent directors.
Given the nature of our business, our Governance Committee continues to believe that directors with current and prior financial industry experience, among other skills, are critical to an effective Board. We take very seriously, however, any actual or perceived conflicts of interest that may arise, and have taken various steps to address this.
Each of our director nominees has been recommended for election by our Governance Committee and approved and nominated for election by our Board. With respect to their appointment in December 2014, Messrs. Flaherty and Winkelman were recommended to our Lead Director and our Governance Committee by the Committee's independent director search firm.
If elected by our shareholders, our director nominees, all of whom are currently members of our Board, will serve for a one-year term expiring at our 2016 Annual Meeting of Shareholders. Each director will hold office until his or her successor has been elected and qualified or until the director's earlier resignation or removal.
Biographical information about our director nominees follows. This information is current as of April 1, 2015 and has been confirmed by each of our director nominees for inclusion in our Proxy Statement. There are no family relationships between any of our directors or executive officers.
Comprehensive Re-Nomination Process We appreciate the importance of critically evaluating individual directors and their contributions to our Board in connection with re-nomination decisions. In considering whether to recommend re-nomination of a director for election at our Annual Meeting, the Governance Committee conducts a detailed review, considering factors such as: a The extent to which the director's skills, qualifications and experience continue to contribute to the success of our Board; a Feedback from the annual board evaluation and individual discussions between each non-employee director and our Lead Director; a Attendance and participation at, and preparation for, Board and Committee meetings; a Independence; a Shareholder feedback, including the strong support received by director nominees elected at our 2014 Annual Meeting of Shareholders; a Outside board and other affiliations, including any actual or perceived conflicts of interest; and a The extent to which the director continues to contribute to the diversity of our Board.
Current: Callaway Golf Company and Kosmos Energy Ltd.
¡ Member, National Board of Directors, The NAACP Legal Defense and Educational Fund, Inc.
¡ Leadership: Served as Chief Executive Officer and Chairman of Medtronic, Inc. and as a senior executive at Honeywell International Inc.
Our Board determined, upon the recommendation of our Governance Committee, that Ms. Burns, Mr. Flaherty, Mr. George, Mr. Johnson, Mr. Mittal, Mr. Ogunlesi, Mr. Oppenheimer, Dr. Spar, Mr. Tucker and Mr. Winkelman, as well as Mr. Dahlbäck who is retiring in May 2015, are "independent" within the meaning of NYSE rules and our Director Independence Policy. Prior to his retirement from our Board in 2014, Mr. Schiro, who served as our Lead Director for a portion of the year, also was determined to be independent. Furthermore, our Board has determined that all of our independent directors satisfy the heightened audit committee independence standards under SEC and NYSE rules, and Compensation Committee members also satisfy the relevant heightened standards under NYSE rules.
To assess independence, our Governance Committee and our Board were provided with detailed information about any relationships between the independent directors (and their immediate family members and affiliated entities) on the one hand, and Goldman Sachs and its affiliates on the other. Specifically, our Governance Committee and our Board reviewed and considered the following categories of transactions, which our Board has determined are immaterial under our Director Independence Policy. For more detail on certain of these transactions, see Certain Relationships and Related Transactions as well as Additional Details on Director Independence in Annex A.
– An executive officer, employee, trustee, board member or similar position of a not-for-profit organization – Burns, Dahlbäck, George (and family members), Johnson, Mittal (and family members), Ogunlesi (and a family member), Spar and Winkelman.
Charitable donations made in the ordinary course (including pursuant to our matching gift program) by the firm, The Goldman Sachs Foundation or the donor advised funds under our Goldman Sachs Gives program (GS Gives) to a not-for-profit organization where the director or immediate family member is an employee, trustee, board member or has a similar position – Burns, Flaherty, George (and a family member), Johnson, Mittal (and family members), Ogunlesi (and a family member), Oppenheimer, Spar and Winkelman.
Client relationships where the director or an immediate family member is our client (for example, brokerage, discretionary and other similar accounts) on substantially the same terms as similarly-situated clients – Burns (and a family member), George (and family members), Mittal (and family members), Ogunlesi (and a family member), Spar (and a family member), Tucker and Winkelman (and family members).
Fund investments by a director, on substantially the same terms as similarly-situated clients, in funds sponsored or managed by us – Burns, George, Mittal and Ogunlesi.
In addition to our formal Board and Committee evaluation process, during 2014 our Governance Committee, at the initiative of our Lead Director, conducted a comprehensive review of the Board's committee structure, under which historically all independent directors served on all standing Board committees.
– This structure was effective in providing our directors with a common knowledge base.
However, as our Board has grown in size and with the increase in the number of standing committees, our independent directors determined that a structural change would be in the best interests of our firm and our shareholders.
– The size of each of the Audit, Risk and Compensation Committees was reduced.
– Each independent director will generally serve on only three committees.
– Our Lead Director, who Chairs the Governance Committee, will be an ex-officio member of all other committees.
– We converted the Public Responsibilities Subcommittee into a standing Public Responsibilities Committee of the Board: a further acknowledgement of the important matters covered by this committee's mandate, including reputational risk oversight and ESG matters.
– All independent directors remain on the Governance Committee: permits collective focus of our independent directors on key governance practices such as board composition, CEO performance and executive succession planning.
Operates pursuant to a written charter (available on our website at www.gs.com/charters).
Audit All independent Peter Oppenheimer* Claes Dahlbäck Mark Flaherty Mark Tucker Mark Winkelman Adebayo Ogunlesi (ex-officio) Key Skills & Experiences Represented a Audit/Tax/Accounting a Preparation or oversight of financial statements a Compliance Key Responsibilities a Assist our Board in its oversight of our financial statements, legal and regulatory compliance, independent auditors' qualification, independence and performance, internal audit function performance and internal controls over financial reporting. a Decide whether to appoint, retain or terminate our independent auditors. a Pre-approve all audit, audit-related, tax and other services, if any, to be provided by the independent auditors. a Appoint and oversee the work of our Director of Internal Audit and annually assess her performance and administrative reporting line. a Prepare the Audit Committee Report. * A majority of the members of our Audit Committee, including the Chair, have been determined to be "audit committee financial experts". Compensation All independent James Johnson Michele Burns William George Lakshmi Mittal Debora Spar Adebayo Ogunlesi (ex-officio) Key Skills & Experiences Represented a Setting executive compensation a Evaluating executive and firmwide compensation programs a Human capital management Key Responsibilities a Determine and approve the compensation of our CEO and other executive officers. a Approve, or make recommendations to our Board for it to approve, our incentive, equity-based and other compensation plans. a Assist our Board in its oversight of the development, implementation and effectiveness of our policies and strategies relating to our human capital management, including: – recruiting; – retention; – career development and progression; – management succession (other than that within the purview of the Governance Committee); and – diversity and employment practices. a Prepare the Compensation Committee Report.
