Rethinking Executive Compensation in the Interest of Good Governance

In April 2025, the issue of executive compensation gained significant attention as Goldman Sachs and Citigroup faced backlash for granting their chief executives multi-million-dollar pay packages. This decision was met with heavy criticism, particularly considering growing concerns surrounding income disparity and the lack of accountability in corporate leadership.

These decisions were met with widespread skepticism from shareholders and governance watchdogs, sparking a heated debate on issues of performance alignment, fairness, and board accountability. At Goldman Sachs, CEO David Solomon and President John Waldron were granted $80 million retention bonuses in the form of restricted stock units, which will vest over five years.

The board defended this payout by framing it as a necessary move to ensure leadership continuity during a volatile market period. However, this justification failed to resonate with many stakeholders. Shareholder approval for the bonuses stood at only 66%, marking it the weakest endorsement Goldman had received in nearly a decade, which signalled clear discontentment.

Proxy advisory firms such as Glass Lewis and Institutional Shareholder Services (ISS) strongly criticised the packages by calling them "excessive" and pointing out the lack of a meaningful performance-based link. This criticism was further echoed by major institutional investors such as Norway’s sovereign wealth fund and the California State Teachers’ Retirement System (CalSTRS), which cast votes in opposition.

The criticism centered not just on the sheer size of the bonuses, but on the absence of measurable and transparent performance goals. In essence, many questioned whether the pay aligned with the company’s long-term strategy or simply insulated top executives from accountability.

Citigroup likewise granted its CEO, Jane Fraser, a 33% increase in total remuneration. The board presented this as recognition for her leadership during the bank’s ongoing corporate transformation. However, the circumstances surrounding the decision were far from appropriate, raising questions about its timing and justification.

Although Fraser’s rise was approved by shareholders, the approval was not without reservations. Investors and analysts alike questioned the inclusion of bonuses tied to unresolved regulatory consent orders from 2020 and 2023. The optics of such a reward, especially given the persistent oversight issues, risked eroding trust in both the bank’s leadership and its board.

Together, these two decisions caused widespread unease within corporate governance circles, reigniting long-standing concerns and prompting critical questions. Are executive pay packages genuinely linked to performance and value creation, or do they merely reflect a corporate culture that is becoming increasingly detached from stakeholder interests?

These moves raise troubling questions about whether reward systems are designed to shield executives from the very risks their decisions create, rather than hold them accountable for their actions.

Some argue that these controversies point to a deeper problem in how companies are directed and controlled. While good governance principles emphasise transparency, accountability, and stakeholder alignment, executive compensation often diverges sharply from these ideals.

Overcompensation, particularly when decoupled from clear measures or tied to ambiguous long-term goals, undermines confidence in board decision-making. Boards may argue that attractive pay is necessary to retain top talent, especially in an intensely competitive financial services industry. However, as the Goldman and Citigroup cases unravel, this rationale holds diminishing weight when performance is murky, oversight is questioned, and investor sentiment grows restless.

It is, therefore, imperative and pertinent to emphasise here that compensation packages, when misaligned, can foster short-termism, discourage cultural change, and exacerbate reputational risk. In Solomon’s case, the lack of defined deliverables or contingent benchmarks, especially in the face of rising regulatory scrutiny and workforce morale challenges, rendered the retention bonus controversial.

Critics argued that awarding such a large sum without linking it to measurable success or improvements in compliance showed a lack of proper governance. What made matters worse was that these bonuses were added on top of previous salary increases of more than 20%, which raised concerns about rising compensation that had little to do with shareholder returns or ethical leadership.

Meanwhile, despite Citigroup highlighting Fraser’s leadership in restructuring operations and strengthening the bank's resilience, the timing and size of her raise raised serious concerns. Given the ongoing regulatory penalties and scrutiny, the decision appeared questionable. Furthermore, while shareholder approval was deemed "comfortable," it did little to address the significant concerns about the gap between pay and performance.

Today, shareholders are no longer passive observers. They are demanding answers, accountability, and structural reforms. Investors, particularly institutional ones, now scrutinize the board more closely than ever, asking tough questions not just about how much executives are paid, but why and under what conditions.

The emergence of proxy advisory firms, ESG ratings, and media-led accountability has elevated executive pay into a public issue, one that can directly impact a company’s brand, market valuation, and regulatory perception. Moreover, employee sentiment and internal equity are beginning to gain traction as valid governance indicators.  

The incidents at Goldman Sachs and Citigroup should act as a wake-up call for boards. To preserve governance as the foundation of responsible capitalism, executive compensation structures must evolve to prioritize transparency, stakeholder value, and long-term sustainability.

To ensure more accountable and ethical executive compensation practices, the following reforms are suggested:

·         Executive pay should reflect more than just earnings or share price; it should be linked to broader performance measures such as environmental impact, inclusion targets, compliance, customer satisfaction, and staff morale.

·         To promote fairness and transparency, shareholder votes on executive pay should carry greater influence, and firms should be required to disclose how such pay is set, including bonus details and performance conditions.

·         Clawback provisions should be implemented to allow boards to reclaim bonuses or stock awards if executives engage in misconduct or if audits reveal that performance was misreported. This ensures that executives remain accountable for their actions and reinforces ethical business practices.

·         Compensation committees should actively seek input from a wide range of stakeholders, including employees and long-term institutional investors. Disclosing pay ratios, such as the CEO-to-median-worker ratio, can provide transparency and guide decisions that reflect the interests of all stakeholders, not just the executive class.

·         Instead of comparing compensation packages to peer firms (which often leads to an upward spiral in pay), boards should benchmark against companies known for their strong governance practices. These firms should be recognized for linking pay to performance in an ethical, transparent, and accountable manner.

 As shown in the chart below, the proposed reforms provide a comprehensive framework for reshaping executive compensation practices. Through the inclusion of broader KPIs, enhancing "Say on Pay" provisions, adopting clawback policies, including stakeholder voices, and benchmarking responsibly, companies can ensure that executive pay aligns more closely with long-term value creation and ethical standards.

This framework will help to enhance accountability while also reinforcing the core principles of responsible governance.egh

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Recommendations for Governance-Driven Compensation Reform

The moral mandate of boards extends beyond fiduciary duty; it requires them to ensure that executive compensation reflects integrity, long-term value creation, and accountability. Pay should not merely reward presence at the top but demonstrate alignment with performance, ethics, and stakeholder interests.

When compensation structures lack transparency or fail to gain the trust of shareholders and the public, they corrode confidence in corporate leadership. The examples of Goldman Sachs and Citigroup highlight the need for boards to move away from old practices and embrace pay structures that reflect purpose, accountability, and long-term value. Echoing Peter Drucker’s insight, “Leadership is doing the right things,” boards must act with foresight and principle, anchoring compensation to values that secure trust and long-term success.

Research & Advocacy Department,