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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934

Filed by the Registrant þ                 Filed by a Party other than the Registrant ¨

Check the appropriate box:

The Goldman Sachs Group, Inc.

(Name of Registrant as Specified in its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

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Proxy Statement for 2011 Annual Meeting of Shareholders

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April 1, 2011

Dear Fellow Shareholder:

You are cordially invited to attend the 2011 Annual Meeting of Shareholders of The Goldman Sachs Group, Inc. We will hold the meeting on Friday, May 6, 2011 at 9:30 a.m., Eastern Time, at our offices at 30 Hudson Street, 6th Floor, Jersey City, New Jersey 07302. Directions can be found at the end of the Proxy Statement. 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 Board of Directors, the Proxy Statement, a form of proxy and a copy of our 2010 Annual Report to shareholders.

Your vote is very important to us. Whether or not you plan to attend the meeting in person, your shares should be represented and voted.

Sincerely,

Lloyd C. Blankfein

Chairman and Chief Executive Officer

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The Goldman Sachs Group, Inc.

Notice of 2011 Annual Meeting of Shareholders

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be Held on May 6, 2011. The Proxy Statement, our 2010 Annual Report to shareholders and other materials are available at http://www.gs.com/shareholders.

By Order of the Board of Directors,

Beverly L. O’Toole

Assistant Secretary

April 1, 2011

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April 1, 2011

To Our Shareholders:

We are pleased to enclose this year’s Proxy Statement.

During the past year, we have sought to increase, and enhance the quality of, our communications with you. In addition to meeting with various shareholders, we have augmented the information in this Proxy Statement and the firm’s Form 10-K and on the Goldman Sachs corporate governance website at www.gs.com. We know that useful and meaningful disclosure, in addition to regular dialogue with shareholders, is essential to our effectiveness as a Board, and we are committed to continuing this engagement.

Our most important responsibility is to protect shareholders’ interests. As part of that responsibility, we remain focused on management’s goal to create long-term shareholder value. Our 2010 return on average common shareholders’ equity (ROE) was 11.5 percent; excluding the impact of the U.K. bank payroll tax, the SEC settlement and the impairment of our NYSE Designated Market Maker rights, our 2010 ROE was 13.1 percent. In addition, in 2010 we repurchased 25.3 million shares of our Common Stock, returning $4.16 billion to shareholders. Since 2008, the year of the onset of the financial crisis, our average reported fiscal year ROE has been 13 percent. Our book value per share has grown at a compounded annual growth rate of 18 percent since becoming a public company in 1999, while our total shareholder return since our IPO is 149 percent, compared to 15 percent for all companies in the S&P 500. As a Board, we are proud of management’s track record of outperformance.

To help ensure that Goldman Sachs remains an industry leader, we are focused on:

Since last year’s annual meeting, we have undertaken a variety of initiatives to strengthen the firm’s governance.

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Accountability and Leadership

We believe that the caliber and stability of our senior management team were significant factors in our outperformance during the difficult operating environment of the past several years. We review the firm’s management succession plans each year. As part of that planning, we meet regularly with a wide range of senior managers from the firm’s global offices.

At our Board meeting in March, we decided to amend our Corporate Governance Guidelines to confirm that we will review the Board’s leadership structure at least annually, and clarified the process for this review.

Risk Management

In September 2010 we created a separate Risk Committee consisting of all of our independent directors. We believe that the Board and the firm benefit from having a committee that can focus specifically on risk-related issues and our firm’s risk management structure.

Compensation and Performance

At last year’s Annual Meeting of Shareholders, we voluntarily provided you with an advisory vote on executive compensation matters. We were pleased that our Compensation Principles, among other related matters, received the support of 96.4 percent of votes cast.

To further ensure a clear and direct link between the firm’s performance and our executives’ compensation, in December 2010 the Compensation Committee adopted a long-term performance incentive plan (LTIP). The LTIP provides us with an additional option when considering incentives for key employees, including our executives. Our Chief Risk Officer and independent compensation consultant provided input in the design of the plan.

Business Standards and Practices

The firm undertook an extensive review of our business standards and practices to ensure that they are of the highest quality and that they meet or exceed the expectations of our shareholders, clients, regulators and other stakeholders. The Business Standards Committee (BSC) made 39 recommendations for change spanning client service, conflicts and business selection, structured products, transparency and disclosure, committee governance, training and professional development and employee evaluation and incentives.

We formed a subcommittee of independent directors to oversee the work of the Committee. We, along with senior management, approved the BSC’s final recommendations, and implementation of those recommendations has already begun.

In closing, we want to emphasize our commitment and accountability to you. We look forward to our on-going dialogue to help ensure that Goldman Sachs creates lasting value for our shareholders and contributes to greater economic growth and opportunity.

The Board of Directors of The Goldman Sachs Group, Inc.

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Introduction

Our Proxy Statement contains information about the matters that will be voted on at our 2011 Annual Meeting of Shareholders (Annual Meeting) as well as other information about our firm and our corporate governance. We have reorganized our Proxy Statement this year and have included a Corporate Governance section to make our Proxy Statement a user friendly document for our shareholders that is more transparent with respect to our governance.

Our Annual Meeting is an important opportunity for you to interact with our Board of Directors (Board). We encourage our directors to attend our annual meetings and they look forward to seeing you there. All of our current directors attended last year’s annual meeting.

Our Proxy Statement and the accompanying form of proxy, which are first being sent to you on or about April 1, 2011, are being used by our Board in connection with the solicitation of proxies for our Annual Meeting.

Your vote is important to us. Please exercise your shareholder right to vote.

Corporate Governance

Corporate Governance and our Firm’s Culture

Goldman Sachs began as a partnership over 140 years ago, and collaboration and teamwork remain fundamental to our culture today. We seek consensus in decision-making wherever possible at all levels of our firm – on our Board, within our management team and among our employees.

We are a client-service business. We focus on the long-term interests of our clients, shareholders, employees and the markets and communities we serve. We believe that effective governance, accountability, prudent risk management and ethical business conduct are all indispensible elements of our long-term success. Our Board seeks to perpetuate these long-standing priorities of our firm. Our emphasis on corporate governance begins at the top, with our directors, who are elected by, and are accountable to you, our shareholders. This commitment to governance extends to our management team and to all of our employees.

One distinguishing feature of our corporate governance is that all of our independent directors serve on all of our Board’s four standing committees. As a result, we believe that our independent directors are more engaged in the broad oversight of the entire firm. We believe this structure allows for a collective focus by our independent directors on the various complex matters that come before Board committees. The overlap inherent in this structure assists our independent directors in the execution of their responsibilities.

Item 1. Election of Directors

Our Board currently consists of 11 directors, nine of whom are independent. H. Lee Scott, Jr. has determined not to stand for re-election at our Annual Meeting. Our Board thanks Mr. Scott for his exemplary service.

Our directors are familiar with our business and the risks and competition we face, which allows them to participate actively and effectively in Board and committee deliberations. Our directors meet and speak frequently with each other and with members of our senior management team. These formal meetings and informal discussions occur based on the needs of our business and the market environment.

Board of Directors’ Qualifications and Experience

There are certain skills, experiences and qualifications that all of our director nominees possess:

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Our director nominees have a great diversity of experiences 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 our shareholders. They have developed their skills and gained experience across a broad range of industries, including financial services, consumer products, retail, industrial resources and manufacturing, and in both established and growth markets. In the biographies of our director nominees below, we describe certain of the many areas of individual expertise that each director nominee brings to our Board, including:

Our Director Nominees

If elected by our shareholders, the following 10 director nominees will serve for a one-year term expiring in 2012. Each director will hold office until his or her successor has been elected and qualified or until the director’s earlier resignation or removal.

All of our directors are elected by majority vote. An incumbent director who fails to receive a majority of FOR votes will be required to tender his or her resignation to our Board. Our Corporate Governance and Nominating Committee will then assess whether there is a significant reason for the director to remain on our Board and will make a recommendation regarding the resignation to our Board. For detailed information on the vote required for the election of directors and the choices available for casting your vote, please see Frequently Asked Questions About Our Annual Meeting.

All of our director nominees are currently members of our Board, and all have been recommended for election by our Corporate Governance and Nominating Committee and approved and nominated for election by our Board.

Each of our director nominees was elected at our 2010 Annual Meeting with over 95% of votes in favor.

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Below is biographical information about our director nominees. This information is current as of February 1, 2011 and has been confirmed by each of our director nominees for inclusion in this Proxy Statement.

