Retention bonuses have long been a staple of executive compensation—a way to secure leadership continuity during key transitions or turbulent market cycles. But in 2025, these awards are drawing sharper scrutiny than ever before. What once served as a straightforward tactic to retain top leadership can now be a flashpoint for criticism—especially when such retention tools are not clearly tied to performance.
A Case in Point: Goldman Sachs
A high-profile example emerged on January 17, 2025, when Goldman Sachs disclosed in a Form 8-K filing with the SEC that it had awarded $80 million in restricted stock units ("RSUs") to its CEO and COO. These "retention RSUs," approved by Goldman's Board on January 16, 2025, are subject to five-year cliff vesting—meaning they will not vest until January 2030, contingent on continuous service with the firm (subject to limited exceptions such as death and disability).
The filing explained that the awards were intended to:
- retain the CEO and COO as a leadership team,
- sustain the strong momentum they have demonstrated in executing Goldman's strategic priorities,
- ensure senior leadership continuity over the next five years, and
- maintain a strong succession plan for the firm's future.
However, the lack of new performance conditions attached to the RSUs prompted significant pushback from proxy advisory services and shareholders alike. On March 29, 2025, Glass Lewis recommended that shareholders vote against the compensation packages, citing concerns over the structure of the awards and the absence of performance-based criteria. Shortly thereafter, on April 1, 2025, Institutional Shareholder Services (ISS) echoed this sentiment, advising investors to reject the RSU awards due to their magnitude and the lack of rigorous, pre-set performance-vesting conditions. Both proxy advisory firms raised concerns, including:
- Lack of performance-based vesting: The awards are time-based only, with no new financial, strategic, or other performance metrics attached.
- Excessive value: At $80 million each, the grants represent a sharp departure from historical norms and peer benchmarking.
- Departure from pay-for-performance philosophy: The firms questioned how the awards align with shareholder value creation.
- Insufficient rationale: The board provided limited justification beyond retention, with no stated risk of executive departures.
This is not an isolated event. Investor sentiment is shifting, and retention awards—especially those made outside the normal annual pay cycle—are under a microscope.
What This Means for Executives and Boards
The Goldman Sachs example is a cautionary tale, not a condemnation of retention bonuses as a concept. In today's environment, retention awards are still a valid and often necessary tool—particularly in periods of leadership transition, M&A activity, succession planning, or when key executives are heavily recruited by competitors. However, these awards require thoughtful structuring, precise timing, and a clearly articulated rationale to withstand stakeholder scrutiny.
For Boards and Compensation Committees:
Recent recommendations from ISS and Glass Lewis reflect a growing discomfort with time-based retention awards that aren't clearly tied to performance or shareholder value. To mitigate backlash, consider the following best practices:
- Tie vesting to performance triggers: Even if the primary goal is retention, include performance metrics (e.g., total shareholder return, revenue growth, EPS targets) that reinforce long-term value creation.
- Use hybrid structures: Combine time-based and performance-based vesting to balance retention and alignment.
- Benchmark carefully: Conduct thorough market analysis to avoid outlier grants in terms of magnitude or structure.
- Document the business rationale: Whether it's a leadership gap, M&A uncertainty, or succession risk, proactively disclose the "why" behind the award in proxy materials.
- Avoid one-off awards when possible: Integrate retention elements into annual equity grants or long-term incentive plans (LTIPs) where feasible.
- Engage with shareholders in advance: Early outreach and transparent communication can defuse opposition and demonstrate governance discipline.
For Executives:
Executives negotiating retention packages must now consider more than just headline value. Awards that lack shareholder support may ultimately be reputationally risky or subject to clawback if challenged. Key considerations include:
- Clarity on vesting terms, forfeiture, and triggers
- Alignment with the company's long-term incentive framework
- Protection in the event of change-in-control or without-cause termination
- Potential impact of proxy firm objections on future pay decisions
Final Word
As the Goldman Sachs vote approaches at its Annual Meeting on April 23, 2025, the broader message to companies is clear: if you're awarding retention bonuses, make sure they're performance-oriented, clearly justified, and structured to withstand scrutiny—not just from boards, but from shareholders and the court of public opinion.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
