Nov. 13 (Bloomberg) -- Goldman Sachs Group Inc.'s payouts to employees will be ``dramatically affected'' by this year's financial turmoil and the firm's results, a company executive said today.

``Employee compensation will be dramatically affected by changes in the overall economic and financial environment and our performance for the full year,'' Gregory Palm, a general counsel at the New York-based investment bank, said at a hearing led by U.S. Senator Christopher Dodd, a Connecticut Democrat.

Goldman last year paid record-setting bonuses to Chief Executive Officer Lloyd Blankfein and Co-Presidents Gary Cohn and Jon Winkelried, awarding more than $65 million to each after the company reported the biggest profits in Wall Street history. With revenue down 32 percent so far this year, money set aside for compensation has been cut by the same amount. Some analysts expect the firm may report a loss in the fourth quarter.

Goldman, which typically distributes two-thirds of annual compensation as year-end bonuses, has recorded $11.4 billion in compensation expense in the first nine months of this year. While the costs for paying employees have fallen along with revenue, the firm's profit was down 47 percent for the same period and the stock is down 70 percent.

Palm told Dodd's Senate Banking Committee the $10 billion of federal funds provided to Goldman under the so-called Troubled Asset Relief Program won't be used for pay.

Employee pay ``certainly will not increase as a result of receiving TARP funds,'' Palm said, noting that decisions on compensation won't be made until the end of the year.

Pay Plan Disclosure

Goldman, which converted from the largest U.S. securities firm into a bank holding company in September, is one of nine U.S. banks that received a total of $125 billion under TARP. Government officials including U.S. Representative Henry Waxman, a California Democrat, and New York Attorney General Andrew Cuomo, also a Democrat, have demanded that the companies provide information on pay plans for this year.

Senior executives at the banks that received federal funds may have their pay slashed as much as 70 percent, according to a Nov. 6 report by Johnson Associates, a compensation consultant. Some U.S. taxpayers say reducing bonuses is insufficient and that awards should be eliminated.

``The executives in companies that get bailout money should have their base salaries reduced by 10 percent for 2009, and they should pay back a substantial portion of their 2007 bonuses to the government for the financial devastation they oversaw, fostered and, in some cases, directly caused,'' said S. Woods Bennett, a 57-year-old lawyer in Baltimore. ``Their sense of entitlement is appalling.''

Blankfein, speaking Nov. 11 at a conference in New York, said compensation, even as it declines with revenue, is integral to the Goldman's success.

``The real core strategy of Goldman Sachs at its heart is to be able to recruit and retain the best people that we can get,'' Blankfein said. ``Compensation plays an important role.''

To contact the reporters on this story: Ian Katz in Washington at Ikatz2@bloomberg.net; Christine Harper in New York at charper@bloomberg.net.

Last Updated: November 13, 2008 11:58 EST