 

 

		Lloyd C. Blankfein, 56 Chairman and Chief Executive Officer Director Since: April 2003 Other Current Public Company Directorships: None Other Public Company Directorships within past 5 years: None

 

 

Career Highlights

Ÿ

Goldman Sachs

 

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Chairman and Chief Executive Officer (June 2006 – Present)

 

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President and Chief Operating Officer (January 2004 – June 2006)

 

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Vice Chairman with management responsibility for Fixed Income, Currency and Commodities (FICC) and Equities Divisions (April 2002 – January 2004)

 

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Co-head of FICC (1997 – April 2002)

 

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Head and/or Co-head of the Currency and Commodities Division (1994 – 1997)

Other Professional Experience and Community Involvement

 

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Member, Dean’s Advisory Board, Harvard Law School

 

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Member, Dean’s Council, Harvard University

 

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Member, Advisory Board, Tsinghua University School of Economics and Management

 

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Member, Board of Overseers, Weill Medical College Cornell University

 

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Member, Board of Directors, Partnership for New York City

Experience and Qualifications

With over 25 years of experience in various positions at Goldman Sachs in New York and London, Mr. Blankfein has extensive knowledge of all aspects of our business, including our risk management practices and our day-to-day operations. Mr. Blankfein uses this firm-specific knowledge and experience in his role as Chairman to guide our Board in its strategic and risk management oversight roles and to keep the Board apprised of significant developments in our business.

 

 

		John H. Bryan, 74 Presiding Director Director Since: November 1999 Committees: Chair, Corporate Governance and Nominating Committee; member of all other standing committees Other Current Public Company Directorships: None Other Public Company Directorships within past 5 years: BP p.l.c. and General Motors Corporation

 

 

Career Highlights

Ÿ

Sara Lee Corporation, a global consumer products company

 

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Consultant (October 2001 – 2008)

 

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Chairman of the Board (June 2000 – October 2001)

 

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Chairman of the Board and Chief Executive Officer (1976 – June 2000)

 

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Chief Executive Officer (1975 – 1976)

Other Professional Experience and Community Involvement

 

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Life Trustee, The University of Chicago

 

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Past Chairman and Life Trustee, Board of Trustees of The Art Institute of Chicago

 

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Chairman, Board of Directors of Millennium Park, Inc.

 

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Past Chairman and current member, The Chicago Council on Global Affairs

 

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Past Chairman, Catalyst

 

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Past Vice Chairman and current member, The Business Council

Experience and Qualifications

Having served for 25 years at the helm of Sara Lee Corporation, Mr. Bryan brings valuable business experience to our Board. During his tenure at the global consumer products company, Mr. Bryan oversaw Sara Lee’s international expansion, developing a particular expertise in marketing and business development. In addition, through his service on the boards of directors and board committees of other public companies and not-for-profit entities, Mr. Bryan has gained in-depth knowledge and expertise in corporate governance and business ethics, which he draws upon in his roles as Presiding Director and Chair of our Corporate Governance and Nominating Committee.

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		Gary D. Cohn, 50 President and Chief Operating Officer Director Since: June 2006 Other Current Public Company Directorships: None Other Public Company Directorships within past 5 years: None

 

 

Career Highlights

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Goldman Sachs

 

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President and Chief Operating Officer (or Co-Chief Operating Officer) (June 2006 – Present)

 

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Co-head of global Securities businesses (December 2003 – June 2006)

 

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Co-head of FICC (September 2002 – December 2003)

 

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Co-Chief Operating Officer of FICC, Head of Commodities and other FICC businesses (variously, 1999 – 2002)

 

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Head of Commodities (1996 – 1999)

Other Professional Experience and Community Involvement

 

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Trustee, NYU Hospital

 

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Trustee, NYU School of Medicine

 

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Chairman, Advisory Board, NYU Hospital for Joint Diseases

 

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Trustee, Harlem Children’s Zone

 

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Trustee, American University

Experience and Qualifications

Over the course of his 20-year career at Goldman Sachs in New York and London, and in his current role as President and Chief Operating Officer, Mr. Cohn has developed broad experience across our firm and brings to our Board substantial insight into the firm’s various business lines and day-to-day operations. Mr. Cohn has particular expertise in commodities and markets, having previously served as a director of the London Metals Exchange and as a member of the Board of Directors and the Executive Committee of the New York Mercantile Exchange and the Commodity Exchange.

 

 

		Claes Dahlbäck, 63 Director Since: June 2003 Committees: Member, all standing committees Other Current Public Company Directorships: None Other Public Company Directorships within past 5 years: Stora Enso OYJ and Gambro AB

 

 

Career Highlights

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Investor AB, a Swedish-based investment company

 

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Senior Advisor (April 2005 – Present)

 

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Chairman (April 2002 – April 2005)

 

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Vice-Chairman (April 1999 – April 2002)

 

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President and Chief Executive Officer (1978 – 1999)

 

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Senior Advisor, Foundation Asset Management, which is owned by three Wallenberg Foundations and acts as advisor to the Foundations with respect to their holdings (November 2007 – present)

Other Professional Experience and Community Involvement

 

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Member, Royal Swedish Academy of Engineering Sciences and Royal Swedish Society of Naval Sciences

 

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Honorary Doctor and Director, Stockholm School of Economics; Chair, Stockholm School of Economics Foundation

 

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Chair, Leader of the Year Award

 

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Commander, Order of the White Rose of Finland

 

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Recipient, Swedish Kings Medal of the Twelfth Night with the Seraphim Ribbon

Experience and Qualifications

During his more than 30 years at Investor AB, Mr. Dahlbäck developed extensive experience in investment banking (through his involvement in Investor AB’s numerous mergers and acquisitions) and in investment management. Mr. Dahlbäck’s critical insight in these areas, along with his substantial experience in international business, assists the Board in its oversight of the firm’s global investment banking and asset management businesses. Through his service on the boards of directors and board committees of other public companies and not-for-profit entities, Mr. Dahlbäck has also developed expertise in corporate governance.

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		Stephen Friedman, 73 Director Since: April 2005 Committees: Chair, Risk Committee; member of all other standing committees Other Current Public Company Directorships: None Other Public Company Directorships within past 5 years: None

 

 

Career Highlights

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Chairman, Stone Point Capital, a private equity firm (June 2005 – Present)

 

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Chairman, President’s Intelligence Advisory Board; Chairman, Intelligence Oversight Board, each of which provides independent advice to the President of the United States on matters relating to U.S. intelligence efforts (2006 – 2009)

 

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Chairman, Federal Reserve Bank of New York (January 2008 – May 2009)

 

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Assistant to the President for Economic Policy; Director of the National Economic Council (2002 – 2004)

 

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Senior Partner and Chairman of the Management Committee, Goldman Sachs (retired in 1994, having joined the firm in 1966)

Other Professional Experience and Community Involvement

 

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Board member, Council on Foreign Relations

 

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Board member, Memorial Sloan-Kettering Cancer Center

 

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Trustee, The Aspen Institute

Experience and Qualifications

As Chairman of the private equity firm Stone Point Capital, Mr. Friedman brings substantial experience in the financial services and investment management industries to our Board. Mr. Friedman’s experience includes a lengthy career at Goldman Sachs, where he developed a deep knowledge of our firm and businesses. Having served in various public sector roles, Mr. Friedman offers a seasoned perspective on government, regulation and risk management, which he draws upon in his role as Chair of our Risk Committee.

 

 

		William W. George, 68 Director Since: December 2002 Committees: Member, all standing committees Other Current Public Company Directorships: Exxon Mobil Corporation Other Public Company Directorships within past 5 years: Novartis AG

 

 

Career Highlights

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Professor of Management Practice, Harvard Business School: January 2004 – Present

 

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Medtronic, Inc., a medical technology company

 

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Chairman (April 1996 – April 2002)

 

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Chief Executive Officer (May 1991 – May 2001)

 

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President and Chief Operating Officer (1989 – 1991)

 

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Executive Vice President, Honeywell International Inc., a diversified technology and manufacturing company (1978 – 1989)

 

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President, Litton Microwave Cooking; Vice President, Litton Industries, a diversified manufacturing company (1969 – 1978)

Other Professional Experience and Community Involvement

 

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Former Professor of Leadership and Governance, International Institute for Management Development

 

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Former Visiting Professor of Technology Management, École Polytechnique Fédérale de Lausanne

 

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Former Executive-in-residence, Yale School of Management

 

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Board member, World Economic Forum USA

 

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Board member, Guthrie Theater

 

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Trustee, Carnegie Endowment for International Peace

Experience and Qualifications

A professor of management practice at Harvard Business School and author of books on leadership, Mr. George brings academic expertise in business management and corporate governance to our Board, along with significant practical experience in management, technology and governance developed during his career as Chief Executive Officer and Chairman of Medtronic, Inc. and as a senior executive at Honeywell International Inc. and Litton Industries. Mr. George’s service on the boards of directors and board committees of several other public companies and not-for-profit entities has given him additional perspective on management and corporate governance.

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		James A. Johnson, 67 Director Since: May 1999 Committees: Chair, Compensation Committee; member of all other standing committees Other Current Public Company Directorships: Forestar Group Inc. and Target Corporation Other Public Company Directorships within past 5 years: Gannett Co., Inc., KB Home, Temple Inland and UnitedHealth Group Inc.