Governance All independent Adebayo Ogunlesi Michele Burns Claes Dahlbäck Mark Flaherty William George James Johnson Lakshmi Mittal Peter Oppenheimer Debora Spar Mark Tucker Mark Winkelman Key Skills & Experiences Represented a Corporate governance a Talent development and succession planning a Public company board service Key Responsibilities a Recommend individuals to our Board for nomination, election or appointment as members of our Board and its committees. a Oversee the evaluation of the performance of our Board and our CEO. a Review, and concur with, the succession plans for our CEO and other members of senior management. a Take a leadership role in shaping our corporate governance, including developing, recommending to the Board and reviewing on an ongoing basis the corporate governance principles and practices that apply to us. a Review periodically the form and amount of director compensation and make recommendations to the Board with respect thereto. Public Responsibilities All independent William George Claes Dahlbäck James Johnson Lakshmi Mittal Debora Spar Adebayo Ogunlesi (ex-officio) Key Skills & Experiences Represented a Government and regulatory affairs a ESG a Philanthropy Key Responsibilities a Assist our Board in its oversight of our reputation and our firm's relationships with major external constituencies. a Oversight of the development, implementation and effectiveness of our policies and strategies relating to citizenship, corporate engagement and relevant significant public policy issues. Risk Independent Michele Burns Mark Flaherty Peter Oppenheimer Mark Tucker Mark Winkelman Adebayo Ogunlesi (ex-officio) Non-independent David Viniar Key Skills & Experiences Represented a Understanding of how risk is undertaken, mitigated and controlled in complex industries a Technology a Understanding of financial products a Risk expertise Key Responsibilities a Assist our Board in its oversight of our firm's overall risk-taking tolerance and management of financial and operational risks, including market, credit and liquidity risk. a Review and discuss with management our firm's capital plan, regulatory capital ratios and internal capital adequacy assessment process and the effectiveness of our financial and operational risk management policies and controls.
As a result of its most recent board leadership review in December 2014, which included feedback from our shareholders, our Governance Committee determined that continuing to combine the roles of Chairman and CEO is the most effective leadership structure for our Board and our firm at this time. If at any time our Governance Committee concludes otherwise, it will not hesitate to appoint an independent Chairman.
– Our independent Lead Director has an expansive list of enumerated duties, including working with the Chairman to set the Board agenda, and is focused on shareholder engagement.
A combined Chairman-CEO structure provides our firm with a single leader who communicates the firm's business and strategy to our shareholders, clients, employees, regulators and the public.
– This structure demonstrates clear accountability to our shareholders, clients and others.
Our current structure provides for enhanced communication between the Board and management, and facilitates messaging from the Board to our people.
Our CEO has extensive knowledge of all aspects of our current business, operations and risks, which he brings to Board discussions as Chairman.
– Combining the roles at our firm has been effective in promulgating a strong and effective leader of the firm, particularly in times of economic challenge and regulatory change affecting our industry.
a Chairs Board meetings. a Chairs annual shareholder meeting. a Serves as the public face of our Board and our firm. a Works with Lead Director to set agenda for Board meetings (which the Lead Director also approves) and reviews schedule for Board meetings. a Guides discussions at Board meetings and encourages directors to voice their views. a Serves as a resource for our Board. a Communicates significant business developments and time-sensitive matters to the Board. a Establishes the "tone-at-the-top" in coordination with the Board, and embodies these values for our firm. a Responsible for managing the day-to-day business and affairs of our firm. a Sets and leads the implementation of corporate policy and strategy. a Interacts regularly with our COO, CFO and other senior leadership of our firm. a Manages senior leadership of our firm. a Meets frequently with clients and shareholders, providing an opportunity to understand and respond to concerns and feedback; communicates feedback to our Board. Powers and duties of our Independent Lead Director a Provides independent leadership. a Sets agenda for Board meetings, working with our Chairman (including adding items to and approving the agenda) and approves the related materials; approves the schedule for Board and committee meetings; sets agenda and approves materials for Governance Committee meetings; approves agenda for other committee meetings (along with our other independent committee chairs, who also approve the materials for these meetings). a Engages with our other independent directors to identify matters for discussion at executive sessions of independent directors. a Presides at executive sessions of independent directors. a Advises our Chairman of any decisions reached and suggestions made at the executive sessions, as appropriate. a Calls meetings of the independent directors. a Presides at any Board meeting at which the Chairman is not present. a Facilitates communication between the independent directors and our Chairman, including by presenting the Chairman's views, concerns and issues to the independent directors and raising to the Chairman, as appropriate, views, concerns and issues of the independent directors. a Engages with our Chairman between Board meetings and assists with informing or engaging non-employee directors, as appropriate. a Engages with each non-employee director individually regarding the performance and functioning of the Board and other matters as appropriate. a Oversees our Board's governance processes, including Board evaluations, succession planning and other governance-related matters. a Leads the annual CEO evaluation. a Meets directly with management and nonmanagement employees of our firm. a Consults and directly communicates with shareholders and other key constituents, as appropriate.
Our Governance Committee seeks to build and maintain an effective, well-rounded, financially literate and diverse Board that operates in an atmosphere of candor and collaboration.
In particular, the Committee has enhanced its focus on what skills are beneficial for service in key Board positions, such as Lead Director and Committee Chairs, and has undertaken a succession planning process for those positions.
The extent to which the interplay of the candidate's expertise, skills, knowledge and experience with that of other members of our Board will build a strong and effective board that is collegial and responsive to the needs of our firm.
Director education about our firm and our industry is an on-going, year-round process, which begins when a director joins our Board.
Upon joining our Board, new directors are provided with a comprehensive orientation about our firm, including our business, strategy and governance. For example, new directors typically meet with senior leaders covering each of our divisions and regions, and undergo in-depth training on the work of each of the Board committees (such as an Audit and Risk Committee orientation session with our CFO, Controller, Treasurer and Chief Risk Officer (CRO), as well as a session with the director of internal audit). Additional training is also provided when a director assumes a leadership role, such as becoming a committee chair.
We recognize the critical role that Board and committee evaluations play in ensuring the effective functioning of our Board. It is important to take stock of Board, committee and director performance and to solicit and act upon feedback received from each member of our Board. To this end, our Governance Committee is responsible for evaluating the performance of our Board annually, and each of our Board's committees also annually conducts a self-evaluation.
Our Board is responsible for, and committed to, the oversight of the business and affairs of our firm. In carrying out this responsibility, our Board advises our senior management to help drive success for our clients and long-term value creation for our shareholders. Our Board discusses and receives regular updates on a wide variety of matters affecting our firm.
¡ Our Board takes an active role in overseeing management's formulation and implementation of the firm's strategic plans.
– Receives presentations covering firmwide, divisional and regional strategy and discusses these matters throughout the year both during and outside of Board meetings.
¡ Our Board's focus on overseeing risk management enhances our directors' ability to provide insight and feedback to senior management, and, if necessary, to challenge management, on our firm's strategic direction.
¡ Our Lead Director helps facilitate our Board's oversight of strategy by ensuring that the directors receive adequate information about strategy and by discussing strategy with independent directors at executive sessions.
¡ Our Board is responsible for overseeing the risk management of our firm, which is carried out at the full Board as well as at each of its Committees, and in particular the Risk Committee.
