A nun, a priest, and a rabbi walk into a boardroom…

Posted by Marc Hodak on May 6, 2011 under Executive compensation, Governance | Be the First to Comment

Well, not a rabbi, really, but the CEO of a Jewish organization, along with the others “will be there to press Goldman Sachs Group Inc. to evaluate whether it’s paying executives too much.”

“When we see CEOs earning over 300 times more than the typical worker, it raises serious questions for shareholders on whether they are really (that) valuable,” says Sister Nash, who has been a nun for 50 years.

I personally have no doubt that Goldman’s executives are paid way too much.  I have somehow found a way to be reasonably happy and secure with my relatively paltry income, so why do they need so much?  I can only imagine how it must look to nuns, who have taken a vow of poverty.

But that, of course is my personal, not my professional, opinion.  I can’t render a professional opinion on Goldman’s pay because I don’t know what information the board had about:

a)  Agreements, explicit or implicit, that had been reached between these executives and their (quite independent) compensation committee

b)  The likelihood of losing key executives to hedge funds, where they could each make multiples of what the top five made together

c)  The impact on the company’s returns if one or more of these people left

The latter gets to the heart of how valuable these executives are relative to the “typical” worker.

Goldman has a market cap of about $82 billion.  Its shareholders understand that the firm recently survived a financial tsunami, is now dealing with the radioactive Frank-Dodd aftermath in the midst of market and regulatory shifts that are transforming the global financial industry.  The “typical worker” is not going to have much impact on how Goldman Sachs strategically and organizationally responds and adapts to these changes for the benefit of the shareholders.  So, the relevant question is this:  Is it possible that the difference in outcomes between what this management might achieve versus the next best management team that the board might lure could be something in the range of $69 million?

If the Sisters of Saint Francis asked God, “would losing your dear, unconverted son, Lloyd, in favor of his next best make a two hundredth of one percent difference in the GS stock price?” and the Lord replied, “Yea, my children, losing Lloyd would make 10 times, nay 15 times, that difference,” would they then go back to the board and insist that they increase management’s pay?  Would they do that for the sake of the shareholders?