 

 

Career Highlights

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Vice Chairman, Perseus LLC, merchant banking and private equity firm (April 2001 – Present)

 

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Johnson Capital Partners, a private investment company

 

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Chairman and Chief Executive Officer (January 2000 – March 2001)

 

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Consultant (March 2001 – Present)

 

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Fannie Mae

 

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Chairman of the Executive Committee (1999)

 

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Chairman and Chief Executive Officer (February 1991 – 1998)

 

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Vice Chairman (1990 – February 1991)

Other Professional Experience and Community Involvement

 

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Chairman Emeritus, John F. Kennedy Center for the Performing Arts

 

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Member, Council on Foreign Relations

 

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Member, American Academy of Arts and Sciences

 

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Member, American Friends of Bilderberg

 

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Honorary Trustee, The Brookings Institution

Experience and Qualifications

As Vice Chairman of Perseus LLC and through other professional experience in financial services, Mr. Johnson brings extensive knowledge of the financial services and investment management industries to our Board. In addition, Mr. Johnson offers deep insight into governmental affairs and the regulatory process, gained from, among other things, his tenure at Fannie Mae and his work with Vice President Walter F. Mondale, including as the Vice President’s Executive Assistant. Through his service on the boards of directors of numerous other public companies (including as chair of several compensation committees) and not-for-profit entities, Mr. Johnson has also developed expertise in corporate governance, and executive compensation in particular, which he brings to his role as Chair of our Compensation Committee.

 

 

		Lois D. Juliber, 62 Director Since: March 2004 Committees: Member, all standing committees Other Current Public Company Directorships: E.I. du Pont de Nemours and Company and Kraft Foods Inc. Other Public Company Directorships within past 5 years: None

 

 

Career Highlights

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Colgate-Palmolive Company, a consumer products company

 

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Vice-Chairman (July 2004 – March 2005)

 

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Chief Operating Officer (March 2000 – September 2004)

 

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Executive Vice President – North America and Europe (1998 – March 2000)

 

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President, North America (1994 – 1997)

Other Professional Experience and Community Involvement

 

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Chairman, The MasterCard Foundation

 

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Trustee Emeritae, Wellesley College

 

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Trustee, Women’s World Banking

Experience and Qualifications

Through over 30 years of experience in the consumer products industry, including as Chief Operating Officer and Vice-Chairman of Colgate-Palmolive, a multi-billion dollar multi-national company, Ms. Juliber has developed expertise in marketing, operations and international business. Her substantial experience and perspective in these areas assists our Board in its review of our firm’s business development and global marketing strategies. Through her service on the boards of directors and board committees of other public companies and not-for-profit entities, Ms. Juliber has also developed in-depth knowledge of current corporate governance trends and best practices.

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		Lakshmi N. Mittal, 60 Director Since: June 2008 Committees: Member, all standing committees Other Current Public Company Directorships: European Aeronautic Defence and Space Company EADS N.V. Other Public Company Directorships within past 5 years: ICICI Bank Limited

 

 

Career Highlights

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ArcelorMittal S.A., a steel company

 

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Chairman and Chief Executive Officer (May 2008 – Present)

 

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President and Chief Executive Officer (November 2006 – May 2008)

 

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Chief Executive Officer, Mittal Steel Company N.V. (formerly the LNM Group) (1976 – November 2006)

Other Professional Experience and Community Involvement

 

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Member, International Business Council of the World Economic Forum

 

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Advisory Board, Kellogg School of Management, Northwestern University

 

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Board of Trustees, Cleveland Clinic

 

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Member, Executive Committee, World Steel Association

 

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Executive Board, Indian School of Business

Experience and Qualifications

As the founder of Mittal Steel Company and now Chairman and Chief Executive Officer of ArcelorMittal, the largest steelmaker in the world, Mr. Mittal brings significant experience in business development and operations to our Board, along with substantial expertise in international business and growth markets. Mr. Mittal’s service on the boards of directors and board committees of other international public companies and not-for-profit entities also provides him with knowledge of corporate governance, and international governance in particular.

 

 

		James J. Schiro, 65 Director Since: May 2009 Committees: Chair, Audit Committee; member of all other standing committees Other Current Public Company Directorships: PepsiCo, Inc., REVA Medical, Inc. and Royal Philips Electronics Other Public Company Directorships within past 5 years: None

 

 

Career Highlights

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Zurich Financial Services, an insurance based finance group

 

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Chairman of the Group Management Board and Chief Executive Officer (May 2002 – December 2009)

 

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Chief Operating Officer – Finance (March 2002 – May 2002)

 

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Chief Executive Officer, PricewaterhouseCoopers LLP, a provider of assurance, tax, and business consulting services (1998 – 2002)

 

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Chairman and Chief Executive Officer, Price Waterhouse LLP, an accounting firm (1995 – 1998)

Other Professional Experience and Community Involvement

 

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Trustee, St. John’s University

 

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Member, Advisory Board, Tsinghua University School of Economics and Management

 

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Trustee, Institute for Advanced Study

 

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Vice-Chairman, American Friends of the Lucerne Festival

Experience and Qualifications

Mr. Schiro has experience in international business, and in particular, global capital markets, developed during his tenure at the helm of Zurich Financial Services, one of the world’s largest insurance groups. As Chief Executive Officer and Chief Operating Officer – Finance at Zurich Financial Services, Mr. Schiro developed both managerial capabilities as well as experience in the review and preparation of financial statements, which he draws upon in his role as Chair of our Audit Committee. He also brings solid financial and banking acumen gained from his role as Chief Executive Officer and other positions held at PricewaterhouseCoopers LLP. Through his service on the boards of directors and board committees of other public companies and not-for-profit entities, Mr. Schiro has also developed corporate governance expertise.

 

There are no family relationships between any of our directors or executive officers.

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Structure and Role of our Board

Board Leadership Structure

Under our current leadership structure we have a combined position of Chairman and Chief Executive Officer (CEO) and an independent director as Presiding Director. Our Board does not have a policy on whether the roles of Chairman and CEO should be separate or combined. Our Board assesses these roles and deliberates the merits of its leadership structure to ensure that the most efficient and appropriate structure is in place. In addition, our Board has determined that if the Chairman is not an independent director, then there should also be a Presiding Director who is independent. Recently, our Corporate Governance and Nominating Committee recommended, and our Board adopted, amendments to our Corporate Governance Guidelines to provide that the review of our leadership structure will occur at least annually, to enhance the process for this review and to clarify the important role of our Presiding Director.

As part of its review of leadership structure, our Board evaluates:

In conducting its review, our Board considers, among other things:

Our Board believes that combining the roles of Chairman and CEO is currently the most effective leadership structure for our firm. Combining these roles ensures that our firm has a single leader who speaks with one voice to our shareholders, clients, employees, regulators, other stakeholders and the broader public. Our current CEO, Mr. Blankfein, has an intimate knowledge of our business, operations and risks, which affords him the insight necessary to guide discussions at Board meetings. Mr. Blankfein also provides our Board with updates on significant business developments and other time-sensitive matters.

As CEO, Mr. Blankfein is directly accountable to our Board and, through our Board, to you. His role as Chairman is both counterbalanced and enhanced by the independence of our Board and the independent leadership provided by our Presiding Director, Mr. Bryan. Mr. Bryan, as the Chair of our Corporate Governance and Nominating Committee, was designated as the Presiding Director by our independent directors, who constitute a majority of our Board; our independent directors may elect another independent director as Presiding Director at any time. Mr. Blankfein and Mr. Bryan meet and speak frequently about our Board and our firm.

Our Presiding Director plays an active role on our Board. Mr. Bryan reviews and approves the agenda, schedule and materials for each Board and Corporate Governance and Nominating Committee meeting and executive sessions of the independent directors. Mr. Bryan also reviews copies of agendas and schedules for our other committees before they are finalized by the respective committee chairs. Mr. Bryan then coordinates with members of our senior management to establish the content and focus of Board discussions. Mr. Bryan presides over the executive sessions of our independent directors and is available to facilitate communication between our independent directors and management, including Mr. Blankfein. In his role as Presiding Director and as a representative of our independent directors, Mr. Bryan also meets with major shareholders of the firm from time to time regarding governance matters.

Our Board continues to be focused on the Presiding Director’s responsibilities and whether they should be enhanced or modified to improve the effectiveness of our corporate governance practices.

In addition to having a strong Presiding Director, our firm has numerous other corporate governance practices designed to ensure strong independent oversight of our CEO and management. These practices include regular executive sessions of our Board, which take place without members of management present. Further, any independent director may call for an executive session and suggest agenda items for Board or committee meetings.

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For more information on the powers and responsibilities of our Presiding Director, please see Key Corporate Governance Facts in Annex A, or our Corporate Governance Guidelines, which are available on our website at http://www.gs.com/shareholders.

Board Oversight

Our Board is responsible for and committed to the independent oversight of the business and affairs of our firm, including the key areas of business standards, financial reporting, CEO performance, succession planning, strategy, risk management and compensation. In carrying out this responsibility, our Board advises our CEO and other members of our senior management to help drive success for our clients and long-term value creation for our shareholders.