¡ Under the direction of our Lead Director, our Governance Committee annually evaluates Mr. Blankfein's performance.
– The evaluation process includes an executive session of independent directors, a closed session with Mr. Blankfein, and additional discussion between our Lead Director and Mr. Blankfein.
¡ The Committee reviews the results of Mr. Blankfein's evaluation under our "360 degree" review process (360° Review Process) and also assesses Mr. Blankfein's performance both as CEO and as Chairman of the Board against the key criteria and responsibilities for these roles that were developed by the Governance Committee.
¡ Our Governance Committee has adopted a framework relating to executive succession planning, under which the Committee defines specific criteria for, and responsibilities of, each of the CEO, COO and CFO roles. The Committee then focuses on the particular skill set needed to succeed in each of these roles at our firm.
¡ Our Lead Director also meets on this topic separately with our CEO and facilitates additional discussions with our independent directors about succession planning throughout the year, including at executive sessions.
¡ Our Board, through its Audit Committee, is responsible for overseeing management's preparation and presentation of our annual and quarterly financial statements and the effectiveness of our internal control over financial reporting.
– Each quarter, our Audit Committee meets with members of our management, the Director of Internal Audit and our independent auditors to review and discuss our annual and quarterly financial statements as well as our quarterly earnings releases.
¡ In addition, our Audit Committee is directly responsible for overseeing the independence, performance and compensation of our independent auditors.
Each of our current directors attended over 75% (the threshold for disclosure under SEC rules) of the meetings of our Board and the committees on which he or she served during 2014 for the period he or she served as director. Overall attendance at Board and committee meetings during 2014 was over 97% for our current directors as a group.
We encourage our directors to attend our annual meetings. All of our current directors who were members of our Board at the time attended the 2014 Annual Meeting.
Engagement outside of Board meetings provides our directors with additional insight into our business and our industry, as well as valuable perspective on the performance of our firm, the Board, our CEO and other members of senior management.
Our individual directors have discussions with each other and with our CEO, members of our senior management team and other key employees, as well as with our regulators.
Our directors also receive weekly informational packages that include updates on recent developments, press coverage and current events that relate to our business.
Our Committee Chairs and Lead Director meet and speak regularly with each other and with members of our management in connection with planning for meetings.
– Among other things, each Chair, working with management, sets the agendas and reviews, provides feedback on and approves the draft materials for their respective committee meetings. The Lead Director also sets the Board agenda and reviews, provides feedback on and approves materials for meetings of the full Board, as well as the schedule of the Board and committee meetings.
Across our shareholder base, there are a wide variety of viewpoints about the corporate governance issues affecting our firm. We, including our Lead Director, meet and speak with our shareholders throughout the year.
The following table shows our Compensation Committee's determinations of the form and amount of 2014 annual compensation awarded to our NEOs (dollar amounts shown in millions) as well as applicable 2013 information for individuals who were NEOs in that year, and is different from the SEC required tables in 2014 Summary Compensation Table below. The LTIP awards granted to our NEOs (discussed on pages 7 and 51) are not part of annual compensation and are not included in this table because no amounts are earned until the end of the relevant performance period.
** This percentage reflects the RSUs paid to Mr. Sherwood as annual variable compensation, as well as the fixed allowance described above.
New for 2014 – Introduction of PSUs. Based on shareholder feedback, our Compensation Committee awarded PSUs to our CEO, COO and CFO, who have ultimate responsibility for firmwide performance and are uniquely positioned to drive our strategic plan. These metrics-based PSUs tie their compensation more closely to firm performance.
¡ PSUs represent one-half of the 2014 equity-based variable compensation granted to our CEO, COO and CFO.
¡ PSUs will pay out in cash between 0-150% of target based on our average "ROE" as calculated under the PSUs over 2015-2017.
¡ The Committee determined that a 50-50 split balances more traditional equity compensation tied to firm performance through stock price with metrics-based awards that use specific performance criteria.
¡ Payout thresholds were set by the Committee so that the PSUs will pay out at target if the firm performs at a level that is roughly equivalent to 2014. If these goals are not met, the PSUs will be reduced or even completely forfeited.
¡ The Committee chose ROE because it is an important indicator of the firm's operating performance.
¡ Average "ROE" is calculated using the same methodology that applies to our LTIP awards, meaning that it is based on our publicly reported ROE, subject to certain adjustments (see page 49).
– Individual performance, including each NEO's position and responsibilities (described on pages 40-42).
Based on factors including an analysis of peer company compensation, the Committee determined that 2013 compensation amounts were appropriate to use as a baseline for 2014 decisions.
Based on its assessments, the Committee determined that total 2014 compensation for each of our NEOs should be slightly increased (approximately 3-5%).
Continued commitment to our franchise businesses, with particularly strong performance in investment banking, where the firm led both the equity and M&A league tables in 20142 and in investment management.
U.S. Peers are BAC, C, JPM and MS.
The Committee reviewed our financial performance, focusing on EPS, BVPS and ROE, as well as our stock price performance, pre-tax earnings, net revenues, net earnings, compensation and benefits expense, non-compensation expense and ratio of compensation and benefits expense to net revenues. The Committee focused on EPS, BVPS and ROE as measures of our operating performance and ability to generate shareholder value in 2014. All metrics were considered on a year-over-year basis, as well as relative to our peers and in the context of the broader environment in which the firm operates.
*Figures reflect change vs. 2013.
CEO: Under the direction of our Lead Director, our Governance Committee evaluated the performance of our CEO, including a summary of his evaluation under the 360° Review Process. Our Compensation Committee considered this evaluation and also discussed our CEO's performance as part of its executive session to determine his compensation.
Other NEOs: Our CEO discussed the performance of our COO, including a summary of his evaluation under the 360° Review Process, with our Compensation Committee. Our CEO and COO reviewed the performance of our other NEOs, including summaries of their evaluations, with our Compensation Committee. In addition, our CEO submitted variable compensation recommendations to the Committee for our other NEOs, but did not make recommendations about his own compensation.
Key Responsibilities: Our Chairman and CEO is responsible for managing our business operations and overseeing our senior leaders. He leads the implementation of corporate policy and strategy and is the primary liaison between our Board and the management of our firm. In addition to his role as the leader of our organization and people, he also serves as the primary public face of our firm.
¡ Led the firm to its strong financial performance, particularly in light of replacement of lost revenue streams resulting from recent divestitures in response to regulatory considerations and a focus on expense discipline and capital management.
¡ Navigated a challenging operating environment, both in terms of its effect on the business of the firm's clients and impact of new regulatory requirements on the firm itself.
¡ Demonstrated ongoing leadership within both the financial services industry and the broader corporate community.
Key Responsibilities: Our President and COO is responsible for managing our day-to-day business operations and executing on firmwide priorities. He serves as a senior public face of our firm.
¡ Focused on maintaining strong client relationships, particularly in the hedge fund, asset management and technology sectors as well as growth markets.
