February 5, 2019

Quasi-Clawback: Goldman Discloses Rare Possible Forfeiture Due to Investigation

Here’s something I blogged yesterday on After market close on Friday, Goldman Sachs announced via an Item 8.01 8-K that in light of the ongoing 1MDB investigation, its compensation committee might reduce bonuses to current – and former – senior executives. The board is wise to leave themselves some room, since they’ll likely face shareholder scrutiny for the alleged fraud and all of its fallout. For last year’s annual equity awards, the board added a new forfeiture provision. The 8-K doesn’t go into detail about what types of harm – e.g. strictly financial v. reputational – would result in forfeiture, but simply says:

This provision will provide the Committee with the flexibility to reduce the size of the award prior to payment and/or forfeit the underlying transfer-restricted shares (which transfer restrictions release approximately five years after the grant date) if it is later determined that the results of the 1MDB proceedings would have impacted the Committee’s 2018 year-end compensation decisions for any of these individuals.

For former executives, Goldman’s comp committee decided to defer determinations about LTIP awards that otherwise would’ve paid out in January, since the 1MDB investigation relates to events that occurred during the performance period. This WSJ article reports that the forfeiture wouldn’t apply to former exec Gary Cohn, who was paid out in lump sum when he joined the Trump Administration.

So these aren’t true “clawbacks” – they’re potential forfeitures of unpaid amounts, which are much easier for a company to administer. Remember that a few years ago in a different kind of scandal, Wells Fargo started off with forfeitures – and eventually also clawed back pay.

More on “First IPO Without Delaying Amendment?”

During the final stretch of last month’s government shutdown, I blogged that Gossamer Bio was prepared to go public without final sign-off from the SEC. Now, that company has announced that it’s reverting to a traditional IPO. The company has restored the delaying amendment language on an amended Form S-1 and will ask the SEC to accelerate effectiveness. Since it’s already set the offering price, there’s not much upside to waiting to sell the shares.

Audit Fees: New Standards Cause Modest Increase

This “Audit Fee Survey” from ferf & Workiva reports that audit fees rose by about 2.5% last year – mostly due to implementing the new revenue recognition and lease standards, but also because of M&A activity and more stringent PCAOB inspections. However, auditors remained open to negotiation due to the competitive marketplace and automation. The median fee for accelerated filers was $415k – compared to nearly $7 million for large accelerated filers…and this Fenwick & West study notes that average fees were $22.2 million for S&P 100 companies.

Meanwhile, Audit Analytics reported that non-audit fees represented about 10% of total fees paid by accelerated filers to their external auditors in 2017 – way down from 38% of the pie in 2002, which caused concern that these services were impacting auditor independence.

Liz Dunshee