Business Standards

Board oversight of the manner in which we conduct our business is critical to our success.

The aftermath of the financial crisis has been a time of reflection and reform. We announced the creation of the Business Standards Committee (BSC) at our 2010 Annual Meeting of Shareholders as a means to engage in a thorough self-assessment and consider how our firm can and should improve. The objectives of the BSC were to develop recommendations designed to ensure that the firm’s business standards and practices are of the highest quality, meet or exceed the expectations of our clients, regulators and other stakeholders, and contribute to overall financial stability and economic opportunity.

Our Board formed a committee of independent directors to oversee the BSC and keep the Board informed of the progress of the BSC. The four members of the BSC Board committee – Mr. George (as Chair), Ms. Juliber, Mr. Schiro and Mr. Scott – were extensively involved with the BSC, meeting 13 times as a committee during the BSC’s review.

The scope and intensity of the BSC’s eight-month review were significant, encompassing every major business, region and activity of our firm. The BSC made 39 recommendations for change spanning client service, conflicts and business selection, structured products, transparency and disclosure, firmwide committee governance and training and professional development. The recommendations were approved by our senior management and our Board.

Senior management and our Board have already received, and will continue to receive, periodic progress reports on the implementation of the BSC’s recommendations.

To date we have implemented several of the BSC’s recommendations, particularly in the area of financial reporting and disclosure. For example, we have reorganized our reporting segments to provide greater clarity and visibility on the critical importance of our client franchise and client facilitation to our results; we supplemented our balance sheet with a more simplified presentation that generally allocates assets to our businesses and shows our excess liquidity position; we described in greater detail our overall risk management structure, culture and processes; and we provided additional disclosure related to credit risk, operational risk and capital adequacy. More generally, we also have increased our engagement with a broad range of constituencies to communicate the roles we play on behalf of our clients and services we provide to support economic growth and opportunity.

The report of the BSC released in January 2011 is available on our website at http://www.gs.com/our-firm.

Financial Reporting

Our Board, through our 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. In addition, our Audit Committee is directly responsible for overseeing the independence, performance and compensation of our independent auditors. Each quarter, our Audit Committee meets separately with management and our independent auditors to review and discuss our annual and quarterly financial statements, and discusses our quarterly earnings releases with management. Throughout the year, our Audit Committee meets separately with each of management, internal audit (the director of which is appointed by, and reports directly to, our Audit Committee) and our independent auditors to discuss other financial reporting issues. For more information on our Audit Committee see —Our Board Committees—Audit Committee and Audit Matters—Report of our Audit Committee.

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CEO Performance

Our Board’s Corporate Governance and Nominating Committee annually reviews Mr. Blankfein’s performance.

Mr. Blankfein is evaluated via our “360 degree” review process, which includes extensive narrative feedback from a wide range of colleagues. Our Corporate Governance and Nominating Committee receives a briefing on the results of Mr. Blankfein’s evaluation from the head of our Human Capital Management (HCM) Division and then has the opportunity to discuss Mr. Blankfein’s performance in an executive session before communicating and discussing the results with Mr. Blankfein. In addition to this annual process, the independent directors regularly assess Mr. Blankfein’s performance based on their own interactions with him. The Corporate Governance and Nominating Committee’s assessment is then considered by the Compensation Committee when Mr. Blankfein’s compensation is determined. See Compensation Matters—Compensation Discussion and Analysis for a discussion of the factors considered by the Compensation Committee in setting Mr. Blankfein’s compensation.

Succession Planning

Succession planning is a priority for our Board. Our Board, through our Corporate Governance and Nominating Committee, and along with our CEO, has developed comprehensive programs for both emergency and long-term executive succession, which are reviewed annually. Consistent with our culture of teamwork and our history of developing leaders, our goal is always to be in a position to appoint our most senior executives from within our firm.

Individuals who are identified as having potential for senior executive positions are evaluated by our Corporate Governance and Nominating Committee, in part using the results of the “360 degree” feedback process. These individuals’ careers are monitored to ensure that, over time, they have appropriate exposure both to our Board and to our diverse global businesses. These individuals interact with our Board in various ways, such as through participation in certain Board meetings and other Board-related activities as well as meetings with individual directors in connection with director visits to our offices around the world.

Strategy

Our Board reviews our firm’s strategy as proposed by our management team. Our Board receives presentations and discusses strategy throughout the year at Board meetings. In addition, our Board holds an annual multi-day meeting focused primarily on strategy. This annual meeting includes discussion about the competitive landscape, market trends, our firm’s relative position and strategic responses. Our Board’s review of our risk management processes, as described below, enhances our directors’ ability to provide insight and feedback to senior management on our firm’s strategic direction. Senior management views the input of our independent directors and their candid dialogue as invaluable in discussions regarding our strategy.

Risk Management

Our partnership culture influences our approach to risk management: our directors and senior management are long-term owners. Risk is assessed from the standpoint of long-term ownership.

We believe that effective risk management is of primary importance to the success of our firm. Accordingly, we have comprehensive risk management processes through which we monitor, evaluate and manage the risks we assume in conducting our activities. Our Board’s oversight of risk management processes is conducted primarily by our Risk Committee, which consists of all of our independent directors. Our Risk Committee regularly reviews and discusses with management our aggregate risk exposures, including market, credit, liquidity and operational risks, and key information relating to our funding and liquidity risk position. In the course of these reviews, our Risk Committee interacts on a regular basis with our Chief Financial Officer (CFO) and General Counsel, as well as with our Chief Risk Officer (CRO) and other key risk management executives. Our Audit Committee also periodically discusses with management the guidelines and policies that govern our risk assessment and risk management processes, coordinating with our Risk Committee as appropriate.

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The chart below presents an overview of our risk management governance structure, highlighting the role of our Board, our key internal risk-related committees and the independence of our control and support functions.

Compensation

As part of our risk management, we review our firmwide compensation program and policies to ensure that they do not encourage imprudent risk-taking and to confirm that there are no risks arising from these programs and policies that are reasonably likely to have a material adverse effect on our firm.

Our Compensation Committee recognizes that it is fundamentally important for our compensation program to be consistent with the safety and soundness of our firm. Throughout the year, our Compensation Committee regularly reviews and receives updates on the design and function of our compensation program. The overlap in membership between our Compensation Committee and our Risk Committee provides our Compensation Committee with a comprehensive picture of our firm’s risk management process, which informs and assists the Committee in its review of our compensation program. Our CRO presents an annual risk report to our Compensation Committee to assist the Committee in its assessment of the effectiveness of our compensation program in addressing risk. For further discussion of our Compensation Committee’s evaluation of risk, see Compensation Matters—Compensation Discussion and Analysis.

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Commitment of our Board – 2010 Board Meetings

During 2010, our Board held 17 meetings. The independent members of our Board also met five times in executive session during 2010. Mr. Bryan, as our Presiding Director, chaired these executive sessions.

Our Board also convened informally to receive updates on business developments from senior management. In addition, our individual directors have discussions with each other, with our CEO and with other members of our senior management team, as events warrant. These informal discussions promote ongoing engagement between meetings and allow our directors to gain additional insight into our business as well as valuable perspective on the performance of our CEO and senior management. Our directors also receive weekly informational packages that include updates on recent developments, press coverage and current events that relate to our business.

Each of our current directors attended at least 75% of the meetings of our Board and the committees on which he or she served during 2010 for the period he or she served as director. Overall attendance at Board and committee meetings during 2010 averaged 98.5% for our directors as a group.

Process for Selecting Directors

Our Corporate Governance and Nominating Committee seeks to build and maintain an effective, well-rounded, financially literate and diverse Board that operates in an atmosphere of candor and collaboration. Identifying and recommending individuals for nomination, election or re-election to our Board is a principal responsibility of our Corporate Governance and Nominating Committee. The Committee carries out this function through an on-going, year-round process, which includes the Committee’s annual evaluation of our Board. Throughout the year, members of the Committee discuss, evaluate in detail and meet with possible director candidates to join our Board. Potential director candidates may be brought to the attention of the Committee from a variety of sources, including our independent directors, our employees and our shareholders, as described below. To assist in identifying possible director candidates, the Committee may also from time to time retain a professional search firm to provide the Committee with additional potential candidates and background information for review and consideration.

Our Corporate Governance and Nominating Committee does not set specific, minimum qualifications that director candidates must meet in order for the Committee to recommend them to our Board, but rather believes that each candidate should be evaluated based on his or her individual merits, taking into account our firm’s needs and the composition of our Board.

After the Committee’s initial review of a potential director candidate’s professional experience and assessment as to how a potential candidate will contribute to the needs of our Board, the Committee will determine whether to recommend the potential candidate to our Board for further consideration and a more in-depth review. Potential candidates are screened to determine their qualifications, any potential conflicts of interest and any barriers to a determination of independence.