¡ Demonstrated leadership and strong judgment in overseeing the firm's Business Selection and Conflicts Resolution group, which reviews and vets transactions and other opportunities involving multiple business lines and divisions.
¡ Guided the firm's Client and Business Standards Committee in its critical oversight of business standards and practices, reputational risk management and client service.
¡ Successfully led the firm's 2014 partner selection process in a manner that built firmwide consensus and emphasized diversity, among other important issues.
Key Responsibilities: Our CFO is responsible for managing the firm's overall financial condition, including appropriate consideration of risk management. He is also responsible for financial analysis and reporting, as well as our operations and technology functions. He is a primary liaison to our investors.
¡ Showed continued skill as a spokesperson for the firm with clients, investors, analysts, rating agencies, regulators and government officials.
¡ Played a leading role in the firm's continued efforts to improve its financial profile (e.g., reducing its balance sheet, increasing common equity and decreasing gross leverage).
¡ Demonstrated leadership with respect to the firm's regulatory interactions and processes.
Key Responsibilities: Our Chairman of Goldman Sachs Asia Pacific is responsible for the firm's business and activities in the Asia Pacific (APAC) region. He serves as an important public face for the firm, particularly in China.
¡ Focused on strengthening significant long-term client relationships and developing new business in the APAC region while remaining committed to risk management.
¡ Provided decisive, effective leadership for the firm in a key region of focus.
¡ Demonstrated a strong commercial impact in China.
Key Responsibilities: Our Co-CEO of Goldman Sachs International is responsible for the firm's business and activities in the Europe, Middle East and Africa (EMEA) region and growth markets. He is a key leadership presence and liaison with regulators, particularly in the U.K.
¡ Demonstrated strong leadership in connection with the firm's efforts in growth markets businesses, utilizing a highly practical approach to business opportunities.
¡ Served as Chairman of the firm's Partnership Committee from 2011-2014, helping to guide the recruitment, development, citizenship and performance of our partner and managing director communities.
¡ Committed to championing commercial ideas while maintaining a strong focus on reputational and financial risk management.
Our Compensation Committee continues to believe that discretion is a critical feature of the firm's executive compensation program. Our business is dynamic and requires us to respond rapidly to changes in our operating environment. The Committee does not believe there is a single metric, combination of metrics or formula that fully encapsulates our Compensation Principles.
Our Compensation Committee has made thoughtful enhancements to our compensation program over time, which has allowed us to ensure that our executive compensation program continues to be appropriately aligned with our overarching goal of enhancing shareholder value while promoting the safety and soundness of our firm.
Paying for Performance Encouraging Firmwide Orientation and Culture Firmwide compensation should directly relate to firmwide performance over the cycle. Employees should think and act like long-term shareholders, and compensation should reflect the performance of the firm as a whole. Discouraging Excessive Risk- Taking Attracting and Retaining Talent Compensation should be carefully designed to be consistent with the safety and soundness of our firm. Risk profiles must be taken into account in annual performance reviews, and factors like liquidity risk and cost of capital should also be considered. Compensation should reward an individual's ability to identify and create value, but the recognition of individual performance should not be out of line with the competitive market for talent.
– The results of our say on pay votes.
The Committee believes that the results of recent say on pay votes indicate that our shareholders generally support the Committee's emphasis on prudent use of discretion in making compensation decisions.
As a result, the Committee has focused on being responsive in addressing key points of focus raised by our shareholders while still adhering to our overall executive compensation framework (see page 5).
Effective risk management underpins everything that we do, and compensation is carefully designed to be consistent with the safety and soundness of our firm.
Our CRO presents his risk assessment annually to our Compensation Committee and our Risk Committee jointly in order to assist them with this goal.
– This assessment is focused on whether our program is consistent with regulatory guidance requiring that financial services firms ensure that variable compensation does not encourage imprudent risk-taking.
– Our CRO's view was that the various components of our compensation programs and policies work together to balance risk and reward in a manner that does not encourage imprudent risk-taking.
Our CRO also reviewed the new enhancements to our executive compensation structure described elsewhere in this CD&A, concluding that these new elements also are appropriate from a risk perspective.
Our Compensation Committee reviews the competitive market for talent as part of its review of our compensation program's effectiveness in attracting and retaining talent, as well as in order to help determine our NEOs' compensation.
– Our goal is always to be in a position to appoint our most senior leaders from within our firm, and our executive compensation program is intended to incentivize our people to stay at our firm and aspire to these senior roles.
The Committee receives information and assistance from our Global Head of Human Capital Management (HCM) and members of her team, including information related to plan design and compensation levels for named executive officers, which is used as part of its compensation determination process.
Our Compensation Committee also considers regulatory matters and the views of our regulators when determining our NEOs' compensation. Throughout 2014, our senior management briefed the Committee on relevant regulatory developments.
Our Compensation Committee recognizes the importance of using an independent compensation consultant that is appropriately qualified and that provides services solely to our Committee and not to our firm. Accordingly, the Committee again retained Semler Brossy as its independent compensation consultant in 2014.
– Utilizes policies and procedures, including subjective determinations, that facilitate the firm's approach to risk-taking and risk management by supporting the mitigation of known and perceived risks.
In addition to providing its assessment of our compensation program for PMDs, Semler Brossy also participated in the discussion of our CRO Risk Assessment presentation and reviewed the information provided to the Committee by our Finance Division, our HCM Division and Towers Watson.
The following chart summarizes the compensation elements that comprised our CEO's, COO's and CFO's 2014 annual compensation. Additional information regarding these and other compensation elements, as well as our LTIP, is provided below.
Fixed compensation provides our NEOs with a predictable level of income that is competitive with peers.
We made no changes to NEO base salaries, and our Compensation Committee believes that these salary levels are competitive in the market for talent.
New requirements of the European Union's Fourth Capital Requirements Directive (CRDIV) impact the amount of variable compensation that is permitted to be granted to certain U.K. employees. In order to deliver the appropriate balance of fixed and variable components of pay and comply with CRDIV, in January 2014 the Committee established a fixed allowance of $9.15 million for Mr. Sherwood, which was paid entirely in the form of equity-based awards, in addition to his base salary.
– Thirty percent of Mr. Sherwood's fixed allowance was paid in RSUs that delivered into immediately transferrable shares of Common Stock in January 2015, and the remaining 70% was paid in RSUs that will deliver into Shares at Risk in three approximately equal installments in each of 2016, 2017 and 2018. Substantially all of these Shares at Risk will be restricted until January 2020.
– For 2015, our Compensation Committee determined to increase Mr. Sherwood's fixed allowance to $11.15 million, which is currently expected to be paid entirely in the form of equity-based awards.
Variable compensation provides our NEOs with the opportunity to realize cash and equity-based incentives that are aligned with firmwide and individual performance. Amounts were determined based on our Compensation Committee's assessment of firmwide and individual performance, among other factors.
– Treatment of RSUs and short-term RSUs upon a termination of employment or change-in-control, which is described more fully in Executive Compensation—Potential Payments Upon Termination or Change-in-Control on pages 63-65.
