After months of internal debate at goldman, the seven top executive at the firm, including CEO Lloyd Blankfein, ask the board compensation committee to grant them no bonuses. The board approved the request.
The executives will only be eligible for their base salaries, $600,000 for each. A firm spokesman said the executives felt it was “the right thing” to do.
“while the firm has distinguished itself through many aspects of the crisis, we cannot ignore the fact that we are part of an industry that is directly associated with the ongoing economic distress,” the firm spokesman said.
Just a year ago firms across wall street were still more or less untouched by the mortgage meltdown and were ringing up record profits. Blankfein took home $68.5 million in cash and stock in 2007, a record pay day for the head of a publicly securities firm.
But over the past year, mortgage – related losses have slammed the firms, starting in march 2008 with shotgun marriage of bear stearns cos. To J.P. Morgan Chase & co. then in September, Lehman Brother Inc, filed for bankruptcy protection, and Merril Lynch agreed to be bought by Bank of America Corp.
Goldman has fared better than other firms, but its stock is down more than 60% this year. Analysts are predicting it is on course to post its first quarterly loss a public company in December 2008, when it reports its fourth-quarter earnings.
At many financial firms, about half of all revenue is allocated to compensation, and multi-million-dollar bonuses are routinely paid out to ensure the best talent stay put. Top traders and bankers on wall street typically make a base salary of about $250.000, with the rest coming as a bonus. Employees tend to get their bonus numbers in the first two weeks of December – with the cash coming early in the new year.
Since the start 2002, Goldman, Morgan Stanley, Merril, Lehman, and Bear have paid a total of $312 billion in compensation and benefits to its employees. But this compensation model has come under pressure since the treasury Department recently announced plans to inject capital into financial institutions. Goldman is among the initial nine companies getting a combined $125 billion in government capital, which has fueled worries that taxpayer funds will be used to essentially subsidize wall street bonuses.
Regulator, including new York attorney General Andrew Cuomo, have asked firms for information about compensation plans. Cuomo said the Goldman Sachs “has taken the important step in the right direction,” adding, “we strongly encourage other banks to follow Goldman Sach step’s”.
That advice, however, does not seems to have been followed. The January 28, 2009, report on Wall Street bonuses by New York State Comptroller Thomas DiNapoli found that overall, bonuses fell 44% in 2008 – yet the size of the securities industry bonuses pool, estimated at $18.4 billion, was the sixth-highest on record.
The report comes at a time when any report of Wall Street excess – whether it’s reported $1.2 million former Merrill Lynch CEO John Thain spent to redecorate his office last year or the $50 million business jet Citigroup had on order until this week – is being used by critics as an example of unfettered greed that the financial collapse has done little to curtain.
Than resigned from Merrill acquirer bank of America following reports that Merrill paid billion of dollar in bonuses late last year, even as it was about to report a $15 billion fourth-quarter loss and while Bank of Amerika was seeking more federal funds because of the Merrill losses. New York’s attorney general is probing the bonuses payment as well as executive compensation practices at firms that received federal funds.
In brief but stern remarks in the Oval Office, President Barack Obama called the bonuses “shameful” and “the height of irresponsibility.” Obama, sitting with the treasury secretary Timothy Geithner, made clear the executive compensation – already expected to be a central focus of the new congress – would be a key factor in his economic team’s proposals to stabilize the financial system and improve regulation in the sector. But “part of what we’re going to need is for folks on wall street who are asking for help to show some restraint, and show some sense of responsibility,” he said.
As Washington policymakers are struggling to come up with solutions to the financial crisis, the pay issues is moving to the forefront. Alice Rivlin, a former director of the Congressional Budget Office, told the national club in Washington that she was surprised by Citigroup’s effort to go ahead with the jet purchase and by thain’s “tin ear for the right to do in the circumstances.” Rivlin added: “we have created the culture of people at the top (companies) who are disconnected from rest of world, people who don’t talk to ordinary people. I know some of them, I’m on corporate boards with them. They’ve somehow got to get reconnected to the real world – and a lot of them will be, because they are losing their jobs.”
Meanwhile, the idea of paying bonuses after many firms have collapsed or required bailouts unleashed a torrent of criticism on the web. As one commenter wrote on the New York’s Times Web site, “This is hard to believe and impossible hanging head with shame. Instead, it plunges forward with made self-enrichment at the expense of the rest of country, even the rest of the world.”
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