In identifying and recommending director candidates, the Committee places primary emphasis on the criteria set forth in our Corporate Governance Guidelines, including:

Our Board believes that diversity is an important attribute of a well-functioning board. In selecting qualified candidates to serve as directors, the Committee considers a range of types of diversity, including race, gender, ethnicity, culture, nationality and geography, seeking to develop a board that, as a whole, reflects diverse viewpoints, backgrounds, skills, experiences and expertise. Among the factors our Corporate Governance and Nominating Committee considers in identifying and evaluating a potential director candidate is the extent to which the candidate would add to the diversity of our Board, and the Committee considers the same factors in determining whether to re-nominate an incumbent director. In both cases, the Committee assesses the diversity of our Board and how a nominee would enhance that diversity.

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Our Corporate Governance and Nominating Committee will consider candidates recommended by shareholders in the same manner as other candidates. Shareholders who wish to submit potential director candidates for consideration by our Corporate Governance and Nominating Committee should follow the instructions in Frequently Asked Questions About Our Annual Meeting.

Independence of Directors

Independent oversight bolsters our success. A director is considered independent under New York Stock Exchange (NYSE) rules if our Board determines that the director does not have any direct or indirect material relationship with Goldman Sachs. Our Board has established a Policy Regarding Director Independence (Director Independence Policy), which provides standards to assist our Board in determining which relationships and transactions might constitute a material relationship that would cause a director not to be independent. The Director Independence Policy covers, among other things, employment and compensatory relationships, relationships with our auditors, client and business relationships and contributions to tax-exempt organizations.

Our Board has determined, upon the recommendation of our Corporate Governance and Nominating Committee and in accordance with our Director Independence Policy, that all eight of our non-executive director nominees (Mr. Bryan, Mr. Dahlbäck, Mr. Friedman, Mr. George, Mr. Johnson, Ms. Juliber, Mr. Mittal and Mr. Schiro) and Mr. Scott are “independent” within the meaning of NYSE rules and our Director Independence Policy. Prior to their retirement from our Board in 2010, our previous directors who served for a portion of the year were also determined to be independent.

To assess independence, our Corporate Governance and Nominating Committee and our Board are provided with detailed information about any relationships between the independent directors (and their immediate family members) on the one hand, and Goldman Sachs and its affiliates and subsidiaries on the other. In many instances, this information, such as transactions with companies where the independent director’s only involvement is as an independent director of such other company, goes beyond the information that we are required to take into account pursuant to Securities and Exchange Commission (SEC) and NYSE rules.

Specifically, our Corporate Governance and Nominating Committee and our Board reviewed and considered the following categories of transactions, which our Board has determined may be deemed immaterial under our Director Independence Policy. For more detail on these transactions, see Certain Relationships and Related Transactions as well as Additional Details on Director Independence in Annex B.

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Our Corporate Governance and Nominating Committee and our Board also reviewed personal data sheets for each independent director, which contain, among other things, information about the director’s professional experience, investments, tax-exempt affiliations and immediate family members.

Our Director Independence Policy is available on our website at http://www.gs.com/shareholders.

Our Board Committees

Our Board has four standing committees: our Audit Committee, our Compensation Committee, our Corporate Governance and Nominating Committee and our Risk Committee. Each of these committees operates pursuant to a written charter available on our website at http://www.gs.com/shareholders.

Each committee consists solely of the directors who our Board has determined, upon the recommendation of our Corporate Governance and Nominating Committee, are independent under NYSE rules. Furthermore, our Board has determined that all of our independent directors satisfy the heightened audit committee independence standards under NYSE and SEC rules.

All of our standing committees review their performance and charters annually.

Audit Committee

Mr. Schiro has chaired our Audit Committee since September 2010. Its primary purposes are to:

In carrying out the responsibilities of our Audit Committee, each of Mr. Friedman, as the previous Chair of the Committee, and Mr. Schiro, as the current Chair of the Committee, frequently met or had discussions with our CFO, General Counsel, Director of Internal Audit, Controller, Global Head of Compliance and independent auditors. Our Audit Committee held 13 meetings in 2010.

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Our Board has determined that each continuing member of our Audit Committee is financially literate and has accounting or related financial management expertise, as defined under NYSE rules, and is an “audit committee financial expert” within the meaning of the rules of the SEC. In making that determination, our Board considered the following experience of each of our directors, in addition to the information included in their biographies, above:

Compensation Committee

We are in a business that relies on our people for our competitive advantage. As a result, our Compensation Committee plays a pivotal role in enabling us to attract and retain the best talent.

Mr. Johnson chairs our Compensation Committee. Its primary purposes are to:

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In carrying out the responsibilities of our Compensation Committee, individual members of the Committee met multiple times with senior management during the year. In addition, Mr. Johnson frequently met or had discussions with our CFO and General Counsel. Our Compensation Committee held 13 meetings in 2010 (including three subcommittee meetings) as well as two meetings in early 2011 to discuss and make determinations regarding 2010 compensation.

Our Compensation Committee has for several years recognized the importance of using an independent consultant that provides services solely to the Committee and not to our firm. Our Compensation Committee continued to retain Semler Brossy Consulting Group LLC (Semler Brossy) as its independent compensation consultant in 2010. See Compensation Matters—Compensation Discussion and Analysis for a discussion of Semler Brossy’s assessment of our compensation program for Participating Managing Directors (PMDs).

Corporate Governance and Nominating Committee

Mr. Bryan chairs our Corporate Governance and Nominating Committee. Its primary purposes are to:

In carrying out the responsibilities of our Corporate Governance and Nominating Committee, Mr. Bryan frequently met or had discussions with our CEO, Secretary to our Board and General Counsel. Our Corporate Governance and Nominating Committee met seven times in 2010.

Risk Committee

In September 2010, in light of market and regulatory developments, our Board created a separate Risk Committee consisting of all of our independent directors. Formerly, our Audit Committee had focused on the oversight of risk, along with its other responsibilities. Our Board determined that, although not yet required, it and our firm would benefit from having a Risk Committee separate from our Audit Committee, with a separate Chair who would be able to focus more specifically on risk-related issues and our firm’s risk management structure.

Mr. Friedman, who had previously been the Chair of our Audit Committee, chairs our Risk Committee. The primary purpose of our Risk Committee is to assist our Board in its oversight of our firm’s management of financial and operational risks, including market, credit and liquidity risk. In fulfilling its duties and responsibilities, our Risk Committee considers (as does each of the other standing committees of our Board), among other things, the potential effect of any matter on our reputation.

Our Risk Committee, among other things, reviews and discusses 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. In addition, Mr. Friedman, as the Chair of the Committee, frequently met or had discussions with our CFO and our General Counsel, as well as our CRO and other key risk management executives. Our Risk Committee held two meetings last year, following its formation in September 2010.

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Compensation Matters

Compensation Discussion and Analysis

Our Compensation Committee, which is comprised of all of our independent directors, determined the 2010 compensation of Mr. Blankfein, our CEO, Mr. Cohn, our President and Chief Operating Officer (COO), David A. Viniar, our CFO, J. Michael Evans, a Vice Chairman, Global Head of Growth Markets and Chairman of Goldman Sachs Asia, and John S. Weinberg, a Vice Chairman and Co-Head of Investment Banking (collectively, our Named Executive Officers (NEOs)).

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Our Compensation Philosophy

Our compensation philosophy and the objectives of our compensation program are reflected in our Compensation Principles, which guide our Compensation Committee in its review of compensation at our firm, including the Committee’s determination of NEO compensation. We have posted our Compensation Principles on our public website and also include them for your reference in Annex C to this Proxy Statement. We discuss below some of the key elements of our compensation philosophy.

Attracting and Retaining Talent. We understand the importance of hiring and retaining the very best people. Retention of talented employees is critical to executing our business strategy successfully. Compensation is, therefore, a key component of the costs we incur to generate our revenues, similar to cost of goods sold or manufacturing costs in other industries.

In determining the compensation of our NEOs and in reviewing generally the effectiveness of our compensation program for attracting and retaining talent, our Compensation Committee reviews the competitive market for talent. Our goal is always to be in a position to appoint our most senior executives from within our firm. We believe that our compensation program should incentivize our people both to continue to work at the firm and to aspire to senior executive roles. We are proud that our NEOs have an average tenure of 25 years with our firm, and that the members of our Management Committee (currently our 33 most senior executives, including our NEOs) have an average tenure of 20 years with our firm.

Maintaining Safety and Soundness. We recognize that it is fundamentally important for our compensation program to be consistent with the safety and soundness of our firm. Our CRO presents an annual risk report to our Compensation Committee to assist the Committee in its assessment of the effectiveness of our compensation program in addressing risk and, particularly, whether our program is consistent with regulatory guidance that financial services firms should ensure that variable compensation does not encourage imprudent risk-taking.