¡ Terms of the PSUs are not affected by a future termination of employment or change-in-control.
* With respect to the RSUs, PSUs, and short-term RSUs awarded for 2014 year-end annual compensation, the amount of units awarded was determined in each case by dividing the dollar value of the applicable component of each NEO's variable compensation by the closing price of our Common Stock on the grant date ($175.63 on January 20, 2015).
In January 2015, our Compensation Committee also granted to each NEO a long-term incentive compensation award. The Committee considered the roles and responsibilities of each individual, including his ability to impact future firm performance, in determining the following initial notional values: Mr. Blankfein – $7.0 million; Mr. Cohn – $6.7 million; Mr. Harvey Schwartz – $6.7 million; Mr. Mark Schwartz – $4.0 million; and Mr. Sherwood – $6.7 million.
Our Compensation Committee believes that our LTIP awards help to further tie our NEOs' pay outcomes to long-term growth in the value of our firm. Because LTIP awards have longer-term performance periods with aspirational payout thresholds directly linked to future performance in certain key metrics, the Committee considers them separately from annual compensation.
Our NEOs do not earn any amounts under LTIP awards until the end of the performance period.
Consistent with prior LTIP awards, any amounts earned under the 2015 LTIP awards will be based on certain firmwide performance metrics and will be paid in cash. Our Compensation Committee also determined that it was appropriate to eliminate its discretion to adjust the payout at the end of the performance period based on individual performance; clawback/forfeiture provisions continue to apply.
– Step 1: Our Compensation Committee determines the LTIP award's initial notional value based on the grantee's roles and responsibilities and ability to impact future performance, as well as other factors such as an analysis of peer company compensation.
– Step 2: On an annual basis, the LTIP award's notional value increases/decreases by the year's annual "ROE," as calculated under the LTIP (the Annual "ROE" Adjustment), subject to a 12% cap.
– Step 3: At the end of the performance period, the final balance of the LTIP award is adjusted based on average "ROE" and average change in BVPS over the entire performance period (the Average "ROE"/BVPS Adjustment), subject to a cap of 150% of the amount determined following Step 2.
Additional detail regarding the calculations applicable in Steps 2 and 3, including defined terms, can be found below under —Additional Details Regarding LTIP Calculations.
New for 2015 – Modifications to LTIP. Based on shareholder feedback, our Compensation Committee made several important modifications to our 2015 awards: a The Committee determined that it was appropriate to eliminate its discretion to adjust the payouts at the end of the performance period based on individual performance (clawback/forfeiture provisions continue to apply); and a The Committee set an upfront expectation that new awards will have an eight-year performance period. These changes also apply to many of our prior LTIP awards, as described in more detail below.
The LTIP awards are forward-looking cash awards; payout is based on average "ROE" and average change in BVPS over the performance period.
– ROE and BVPS continue to be important indicators of our operating performance and our ability to generate shareholder value.
– The thresholds for these metrics continue to be appropriate based on our Compensation Committee's review of our historical data and the macroeconomic environment.
The awards will have a 0% payout if performance is below minimum thresholds.
Given that the LTIP awards are intended to be longer-term, their thresholds are designed to be more aspirational than the thresholds used for the PSUs, without incentivizing undue risk-taking.
No amounts are earned based on performance in one year; negative performance would offset positive performance during the performance period.
The awards are expected to have an eight-year performance period (i.e., January 1, 2015 through December 31, 2022), except in limited circumstances.
– An eight-year performance period is an appropriate period of time during which to assess management's performance over the long-term and accounts for the cyclical nature of our business and the broader macroenvironment in which we operate.
– Our Compensation Committee retains the flexibility to determine prior to the end of 2016 if, due to unforeseen circumstances, a three-year performance period would be more appropriate for a particular 2015 LTIP award (for example, due to a change in applicable regulatory guidance regarding incentive compensation).
– Payout would occur in the month immediately following the end of the performance period (generally January 2023).
The LTIP awards are subject to our clawback policy (see pages 54-55).
– Our Compensation Committee has the ability to recapture any payment under a 2015 LTIP award that is made based on materially inaccurate financial statements or performance criteria.
– The 2015 LTIP awards are also subject to the same clawback provisions as the 2014 year-end equity awards and underlying Shares at Risk for the entire performance period.
– Additionally, in the event an NEO's employment terminates within the first six months of the performance period, the Committee will have the ability to reduce the award payout to $0 based on an evaluation of certain factors it deems appropriate.
Our Compensation Committee does not have discretion to adjust the final award value of the 2015 LTIP awards based on individual performance; clawback/forfeiture provisions continue to apply. The Committee also determined that it was appropriate to eliminate its discretion to adjust the ultimate payout of any of the LTIP awards granted in February 2012, January 2013 and February 2014 based on individual performance.
In December 2014, our Compensation Committee extended the performance period of the 2013 LTIP awards from December 2015 to December 2020 for each of our NEOs who received a 2013 LTIP award (Messrs. Blankfein, Cohn, Mark Schwartz and Sherwood).
– Our Compensation Committee decided to make this extension to align with its intention that all LTIP awards would have an eight-year performance period.
In connection with this extension, our Compensation Committee also determined to apply the terms of the 2015 LTIP awards to the extension period of the 2013 LTIP awards. In addition to the elimination of discretion discussed above, the key differences now applicable to the extension period are (1) the Annual "ROE" Adjustment is now subject to an annual cap of 12% and (2) with respect to the Average "ROE"/BVPS Adjustment, the threshold required for 100% payout under the average "ROE" metric is now increased to 12% from 10%.
– The original terms of the 2013 LTIP awards will still apply to the initial three-year period, and the Average "ROE"/BVPS Adjustment (using the original thresholds applicable to the award) will occur at the end of that three-year period based solely on our firm's performance for that period.
– The resulting value will serve as a starting point for the notional value of the award during the extension period. During that extension period, the 12% cap will apply to the Annual "ROE" Adjustment, and at the end of the extension period the Average "ROE"/BVPS Adjustment (using the increased average "ROE" threshold) will be applied based solely on our firm's performance for the extension period.
– Additionally, the maximum potential payout for each of these 2013 LTIP awards is limited to 150% of the award's initial notional value, as adjusted by the Annual "ROE" Adjustment over the eight-year period.
New for 2015 – Adopted Stock Ownership Guidelines. Based on shareholder feedback, our Board adopted stock ownership guidelines for all of our SEOs that supplement our existing retention requirements and transfer restrictions.
– Each of our other SEOs (including our other NEOs) must retain beneficial ownership of a number of shares of Common Stock equal to 6x his base salary for so long as he remains an SEO.
– Additional transition rules would apply in the event that an individual becomes newly appointed to a Senior Executive position.
Each SEO currently meets these new Stock Ownership Guidelines.
Separate from the Stock Ownership Guidelines, our Shareholders' Agreement continues to impose retention requirements for each of our SEOs with respect to shares of Common Stock received in respect of equity awards (although short-term RSUs are not subject to the retention requirements).
