Goldman Sachs Group Inc
The decision to pay top managers in stock that cannot be sold for five years puts Goldman at the forefront of the push to align Wall Street pay with long-term performance. Still, the firm's compensation is on pace to top $20 billion this year.
That figure has put Goldman in the crosshairs of an international debate on pay.
I think Wall Street is well aware of the broad direction they need to move, said Douglas Elliott, a former JPMorgan investment banker now with the Brookings Institution. The devil's in the details.
Goldman's plan, announced Thursday, applies to its 30-person management committee, an elite group that includes Chief Executive Lloyd Blankfein as well as some of the firm's most senior risk-takers and managers, including the heads of sales and trading operations.
Those managers will receive all of their discretionary compensation in shares at risk -- stock that must be held for five years. They will also face a clawback provision that allows the company to recoup pay from an employee later found to have engaged in improper risk-taking.
The plan, however, leaves room from for some of Goldman's elite performers not on the 30-person management panel to receive out-sized cash paydays. Those salaries would not have to be publicly disclosed by the company.
Goldman CEO Blankfein said in a statement the company believes its compensation policies are the strongest in the industry.
Blankfein himself received no bonus 2008, after receiving a bonus of $67.9 million in 2007, according to a regulatory filing.
Banks like Citigroup Inc
Goldman has felt the brunt of a public backlash for setting aside nearly $17 billion in the first three quarters of 2009 for year-end compensation, even as the firm earlier this year repaid a $10 billion taxpayer bailout.
The anger at pay has gone global.
Earlier this week, Britain slapped a 50 percent tax on bank bonuses. Wall Street is trying to guard against such measures in the U.S.
The Service Employees International Union, a persistent critic of Wall Street pay packages, called the move a pr stunt.
Lloyd Blankfein and the rest of Goldman's executives are still using the profits they made off the backs of taxpayers to reward themselves with obscene bonuses, the union's secretary treasurer said in a statement.
The SEIU and other critics have cited the fact that Goldman was a major recipient of TARP money, was made whole on various trading positions in which bailed out insurer American International Group Inc was a counterparty, and was allowed to issue billions of dollars of government-guaranteed debt.
It was also helped by being allowed to convert to becoming a bank holding company at the height of the crisis on an expedited basis and also indirectly benefited from more than a trillion dollars of stimulus and rescue funds doled out by the government.
Other banks are likely to follow Goldman's lead, said Joe Sorrentino, a compensation consultant with Steven Hall & Partners in New York.
I think they're leading the pack here. Based on their prestige in the industry and their size and reputation, I wouldn't be surprised to see other companies, the Wall Street firms, carry that forward and adopt certain provisions, Sorrentino said.
Some banks have already made adjustments.
Swiss bank UBS AG, for example, raised fixed salaries and matched bonuses to sustainable profit, according to an internal memo in October.
Credit Suisse in October said it would make executives wait three to four years for their bonuses.
Goldman's plan comes as U.S. pay czar Kenneth Feinberg readies his next wave of pay rulings. Feinberg has the authority to set compensation for the highest-paid employees at companies that have not paid back extraordinary bailouts.
Feinberg has made aligning pay with long-term performance a point of emphasis in his rulings.
New York City stands to lose about $20 million of tax revenue for every $1 billion not paid in cash. A state official could not immediately provide such an estimate, though the state gets about one-fifth of its tax dollars from Wall Street.
Goldman gained 0.2 percent, while the sectoral NYSE Arca Securities Broker Dealer index <.XBD> fell 0.7 percent.
(Additional reporting by Elinor Comlay and Joan Gralla in New York and Karey Wutkowski in Washington; Editing by Gerald E. McCormick; Matthew Lewis and Steve Orlofsky)