In the 2010 annual risk report, our CRO presented his view that our firm’s approach to the compensation process addresses regulator concerns regarding safety and soundness through a combination of:

We adopted comprehensive written policies and procedures governing the variable compensation process for our NEOs as well as certain other employees, including all of our PMDs, who, either individually or as part of a group, have the ability to expose us to material amounts of risk (Compensation Framework). Our Compensation Framework is designed to comply with applicable regulations and regulatory guidance on variable compensation and will be updated as appropriate for changes in such guidance and regulations. Our Compensation Framework seeks to achieve balance between risk and reward through, among other things, a robust up-front risk-adjustment process for assessing performance. Our Compensation Framework formalizes and documents the roles of our CFO, CRO, divisional compensation committees and others in the compensation process and also requires comprehensive monitoring of the implementation of our compensation process.

Different lines of our business have different risk profiles, and these are taken into account when determining compensation. These include credit, market, liquidity, investment and operational risks, as well as legal, compliance and reputational risks. Our CRO is involved in identifying relevant risks and performance metrics for each of our businesses. Further, to ensure the independence of our control function employees, compensation for those employees is not determined by individuals in revenue-producing positions.

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Prudent risk management is a hallmark of our firm’s culture, and sensitivity to risk and risk management are key elements in assessing employee performance. We require that each employee be evaluated annually as a part of our “360 degree” feedback process. This process reflects input regarding an array of performance measures from a number of employees, including those who are junior to the employee. The detailed performance evaluations include assessments of risk management, reputational judgment and compliance with firm policies, as well as teamwork, citizenship and communication.

Encouraging Long-Term Firmwide Focus. We believe that compensation should encourage a long-term, firmwide approach to performance and discourage imprudent risk-taking. Paying a significant portion of variable compensation to our senior employees in the form of equity-based compensation that delivers over time and is subject to forfeiture or recapture encourages a long-term, firmwide focus because its value is realized through long-term responsible behavior and the financial performance of our firm. We impose transfer restrictions, retention requirements and hedging policies to further align the interests of our senior employees with those of our shareholders. Our retention policies, coupled with our practice of paying our senior employees a significant portion of their variable compensation in the form of equity-based awards, leads to a considerable investment in our Common Stock over time. We believe that this investment advances our partnership culture of teamwork and stewardship of our firm.

As discussed above, we take into account risk in setting the amount and form of variable compensation for our employees. In addition, our compensation practices are sensitive to risk-taking outcomes because a significant portion of compensation is paid in the form of equity-based awards, the value of which moves up and down with the value of our Common Stock and which are subject to forfeiture or recapture, including for improper risk analysis.

For 2010, our PMDs received a significant portion of their variable compensation in the form of RSUs, with our NEOs receiving 70% of their 2010 variable compensation in RSUs. Shares at Risk generally deliver over a three-year period, even after employees leave our firm. In addition, a significant portion of the Shares at Risk are subject to transfer restrictions until January 2016, which generally continue following retirement. These deferred delivery schedules and transfer restrictions are consistent with awards granted to our PMDs for 2008 and 2009 compensation, although our NEOs did not receive any variable compensation for 2008.

As in prior years, all 2010 RSUs and all Shares at Risk are subject to a number of terms and conditions that could result in forfeiture or recapture. We also added new forfeiture provisions in 2010 that are triggered upon significant deterioration of our firm’s financial condition (see —Additional Details on our NEOs’ 2010 Compensation for more details on these provisions). In addition, Shares at Risk that are subject to transfer restrictions remain subject to forfeiture or recapture for certain events that occur after delivery through the end of the restricted period (i.e., January 2015 for 2009 awards and January 2016 for 2010 awards). These events include engaging in any conduct detrimental to our firm.

We require each of our CEO, CFO, COO and three Vice Chairmen, for so long as each holds such position, to retain sole beneficial ownership of a number of shares of Common Stock equal to at least 75% of the shares received (net of payment of any option exercise price and taxes) under our firm’s equity plans since becoming a senior executive. We impose a similar 25% retention requirement on our approximately 470 PMDs. The retention requirements are described in more detail in Beneficial Ownership—Beneficial Ownership of Directors and Executive Officers.

All of our employees are prohibited from hedging their equity-based awards or any shares of Common Stock delivered pursuant to equity-based awards that are subject to transfer restrictions or our retention requirements. All of our executive officers, including our NEOs, are prohibited from hedging any shares of our Common Stock, even shares they can freely sell. Our employees, other than our executive officers, may hedge only shares of Common Stock that they can otherwise sell. However, they may not enter into uncovered hedging transactions, may not “short” any shares of our Common Stock and may enter into transactions or otherwise make investment decisions with respect to our Common Stock only during applicable “window periods.”

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Reflecting Performance. We are committed to aligning compensation with performance. In order to do so, we look at the individual’s performance and the firm’s performance over the past year, as well as over the past several years. We believe that our senior leaders have responsibility for our overall performance and, as a result, our senior people have experienced more significant changes in their compensation year-over-year, particularly in periods when our net revenues have declined significantly. For example, for 2008, our top seven senior executives, including our NEOs, received no variable compensation.

We believe that multi-year guarantees should be avoided entirely to avoid misaligning compensation and performance, and guaranteed employment contracts should be used only in exceptional circumstances (for example, for certain new hires). None of our NEOs has an employment agreement that provides for severance or “golden parachute” payments.

Since we became a public company in 1999, various performance metrics, which are important measures of benefit to our shareholders, have significantly outpaced the growth of NEO compensation. Book value per share (BVPS), net revenues and earnings per share (EPS), have grown at an average compounded annual growth rate of 12%, while our NEO compensation (fixed and any variable compensation approved by our Compensation Committee with respect to each year) over the same period (1999-2010) has grown at a negative compounded annual growth rate of -1%. Our BVPS has surged over this period, growing at a compounded annual growth rate of 18%. Although our Compensation Committee did not use these specific comparisons in making compensation determinations, these historical trends illustrate our consistently strong financial performance as may be measured by our shareholders. The following chart illustrates these trends:

^*The compound annual growth rate is calculated on an absolute basis. For information on how we calculate EPS, see Note 21 to our audited financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (2010 Annual Report on Form 10-K). For information on how we calculate BVPS, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Equity Capital—Other Capital Metrics” in our 2010 Annual Report on Form 10-K.

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2010 Compensation

Our Compensation Committee determined the form and amount of year-end variable compensation to be awarded to our NEOs for 2010, as set forth in the following table. The determinations of the amounts paid were not formulaic and were not based on specific firmwide or individual performance targets or objectives. We have also included for comparative purposes the compensation awarded to our NEOs for fiscal 2008 and fiscal 2009.

In determining the amount and form of compensation to be awarded to our NEOs, our Compensation Committee considered (i) our financial performance, including our financial performance over the past year and over the past several years, in each case relative to our core competitors (noted below), and an assessment of risk, (ii) the individual and collective performance of our NEOs, and (iii) in connection with our goal of attracting and retaining the best talent, the compensation levels and practices of other financial services firms. Our Compensation Committee also considered regulatory developments and the broader environment.

Financial Performance and Risk Assessment. Our performance over the last three-year period was strong, particularly in relation to our core competitors: Bank of America Corporation, Citigroup Inc., JPMorgan Chase & Co. and Morgan Stanley. While our performance in 2010 was not as strong as in 2009 due to difficult market conditions for much of the year, we continued to create value for our shareholders and prudently manage our firm from a risk perspective.

We generated net revenues of $39.16 billion and net earnings of $8.35 billion for 2010, despite the challenging operating environment. Our return on average common shareholders’ equity (ROE) was 11.5% for 2010, compared with an average of approximately 6.0% at our core competitors. Our ROE for 2010 was 13.1% excluding the impact of the U.K. bank payroll tax, the SEC settlement and the impairment of our NYSE Designated Market Maker rights, as described in Calculation of Adjusted Return on Average Common Shareholders’ Equity (ROE) in Annex D. BVPS increased by approximately 10% to $128.72 compared with the end of 2009. We continued to manage our capital conservatively. Our Tier 1 capital ratio, calculated in accordance with the Federal Reserve Board’s capital adequacy regulations currently applicable to bank holding companies (Basel I), was 16.0% as of December 31, 2010. Our excess liquidity (global core excess), which is a pool of unencumbered, highly liquid securities and cash instruments that is intended to allow us to meet immediate obligations during a liquidity crisis, was $175 billion as of December 31, 2010.

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In addition, we repurchased 25.3 million shares of our Common Stock during 2010, returning $4.16 billion to our shareholders. For more information on the calculation of these financial measures, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2010 Annual Report on Form 10-K.

Our Compensation Committee reviews with our CFO the following financial metrics and related growth rates in connection with making compensation decisions:

In addition, our Compensation Committee reviews with our CFO certain financial metrics for our core competitors, based on publicly announced results.

As discussed above, our CRO presented his annual risk report to our Compensation Committee. Semler Brossy also participated in this presentation. Our CRO concluded that our firm’s compensation program and policies are structured so that they do not encourage imprudent risk-taking. Our CRO also stated that he believed that there are no risks arising from such programs and policies that are reasonably likely to have a material adverse effect on our firm.