– Our CEO is required, for so long as he holds that position, to retain (including, in certain cases, ownership through his spouse or estate planning entities established by him) at least 75% of the shares of Common Stock received (net of payment of any option exercise price and withholding taxes) as compensation (After-Tax Shares) since becoming an SEO.
Similarly, each of our other SEOs is required, for so long as he holds that position, to retain at least 50% of After-Tax Shares received beginning in January 2015, and 75% of After-Tax Shares received as an SEO prior to January 2015.
In connection with adopting the Stock Ownership Guidelines, the Committee felt it appropriate to reassess our existing retention requirement policies for our SEOs, and ratified a reduction going forward of the retention requirement under the Shareholders' Agreement for our SEOs (other than our CEO) to 50% of After-Tax Shares.
New for 2015 – Formalized Clawback Policy. Based on shareholder feedback, our Compensation Committee formalized and expanded our longstanding clawback practices in a comprehensive, standalone document that covers equity-based awards (PSUs and RSUs), underlying Shares at Risk, cash variable compensation and LTIP awards, as applicable.
Our Compensation Committee approved the formalized clawback policy in January 2015. The policy applies to all of our SEOs and permits recovery of awards in certain circumstances.
The clawback policy also expands the Sarbanes-Oxley Clawback provisions to apply to variable compensation (whether cash- or equity-based) paid to any of our SEOs (even though the Sarbanes-Oxley Act provision applies only to our CEO and CFO).
As in prior years, 2014 year-end RSUs and PSUs and underlying Shares at Risk are subject to forfeiture or recapture by us in certain cases, even after the transfer restrictions lapse.
– If we determine that Shares at Risk may be recaptured after delivery, we can require the return of those shares to us or the repayment to us of the fair market value of the shares (including those withheld to pay withholding taxes) and any other amounts paid or delivered in respect thereof.
– The NEO becomes associated with any business enterprise that competes with any portion of our business (generally applicable to PSUs and RSUs prior to settlement).
– A failure of supervision (i.e., a forfeiture resulting from the serious misconduct of an employee over which Mr. Sherwood has supervisory responsibility, where the forfeiture relates to compliance, control or risk) that occurred during 2014.
Our NEOs are prohibited from hedging any shares of our Common Stock, even shares they can freely sell, as long as they remain executive officers. In addition, our NEOs and all other employees are prohibited from hedging their equity-based awards. Our employees, other than our executive officers, may hedge only shares of our Common Stock that they can otherwise sell. However, they may not enter into uncovered hedging transactions and may not "short" shares of our Common Stock. Employees also may not act on investment decisions with respect to our Common Stock except during applicable "window periods." None of our executive officers has any shares of Common Stock subject to a pledge.
During 2014, each of our NEOs (other than Mr. Sherwood) participated in The Goldman Sachs 401(k) Plan (401(k) Plan), which is our U.S. broad-based tax-qualified retirement plan. In 2014 these individuals were eligible to make pre-tax, and/or "Roth" after-tax, contributions to our 401(k) Plan and receive a dollar-for-dollar matching contribution from us on the amount they contribute, up to a maximum of $10,400. For 2014 these individuals each received a matching contribution of $10,400.
Our NEOs received in 2014 certain benefits that are considered "perquisites" for purposes of the SEC rules regarding compensation disclosure. While our Compensation Committee was provided with the estimated value of these items, it determined, as in prior years, not to give these amounts significant consideration in determining our NEOs' 2014 variable compensation.
During 2014, we made available to each of these individuals a car and driver and, in some cases, other services for security and/or business purposes. Car and driver services were contracted through a third party for our NEOs based outside the U.S. (Messrs. Mark Schwartz and Sherwood; there was no incremental cost to the firm for making this service available to Mr. Sherwood). We also offered our NEOs benefits and tax counseling services, generally provided or arranged by our subsidiary, The Ayco Company, L.P., to assist them with tax and regulatory compliance and to provide them with more time to focus on the needs of our business. Additionally, at our request, Mr. Mark Schwartz previously relocated to our Beijing office, and received international assignment-related benefits and tax equalization-related payments in connection with that arrangement.
Our PMDs, including our NEOs, participate in our executive medical and dental program and receive executive life insurance while they remain PMDs. Our PMDs, including our NEOs, also receive long-term disability insurance coverage. Our NEOs are also eligible for a retiree health care program and receive certain other perquisites, some of which have no incremental cost to us. See "All Other Compensation" and footnote (b) in —Executive Compensation—2014 Summary Compensation Table.
Under current law, our U.S. federal corporate tax deduction for compensation paid to certain of our NEOs is limited to $1 million of non-performance-based compensation. Our NEOs' variable compensation for 2014, including equity-based awards, is determined under the RPCP, which is our shareholder-approved plan under which we pay variable compensation to members of our Management Committee, including our NEOs. The RPCP provides for a maximum amount of variable compensation determined pursuant to a formula contained in the RPCP, with the Compensation Committee retaining the discretion to pay less than the formula amount. Amounts awarded pursuant to the RPCP are intended to constitute qualified performance-based compensation under Section 162(m) of the Internal Revenue Code (which does not count against the $1 million deduction limit). However, we may decide to pay non-deductible variable compensation. In addition, because salaries are not considered performance-based compensation under Section 162(m), salaries paid to our NEOs in excess of $1 million are not fully tax deductible by us.
We established our GS Gives program to coordinate, facilitate and encourage global philanthropy by our PMDs. Since 2009, we have reduced the amount of compensation available to pay our PMDs in connection with GS Gives. We ask our PMDs to provide us with recommendations of not-for-profit organizations that should receive donations from these contributions. These recommendations help to ensure that GS Gives invests in a diverse group of charities that improve the lives of people in communities where we work and live. GS Gives focuses on underserved communities, and we encourage our PMDs to make recommendations of grants to organizations consistent with one of four thematic pillars: building and stabilizing communities; increasing educational opportunities; creating jobs and economic growth; and honoring service and veterans.
This year, we reduced the 2014 variable compensation available for our PMDs, including our NEOs, by approximately $157 million in the aggregate in connection with GS Gives.
The following tables include compensation information for our NEOs for the last three years. For a discussion of 2014 NEO compensation, please read —Compensation Discussion and Analysis above.
The 2014 Summary Compensation Table below sets forth compensation information relating to 2014, 2013 and 2012. Pursuant to SEC rules, compensation information for Messrs. Harvey Schwartz, Mark Schwartz and Sherwood is only reported beginning with the year that each executive became a named executive officer (2013 for Mr. Harvey Schwartz and 2014 for Messrs. Mark Schwartz and Sherwood).
Pursuant to SEC rules, the 2014 Summary Compensation Table is required to include for a particular year only those equity-based awards granted during that year, rather than awards granted after year-end, even if awarded for services in that year. SEC rules require disclosure of cash variable compensation to be included in the year earned, even if payment is made after year-end.
