Oct. 15 (Bloomberg) -- Goldman Sachs Group Inc., on pace to top 2007’s record $20.12 billion in compensation, may find that acts of largess aren’t enough to mitigate a public backlash sparked by the firm’s bonuses.

After rebounding from the worst financial crisis since the Great Depression, Goldman Sachs is considering a new charitable program and has been working with Bridgespan Group, a Boston- based philanthropy consulting and recruiting firm, people familiar with the matter said. Goldman Sachs said today third- quarter net income more than doubled to $3.19 billion, beating analysts’ estimates. The firm also said it has set aside $16.7 billion for compensation so far this year, up 46 percent from the $11.4 billion figure for the same period in 2008.

Goldman Sachs’s public-relations quandary -- the more money the firm generates, the more hostility it provokes -- has fueled speculation among Wall Street bankers about a charitable gift of $1 billion or more, to be announced by the end of the year when the company awards bonuses. Only a small group of senior executives at the bank is privy to the details and no decision has been reached, people with knowledge of the matter said.

“Surely there are extraordinarily important uses of capital in a capital-constrained society that they might consider rather than just paying themselves sums beyond the dreams of avarice,” said Ben W. Heineman Jr., a former senior vice president for law and public affairs at General Electric Co. and author of “High Performance With High Integrity.”

Record Profits

Lloyd Blankfein, Goldman Sachs’s 55-year-old chairman and chief executive officer, guided his firm to record profits in the second quarter and returned $10 billion of taxpayer funds plus dividends. Still, the New York-based bank’s compensation expense has triggered criticism after the U.S. lost 7.2 million jobs since 2007, driving the unemployment rate to its highest level in 26 years.

“Goldman Sachs is highly sensitized to the political issues associated with compensation in general and success in the current environment but will make no decisions about bonuses or charitable giving until the end of the year,” said Lucas van Praag, a spokesman for the firm.

While the company repaid the U.S. Treasury, it also won government guarantees on about $30 billion of debt, was allowed to become a bank holding company to gain Federal Reserve support and was one of the biggest recipients of funds through the government bailout of American International Group Inc.

‘Rescued by Taxpayers’

“There’s no question the government propped them up last fall,” said Heineman, a senior fellow at Harvard Law School and Harvard University’s Kennedy School of Government in Cambridge, Massachusetts. A charitable gift from the compensation pool “would be the nod to the argument that they wouldn’t be where they are today if they hadn’t been rescued by taxpayers.”

That might not be enough to mitigate the damage, according to Michael Holland, founder and chairman of Holland & Co., which oversees more than $4 billion and doesn’t own Goldman stock.

“They probably will be spinning their wheels,” Holland said. “The people who are full of revulsion at Wall Street and extreme compensation will in no way be assuaged by a move like the one that’s rumored because they’d view it as a PR stunt.”

Philanthropy is most successful in improving a company’s image when it shows a long-term commitment to a cause, said Melissa Berman, president and CEO of Rockefeller Philanthropy Advisors in New York.

“Whatever path they take, they should stick to it consistently and not have a cause-of-the-month,” Berman said. “One negative piece of news can change a reputation quickly, but one positive piece of news doesn’t change a reputation quickly.”

Goldman Sachs Gives

The bank already operates philanthropic programs, including the Goldman Sachs Foundation, and some employees donate money through their own foundations. The company’s fund, started in 1999 with a $200 million contribution, has made a total of $114 million in donations in the last decade, said Goldman Sachs spokesman Joseph Snodgrass.

The firm said today it injected another $200 million into the Goldman Sachs Foundation during the third quarter.

“We felt it made sense to put more in there in this troubled environment,” Chief Financial Officer David Viniar said today in a conference call with reporters. “It was a judgment call on what we thought the right amount was.”

In November 2007, a month before awarding employees bonuses that set a Wall Street record, the company announced plans to raise as much as $1 billion for a philanthropic fund called Goldman Sachs Gives.

10,000 Women

The program was unveiled six months after John Whitehead, who retired as co-chairman of the firm in 1984 and oversees its foundation, criticized Goldman Sachs’s “shocking” pay and said he’d tried unsuccessfully a year earlier to persuade the firm to donate $1 billion to charity.

The fund was formed with a $50 million contribution from Goldman Sachs and $80 million from partners at the firm, each of whom has his or her own account and can guide how the money is spent, Snodgrass said.

In March 2008, the company said it planned to contribute $100 million over five years to provide business education to women in developing nations and elsewhere through an initiative called 10,000 Women. The program has been established in 18 countries and has more than 60 partners. Snodgrass wouldn’t say how much of the firm’s $100 million commitment has been spent.

The securities industry is also a major component of New York’s economy, having accounted for up to 20 percent of the state’s tax revenue before the downturn, according to State Comptroller Thomas DiNapoli’s annual financial report for the fiscal year ended March 31, 2009.

$13 Billion Gift?

“The declines in securities industry profitability and bonuses have significantly reduced state revenues,” the report said.

Nomi Prins, a former managing director at Goldman Sachs turned author, said the most effective way to rehabilitate Goldman’s image would be for the firm to donate $13 billion, about the same amount it received through the bailout of AIG, to charity. She admits that’s unlikely to happen.

A new program like 10,000 Women “might make a little bit of a difference if it is ongoing, and if it is sizeable, and if it truly isn’t just a gesture but is actually helping people,” Prins said. If it’s smaller and temporary, “I think people will see through it.”

Goldman Sachs should be careful to make sure that any philanthropy comes primarily from employees’ compensation rather than from profits that would otherwise go to shareholders, Holland said.

‘Shareholders’ Pockets’

“If it comes out of the shareholders’ pockets, they could have a losing proposition,” he said. “If they say that the senior management has vowed that they will give X percent of their money to charity over the next year, that’s probably a better way to do it.”

Goldman Sachs, like its rivals, sets aside money for annual bonuses throughout the year. While the firm allocated a record $11.4 billion for compensation and benefits in the first six months, or enough to pay each worker $386,429 for the period, it hasn’t granted any bonus payments yet.

The top three executives at Goldman Sachs -- Blankfein, President Gary Cohn and CFO Viniar -- together hold stock worth about $1.39 billion at yesterday’s closing share price, according to the company’s March 9 proxy filing. Over the last five years, Blankfein has received $91.3 million in salary and cash bonuses from the firm, while Viniar was awarded $67.8 million, company filings show.

“They’re still paying out enormous sums of money, which objectively don’t register very well on Main Street,” said James Post, a professor of corporate governance and ethics at the Boston University School of Management. “How many billions would they have to pledge? It would take a lot.”

To contact the reporters on this story: Christine Harper in New York at charper@bloomberg.net; Patrick Cole in New York at pcole3@bloomberg.net.

Last Updated: October 15, 2009 09:10 EDT