Individual Performance. All of our NEOs participated in our “360 degree” feedback process as part of their individual evaluations. The head of our HCM Division discussed with our Corporate Governance and Nominating Committee, which includes all of the members of our Compensation Committee, the results of this process for our CEO. In addition, our Compensation Committee met in executive session to discuss the performance of our CEO and each of the other NEOs. Our CEO submitted year-end variable compensation recommendations to the Committee for our other NEOs. Our CEO did not make recommendations about his own compensation.

Our NEOs’ performance in 2010 was exceptional, and they have shown outstanding leadership over the last few years. The recent economic challenges and broader regulatory changes affecting the industry place an even greater importance on teamwork among our NEOs, who continued in 2010 to operate very much as a team.

In 2008, we outperformed our core competitors due, in part, to the outstanding performance of our NEOs. However, in recognition of the broader environment, our NEOs proposed to our Compensation Committee that it not grant any of them year-end variable compensation for 2008. In 2009, we again outperformed our core competitors. All variable compensation received by our NEOs for 2009 was in RSUs. In 2010, we continued to create value for our shareholders.

Market for Talent. Our Compensation Committee spent a significant amount of time evaluating our existing NEO compensation program, comparing our plans to those of other financial services firms and examining alternatives. Consistent with past practice, our Compensation Committee asked Semler Brossy during 2010 to assess our compensation program for our PMDs, which includes our NEOs, and to identify the challenges and accompanying considerations that could inform compensation decisions for 2010. Semler Brossy provides services solely to our Compensation Committee and does not provide services in any capacity to our firm. In connection with its work for our Compensation Committee, Semler Brossy reviews the information provided to the Committee by our CFO, our HCM Division, and our firm’s compensation consultants. In its assessment of our compensation program for our PMDs, Semler Brossy confirmed that the program has been aligned with and is sensitive to corporate performance, contains features that reinforce significant alignment with shareholders and a long-term focus, and blends subjective assessment and policies in a way that addresses known and perceived risks. Semler Brossy also identified current challenges facing the PMD compensation program and outlined considerations for both 2010 compensation decisions and ongoing compensation program design. Semler Brossy did not recommend, and was not involved in determining, the amount of any NEO’s compensation.

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Our HCM Division assisted our Compensation Committee in the Committee’s review of compensation plans at other financial services firms by providing the Committee with information relating to compensation plan design and compensation levels for named executive officers and other senior employees at these firms. The firms for which information was provided were our core competitors plus American Express Company, Barclays Capital, Credit Suisse Group, Deutsche Bank Corporation, UBS AG and Wells Fargo & Company. This information was obtained from an analysis of public filings, except for information not covered by public filings, which was based on compensation surveys conducted by the MGMC unit of Towers Watson, on an unattributed basis. This information showed that our NEOs’ variable compensation levels for 2009, in particular CEO compensation, generally were less than the named executive officer compensation at most of these financial services firms.

The information relating to compensation plan design and levels for these financial services firms was useful to our Compensation Committee in connection with the Committee’s review and consideration of alternatives to our compensation arrangements, as well as the Committee’s decisions to increase the 2010 variable compensation of our NEOs over the amounts paid for 2009 and to increase the base salaries of our NEOs beginning in 2011.

Regulatory Developments. Throughout 2010, our senior management briefed our Compensation Committee on relevant regulatory developments. These included updates on compensation-related regulations and guidance issued by the Board of Governors of the U.S. Federal Reserve System (Federal Reserve Board) and other U.S. federal banking regulators, the Financial Stability Board, the United Kingdom Financial Services Authority and other regulators around the world. In addition, our senior management briefed our Compensation Committee on requests from regulators for information on, and meetings with regulators regarding, our firmwide compensation, including in connection with the Federal Reserve Board’s ongoing review of incentive compensation policies and practices of a number of financial services firms, including us.

Determinations regarding NEO compensation for 2010 were consistent with our Compensation Framework, which is designed to comply with applicable regulations and regulatory guidance on variable compensation.

In summary, our Compensation Committee determined to increase the variable compensation of our NEOs for 2010 over the amounts paid for 2009 because of our strong performance in 2010 and over the past several years on both an absolute level and in comparison to our core competitors and based on the compensation levels and practices with respect to the named executive officers of other financial services firms over the same period. This reflected the continued outstanding performance of our NEOs. The Committee determined based on the individual and collective performance and teamwork of our NEOs that their variable and total compensation would be the same for 2010. Consistent with regulatory guidance and our CRO’s annual risk report, and in recognition of the fact that our NEOs received no cash variable compensation for 2008 or 2009, the Committee determined that the appropriate balance of cash and equity-based compensation was to pay 70% of 2010 variable compensation in the form of equity-based compensation and the remainder in cash. We also reduced the 2010 compensation for all of our PMDs, including our NEOs, by $320 million to make a contribution to GS Gives, which we discuss further below.

Our Compensation Committee also determined to increase the fixed compensation of our NEOs through salary adjustments beginning in January 2011 and to differentiate the salaries paid to them. This enables us to have more balance between fixed and variable compensation, consistent with views expressed by regulators and the compensation practices of other financial services firms with respect to their named executive officers. Additionally, after a review of our compensation program and the compensation practices of other financial services firms, the Compensation Committee adopted the LTIP, which we discuss further below, although no grants were made under that plan in 2010.

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Additional Details on our NEOs’ 2010 Compensation

Restricted Stock Units and Shares at Risk. RSUs were vested at grant and generally provide for Shares at Risk to be delivered in three equal installments in each of January 2012, January 2013 and January 2014.

Each of these RSUs is an unfunded, unsecured promise by us to deliver a Share at Risk on a predetermined date. As a result, each of our NEOs becomes, economically, one of our long-term shareholders, with the same interests as our other shareholders. This economic interest results because the amount an NEO ultimately realizes from an RSU depends on the value of Common Stock when sold. Further, each vested RSU includes a “dividend equivalent right,” pursuant to which the holder of the RSU is entitled to receive an amount equal to any ordinary cash dividends paid to a shareholder of Common Stock at about the same time as those dividends are paid to our shareholders.

The number of RSUs awarded to each NEO for 2010 was determined by dividing the dollar value of the portion of the NEO’s year-end variable compensation payable in RSUs (i.e., 70%) by $161.31, which was the closing price-per-share of Common Stock on the NYSE on January 26, 2011, the grant date.

Transfer Restrictions. Transfer restrictions apply to 50% of the gross number of Shares at Risk, which is determined prior to tax withholding. For our NEOs, because the withholding rate currently is close to 50%, transfer restrictions will apply to substantially all Shares at Risk delivered to them. An NEO cannot sell, exchange, transfer, assign, pledge, hedge or otherwise dispose any of his RSUs or Shares at Risk that are subject to transfer restrictions until January 2016. Our Compensation Committee may permit limited exceptions to this restriction (e.g., gifts to immediate family members), provided that any Shares at Risk so transferred would continue to be subject to transfer restrictions until January 2016. Further, as stated above, our NEOs are required to retain 75% of the after-tax shares of Common Stock they receive as compensation for so long as they are NEOs, and are prohibited from hedging any shares of Common Stock, including those they can freely sell.

Forfeiture and Recapture Provisions. All RSUs and all Shares at Risk are subject to forfeiture or recapture by us, even after an NEO receives delivery of the Shares at Risk and transfer restrictions lapse. If we determine that Shares at Risk may be recaptured after delivery, we can require repayment to us of the fair market value of the shares when delivered (including those withheld to pay withholding taxes).

The RSUs and Shares at Risk provide for forfeiture or recapture if the NEO engaged during 2010 in improper risk analysis or failed to raise concerns sufficiently about risk which resulted in, or reasonably could be expected to result in, among other things, a material adverse impact on our firm or the broader financial system as a whole. For example, an NEO’s RSUs could be forfeited, and Shares at Risk recaptured, if during 2010 that NEO participated in the marketing of any product or service without appropriate consideration of the risk to our firm or the broader financial system as a whole. In addition, this year our Compensation Committee added additional forfeiture provisions in RSUs granted to all Management Committee members, including NEOs. Under these new provisions, RSUs also are subject to forfeiture until delivery of the underlying Shares at Risk if our firm is determined by bank regulators to be “in default” or “in danger of default” as defined under the Dodd-Frank Wall Street Reform and Consumer Protection Act, or fails to maintain for 90 consecutive business days the required “minimum tier 1 capital ratio” (as defined under Federal Reserve Board regulations).

An NEO may forfeit all RSUs if he engages in conduct constituting “cause” prior to delivery of the underlying Shares at Risk. We may recapture Shares at Risk subject to transfer restrictions if an NEO engages in such conduct at any time through January 2016. “Cause” includes, among other things, any material violation of any firm policy; any act or statement that negatively reflects on our name, reputation or business interests; and any conduct detrimental to our firm.

Finally, an NEO may forfeit all RSUs if he becomes associated with a “competitive enterprise” during 2011; two-thirds if he becomes associated with a “competitive enterprise” during 2012; and one-third if he becomes associated with a “competitive enterprise” during 2013. See —Potential Payments Upon Termination or Change-in-Control for further details on the meaning of “cause” and “competitive enterprise.”