Amounts included for 2014 represent the grant date fair value of RSUs, including short-term RSUs, granted in January 2014 for services in 2013 (2013 Year-End RSUs), in accordance with the Financial Accounting Standards Board's Accounting Standards Codification 718 Compensation—Stock Compensation (ASC 718). Grant date fair value for 2013 Year-End RSUs is determined by multiplying the aggregate number of RSUs by $166.25, the closing price per share of Common Stock on the NYSE on January 28, 2014, the grant date, and, other than with respect to short-term 2013 Year-End RSUs granted to Mr. Sherwood as a result of applicable regulatory guidance in the U.K., includes a 15% liquidity discount to reflect the transfer restrictions on the Common Stock underlying the 2013 Year-End RSUs. Amounts included for 2013 represent the grant date fair value of RSUs granted in January 2013 for services in 2012 (2012 Year-End RSUs), in accordance with ASC 718. Grant date fair value for 2012 Year-End RSUs is determined by multiplying the aggregate number of RSUs by $141.01, the closing price per share of Common Stock on the NYSE on January 17, 2013, the grant date, and includes a 15% liquidity discount to reflect the transfer restrictions on the Common Stock underlying the 2012 Year-End RSUs. Amounts included for 2012 represent the grant date fair value of RSUs granted in February 2012 for services in 2011 (2011 Year-End RSUs), in accordance with ASC 718. Grant date fair value for 2011 Year-End RSUs is determined by multiplying the aggregate number of RSUs by $113.45, the closing price per share of Common Stock on the NYSE on February 1, 2012, the grant date, and includes an approximately 25% liquidity discount to reflect the transfer restrictions on the Common Stock underlying the 2011 Year-End RSUs.
The charts and narrative below describe the benefits and perquisites for 2014 contained in the "All Other Compensation" column above.
** Amounts reflect the incremental cost to us attributable to commuting and other non-business use. We made available to each of our NEOs in 2014 a car and driver for security and business purposes. Car and driver services were contracted through a third party for our NEOs based outside the U.S. (Messrs. Mark Schwartz and Sherwood; there was no incremental cost to the firm for making this service available to Mr. Sherwood). The cost of providing a car is determined on an annual basis and includes, as applicable, driver compensation, annual car lease, car rental or car service fees and insurance cost as well as miscellaneous expenses (for example, fuel and car maintenance).
*** Certain of the amounts for Mr. Mark Schwartz have been converted from Chinese Yuan into U.S. Dollars at a rate of 6.1602 Yuan per Dollar, which was the average daily rate in 2014.
**** Amounts for Mr. Sherwood have been converted from British Pounds Sterling into U.S. Dollars at a rate of 1.6455 Dollars per Pound, which was the average daily rate in 2014.
Also included in the "All Other Compensation" column are amounts reflecting the incremental cost to us of providing our identity theft safeguards program for U.S. PMDs, assistance with certain travel arrangements, in-office meals and security services. We provide security (the incremental cost of which was $92,073 for Mr. Blankfein) for the benefit of our firm and our shareholders. We do not consider these security measures to be personal benefits but rather business-related necessities due to the high-profile standing of our NEOs.
Mr. Mark Schwartz previously relocated to our Beijing office at our request and, for 2014, received international assignment-related benefits of $1,000,000 and tax equalization-related payments of $6,300,000. These amounts were paid after year-end on a discretionary basis under the RPCP. The international assignment-related benefits were consistent with our Global Mobility Services program applicable to expatriate employees, and the tax equalization-related payments are intended to place Mr. Schwartz in a similar net tax position as a similarly compensated employee in the United States.
For Mr. Sherwood, the amount in the "All Other Compensation" column also includes $27,027, which was the amount paid to him in lieu of his participation in the firm's U.K. retirement plan.
The awards included in this table are 2013 Year-End RSUs granted in January 2014 and LTIP awards granted in February 2014.
The following table sets forth plan-based awards granted in early 2014. In accordance with SEC rules, the table does not include awards that were granted in 2015. See —Compensation Discussion and Analysis above for a discussion of those awards.
Consists of cash awards made under our LTIP that are earned based on firmwide performance metrics. The initial performance period is three years beginning with 2014, although our Compensation Committee will make determinations at the end of 2015 regarding the extension of the period for another five years through the end of 2021. As discussed in the context of our 2015 LTIP awards, the Committee has an expectation that LTIP awards will have an eight-year performance period. The initial notional value of these awards will be adjusted upward or downward by an amount equal to our annual "ROE" (as calculated under the LTIP) for each year of the performance period, subject to an annual 12% cap. At the end of the performance period, we calculate our average "ROE" and average change in BVPS over the entire performance period. The adjusted notional value as of the end of the performance period based on annual "ROE" is then further adjusted based 50% on average "ROE" and 50% on average change in BVPS. Please see —Compensation Discussion and Analysis—Long-Term Performance Incentive Plan in our Proxy Statement for our 2014 Annual Meeting of Shareholders, dated April 4, 2014, for additional details on these LTIP awards, including further detail regarding the relevant calculations described above.
Consists of 2013 Year-End RSUs. See —2014 Non-Qualified Deferred Compensation and —Potential Payments Upon Termination or Change-in-Control below for additional information on the 2013 Year-End RSUs.
Amounts included represent the grant date fair value in accordance with ASC 718. Grant date fair value was determined by multiplying the aggregate number of RSUs by $166.25, the closing price per share of our Common Stock on the NYSE on the grant date, and, other than with respect to short-term 2013 Year-End RSUs granted to Mr. Sherwood as a result of applicable regulatory guidance in the U.K., includes a liquidity discount of 15% to reflect the transfer restrictions on the Common Stock underlying the 2013 Year-End RSUs.
This potential maximum value is calculated based on an eight-year performance period through the end of 2021.
No stock options (Options) have been granted to our NEOs since December 2008.
The following table sets forth outstanding unexercised Options as of December 31, 2014, all of which were vested. Mr. Mark Schwartz does not hold any awards reportable in this table.
The following table sets forth information with respect to our NEOs regarding option exercises in 2014, as well as the value of the 2013 Year-End RSUs granted in January 2014.
Values were determined by multiplying the number of shares of our Common Stock underlying the Options by the difference between the closing price per share of our Common Stock on the NYSE on the date of exercise and the exercise price of the Options.
Includes shares of Common Stock underlying 2013 Year-End RSUs, which were vested upon grant. One-third of these shares were delivered in January 2015, and one-third are deliverable on or about each of the second and third anniversaries of the grant date. For Mr. Sherwood, approximately 30% of his 2013 Year-End RSUs were short-term RSUs delivered in July 2014, with the remainder being delivered in approximately equal installments on the schedule described in the prior sentence. Substantially all of the shares of Common Stock underlying the 2013 Year-End RSUs that are delivered to our NEOs (other than with respect to the short-term RSUs granted to Mr. Sherwood) are subject to transfer restrictions until January 2019.
Values were determined by multiplying the aggregate number of RSUs by $166.25, the closing price per share of our Common Stock on the NYSE on January 28, 2014, the grant date. In accordance with SEC rules the —2014 Summary Compensation Table and —2014 Grants of Plan-Based Awards sections above include the grant date fair value of the 2013 Year-End RSUs calculated in accordance with ASC 718.