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Treatment upon Termination or Change-in-Control. As a general matter, delivery schedules are not accelerated, and transfer restrictions are not removed, when an NEO leaves our firm. The limited exceptions include death and departure for “conflicted employment.” In addition, a change-in-control alone is not sufficient to trigger acceleration of any deliveries or removal of transfer restrictions. See —Potential Payments Upon Termination or Change-in-Control for further details on the treatment of RSUs and Shares at Risk upon termination of employment or a change in control and on the meaning of “conflicted employment.”

Qualified Retirement Benefits. Each of our NEOs participates in the Goldman Sachs 401(k) Plan (401(k) Plan), which is our tax-qualified retirement plan available to all of our U.S. employees. Our NEOs are 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 $9,800. For 2010, each of our NEOs received a matching contribution of $9,800.

Perquisites and Other Benefits. Our NEOs received in 2010 certain benefits that are considered “perquisites” required to be disclosed as part of their compensation. 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’ 2010 compensation.

We provide each of our NEOs with a car and driver for security purposes. We also offer our NEOs tax counseling services, generally provided or arranged by our subsidiary, The Ayco Company, L.P. (Ayco), to assist them with tax and regulatory compliance and to provide them with more time to focus on the needs of our business. At our request, Mr. Evans previously relocated to our Hong Kong office. For a portion of 2010, before relocating back to New York, he received international assignment benefits and tax payments. Our PMDs, including our NEOs, participate in our executive medical and dental program and receive executive life insurance and long-term disability insurance coverage. Our NEOs also are 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 (c) in —Executive Compensation—2010 Summary Compensation Table.

GS Gives

We established GS Gives, our donor advised fund, in order to coordinate, facilitate and encourage global philanthropy by our PMDs. Since 2009, we have contributed a portion of annual PMD compensation to the fund, and asked our PMDs to provide us with recommendations of not-for-profit organizations that should receive donations. 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 direct grants to organizations consistent with one of four thematic pillars:

We reduced the 2009 compensation for our PMDs, including our NEOs, by $500 million in order to make a contribution to GS Gives. During 2010, GS Gives accepted the recommendations of 365 current and retired PMDs and contributed over $200 million to 1,203 non-profit organizations around the world. GS Gives underscores our firm’s commitment to philanthropy through diversified and impactful giving at a time when non-profit organizations need it most. The amounts donated in 2010 by GS Gives based on our NEOs’ recommendations were approximately: Mr. Blankfein – $3.0 million; Mr. Cohn – $3.4 million; Mr. Viniar – $3.7 million; Mr. Evans – $3.2 million; and Mr. Weinberg – $3.6 million.

This year, we reduced the 2010 compensation for our PMDs, including our NEOs, by $320 million in order to make a contribution to GS Gives.

GS Gives undertakes diligence procedures for each donation and has no obligation to follow recommendations made by our PMDs.

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Changes to NEO Compensation Beginning in 2011

Long-Term Performance Incentive Plan. Our Compensation Committee adopted an LTIP in December 2010 that allows the Committee to award compensation based on specified performance metrics. Our firm’s performance in 2010 and over the last three years, as well as our recent performance relative to peers (listed under the table below), informed the thresholds of the LTIP awards granted to our NEOs in January 2011. Both the performance metrics and thresholds of these awards, which represent strong relative performance, are meant to provide an appropriate focus on long-term shareholder returns. Subject to Compensation Committee discretion, under the terms of the awards our NEOs will be rewarded for generating strong shareholder returns over a forward-looking period but, if our firm generates low or negative returns, they will not realize any compensation under these awards.

The LTIP is intended to supplement our existing compensation program, and, consistent with our compensation philosophy, to further align incentive compensation with long-term performance in a manner that does not encourage imprudent risk taking. Our CRO and Semler Brossy provided input in the design of the LTIP and reviewed the key terms of the NEO awards we describe below. Our Compensation Committee reviewed information on long-term incentive plans at American Express Company, Barclays Capital, Citigroup, Inc., Credit Suisse Group, Deutsche Bank Corporation, Morgan Stanley, UBS AG and Wells Fargo Company, based on publicly available information.

As described above, our Compensation Committee determined in January 2011 to award to each of our NEOs a deferred cash award under the LTIP that is tied to future performance. The initial performance period is three years beginning in 2011, and our Compensation Committee may determine, by the end of 2012, to extend the period for up to another five years through the end of 2018. In such case, the same measures we describe below would continue to apply unless our Compensation Committee determines otherwise. The award for each NEO has an initial notional value of $7 million; this notional balance increases and decreases by an amount equal to our ROE for each year during the performance period. (See below for details on how we calculate ROE under the awards.) Amounts are only earned based on firmwide performance measures and individual performance as described below, and no balances are paid until after completion of the performance period (e.g., January 2014, or, if the period is extended five years, January 2019). There is no continuing service requirement under the award; however, upon termination of employment for any reason, including retirement, payments generally are not accelerated and performance measures generally continue to apply.

Forfeiture and recapture provisions. The LTIP awards are subject to the same forfeiture and recapture provisions as the RSUs and Shares at Risk (described above) for the entire performance period. In addition, if our Compensation Committee determines that the payment was based on materially inaccurate financial statements or performance criteria, we may require the NEO to repay to us the value of the award as of the payment date.

Firmwide performance. The initial notional value of the award will be adjusted upward or downward by an amount equal to our “annual ROE” for 2011. This adjusted notional value will be further adjusted as of the end of each subsequent year during the performance period by an amount equal to our “annual ROE” for such year. At the end of the performance period, we calculate our “average ROE” and “average increase in BVPS” over the entire performance period. The adjusted notional value as of the end of the performance period is further adjusted by a multiplier based 50% on average ROE and 50% on average increase in BVPS as set forth in the below table. No amounts are earned based on achieving a certain ROE or BVPS for any one year, and negative returns in any year will offset positive returns during the performance period.

* Payout is scaled if results are between specified percentages.

In determining the above metrics, our Compensation Committee reviewed, among other things, information on ROE and increase in BVPS for the past two years at our firm and at each of our core competitors plus Barclays Capital, Credit Suisse Group, Deutsche Bank Corporation and UBS AG (individually and as a group), based on publicly available information.

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Individual performance. Our Compensation Committee may determine in its sole discretion, based on its assessment of an individual NEO’s performance, to adjust the amounts that may be paid out under this award to each NEO. Our Compensation Committee may determine based on an NEO’s individual performance that no amount is payable under the award. The total amount paid under an award will in no event exceed 150% of the amount that would have been payable following the calculations described above.

For purposes of the calculations above:

“Annual ROE” is computed by dividing net earnings applicable to common shareholders by average monthly common shareholders’ equity. Annual ROE will be adjusted for the after-tax effects of amounts that would be excluded from “Pre-Tax Earnings” under The Goldman Sachs Amended and Restated Restricted Partner Compensation Plan (RPCP), which is a compensation plan in which all of our NEOs participate. See Exhibit 10.2 of our 2010 Annual Report on Form 10-K for a copy of this Plan.

“Average ROE” is the average of the “annual ROE” for each year during the performance period.

“Average Increase in BVPS” is the average of the annual increases in our firm’s book value per common share for each year during the performance period.

Our Compensation Committee may determine, in its sole discretion, if particular events or transactions will be included or excluded from the calculation of the performance measures; pursuant to the terms of the January 2011 awards, the redemption of our 10% Cumulative Perpetual Preferred Stock, Series G (Series G Preferred Shares) (as described in Certain Relationships and Related Transactions), will be treated as if it occurred prior to the start of the performance period.

Base Salaries. Our Compensation Committee periodically reviews whether annual salary levels are appropriate. In connection with its review, our Compensation Committee, consistent with our compensation philosophy, determined to increase beginning in 2011 the base salary for Mr. Blankfein to $2 million and for Mr. Cohn, Mr. Viniar, Mr. Evans and Mr. Weinberg, to $1.85 million. Prior to this increase, each had been receiving the same salary since 1999, when we became a public company.

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Executive Compensation

The 2010 Summary Compensation Table below sets forth compensation information for our NEOs relating to fiscal 2010, fiscal 2009, the one-month transition period ended December 26, 2008 (December 2008), and fiscal 2008, as applicable. We were required to change our fiscal year-end from November to December in 2008 because we became a bank holding company, which resulted in a one-month transition period that began on November 29, 2008 and ended on December 26, 2008. Fiscal 2009 began on December 27, 2008 and ended on December 31, 2009. Beginning in 2010, our fiscal year is the calendar year.

Pursuant to SEC rules, the 2010 Summary Compensation Table is required to include for a particular fiscal year only those RSUs and options to purchase Common Stock (Options) 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. Generally, we grant equity awards and pay any cash variable compensation for a particular year shortly after that year-end. As a result, equity awards and cash variable compensation are disclosed in each row of the table as follows:

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2010 Summary Compensation Table