The following table sets forth pension benefit information as of December 31, 2014. The Goldman Sachs Employees' Pension Plan (GS Pension Plan) was frozen November 27, 2004, and none of our NEOs has accrued additional benefits thereunder since November 27, 1998 (at the latest). Mr. Sherwood has not accrued benefits under the GS U.K. Pension Plan since March 31, 2006.
Our employees, including each NEO, were credited for service for each year employed by us while eligible to participate in our GS Pension Plan or GS U.K. Pension Plan (as applicable).
Represents the present value of the entire accumulated benefit and not the annual payment an NEO would receive once his benefits commence. Prior to being frozen, our GS Pension Plan provided an annual benefit equal to between 1% and 2% of the first $75,000 of the participant's compensation for each year of credited service under our GS Pension Plan. The normal form of payment is a single life annuity for single participants and an actuarially equivalent 50% joint and survivor annuity for married participants. The present values shown in this column were determined using the following assumptions: payment of a single life annuity following retirement at normal retirement age (age 65); a 4.20% discount rate; and mortality estimates based on the RP-2014 white collar fully generational mortality table, with adjustments to reflect continued improvements in mortality. Our GS Pension Plan provides for early retirement benefits in some cases, and all of our participating NEOs are eligible to elect early retirement benefits at any time prior to normal retirement age.
The GS U.K. Pension Plan currently provides for an annual benefit equal to 1.25% of the first £81,000 of the participant's compensation for each year of credited service. Mr. Sherwood ceased participation in April 2006. The normal form of payment is a single life annuity plus a contingent spouse's annuity equal to two-thirds of the member's pension. The present value shown in this column reflects Mr. Sherwood's accrued benefits with an annual cost of living adjustment that is applied pursuant to the terms of the GS U.K. Pension Plan and was determined using the following assumptions: payment of a joint life annuity following retirement at normal retirement age 60; a 3.8% discount rate; and mortality estimates based on the S1 Light series fully generational mortality table, with adjustments to reflect continued improvements in mortality. The GS U.K. Pension Plan provides for early retirement benefits and Mr. Sherwood will be eligible to elect early retirement benefits upon reaching age 55.
For a description of our 401(k) Plan, our tax-qualified defined contribution plan, see page 55 above.
The following table sets forth information for each NEO, as applicable, with respect to (i) vested RSUs granted for services in prior years and for which the underlying shares of Common Stock had not yet been delivered as of the beginning of 2014 (Vested and Undelivered RSUs) and (ii) our Non-Qualified Deferred Compensation Plan (NQDC Plan), which was closed to new participants and deferrals in December 2008.
Vested and Undelivered RSUs. The Vested and Undelivered RSUs generally were awarded for services in 2013, 2012, 2011 and 2010. RSUs generally are not transferable.
Amounts shown as "Aggregate Withdrawals/Distributions" reflect the value of shares of Common Stock underlying RSUs that were delivered, as well as dividend equivalents paid, during 2014.
NQDC Plan to each of our participating NEOs will be made in lump-sum cash payments and will commence no earlier than 2016. These individuals are not subject to U.S. federal income tax on amounts that they deferred or on any "notional investment" earnings until those amounts are distributed to them, and we do not take a tax deduction on these amounts until they are distributed.
Values were determined by multiplying the aggregate number of RSUs by $166.25, the closing price per share of our Common Stock on the NYSE on January 28, 2014, the grant date. In accordance with SEC rules, the —2014 Summary Compensation Table and —2014 Grants of Plan-Based Awards sections include the grant date fair value of the 2013 Year-End RSUs calculated in accordance with ASC 718.
One-third delivered in January 2015; one-third deliverable on or about the second and third anniversaries of grant.
being delivered in approximately equal installments on the same general schedule described in the prior sentence.
One-third delivered in each of January 2014 and January 2015; one-third deliverable on or about the third anniversary of grant. For Mr. Sherwood, approximately 33% of his 2012 Year-End RSUs were delivered in July 2013, with the remainder being delivered in approximately equal installments on the same general schedule described in the prior sentence.
One-third delivered in each of December 2012, January 2014 and January 2015. For Mr. Sherwood, approximately 37% of his 2011 Year-End RSUs were delivered in August 2012, with the remainder being delivered in approximately equal installments on the same general schedule described in the prior sentence.
One-third delivered in each of January 2012, December 2012 and January 2014. For Mr. Sherwood, approximately 25% of his 2010 Year-End RSUs were delivered in July 2011, with the remainder being delivered in approximately equal installments on the same general schedule described in the prior sentence.
Delivery of shares of Common Stock underlying RSUs may be accelerated in certain limited circumstances (for example, in the event that the holder of the RSU dies or leaves us to accept a governmental position where retention of the RSU would create a conflict of interest). See —Potential Payments Upon Termination or Change-in-Control for treatment of the RSUs upon termination of employment.
With respect to our NQDC Plan, NEO account balances under our NQDC Plan were adjusted to reflect gains (or losses) based on the performance of certain "notional investments" (selected by each participant from various hedge funds and mutual funds available under the plan in 2014) to the same extent as if the participant had actually invested in those funds.
named executive officer in the applicable year of grant). Values for RSUs were determined by multiplying the number of RSUs by $193.83, the closing price per share of our Common Stock on the NYSE on December 31, 2014.
This amount also reflects a deferral of compensation of $1,000,000 previously reported as bonus in the fiscal 2005 Summary Compensation Table for Mr. Blankfein.
This amount also reflects a deferral of compensation of $1,000,000 previously reported as bonus in the fiscal 2006 Summary Compensation Table for Messrs. Blankfein and Cohn.
This amount also reflects a deferral of compensation of $1,000,000 previously reported as bonus in the fiscal 2007 Summary Compensation Table for Mr. Cohn.
Our NEOs do not have employment agreements that provide for severance or "golden parachute" payments.
Our RPCP, The Goldman Sachs Amended and Restated Stock Incentive Plan (2013) and its predecessor plans, and our retiree health care program may provide for potential payments to our NEOs in conjunction with a termination of employment. The amounts potentially payable to our NEOs under our pension plans, vested RSUs and our NQDC Plan are set forth under —2014 Pension Benefits and —2014 Non-Qualified Deferred Compensation sections above. The terms of the outstanding LTIP awards are not affected by a future termination of employment or change-in-control, except that following a change-in-control our Compensation Committee may not amend the terms of the awards with respect to an NEO without the NEO's consent.
Each of our NEOs participated in our RPCP in 2014. Under our RPCP, if a participant's employment at Goldman Sachs terminates for any reason before the end of a "contract period" (generally a one-year period as defined in the RPCP), our Compensation Committee has the discretion to determine what, if any, variable compensation will be provided to the participant for services provided in that year, subject to the formula in the RPCP. There is no severance provided under our RPCP.
Set forth below is a calculation of the potential benefits to each of our NEOs assuming a termination of employment occurred on December 31, 2014, in accordance with SEC rules. The narrative disclosure that follows the table provides important information and definitions regarding specific payment terms and conditions.