Goldman Sachs Group Inc. (GS), under fire from pundits and politicians for allocating $16.7 billion to pay employees this year, said its top 30 executives will get year- end bonuses in stock that will be locked up for five years.
The awards will be comprised of so-called shares-at-risk, allowing Goldman Sachs to repossess them if the firm determines that the executive failed to adequately analyze or raise concern about risks, the New York-based company said in a statement today. Goldman Sachs will also give shareholders a non-binding vote on compensation.
"It's been done to address the populist movement that has put so much pressure on the financials over the last year," said William Fitzpatrick, an analyst at Racine, Wisconsin-based Optique Capital Management, which oversees about $900 million, including Goldman Sachs shares. "As a shareholder, I view this very favorably. This better aligns our interests with theirs as a management team."
Goldman Sachs, the most profitable securities firm in Wall Street history, has been criticized for allocating a near-record amount to pay employees in the first nine months of 2009 after benefiting from government support last year. The new policy will apply to the 30 members of Goldman Sachs's management committee, including Chairman and Chief Executive Officer Lloyd Blankfein, Chief Financial Officer David Viniar and the leaders of the firm's global and regional divisions.
$67.9 Million Bonus Two-thirds of Americans say they have an unfavorable view of financial executives and more than half say big financial companies are only out to enrich themselves, according to a Bloomberg National Poll conducted Dec. 3-7. The size of Goldman Sachs's pay has been criticized by politicians including Senator Jon Tester, a Democrat from Montana, and Senator Bernard Sanders, an Independent from Vermont.
Goldman Sachs set a Wall Street pay record in 2007, when it set aside $20.2 billion for compensation, including $16.9 billion in the first nine months. Blankfein, 55, was awarded a $67.9 million bonus for 2007, an all-time high for a securities firm CEO. It included $26.8 million in cash and $41.1 million in restricted stock and options.
The new shares-at-risk will be treated like restricted stock and will vest in equal portions over three years, although employees won't be allowed to sell them for five years, said Lucas van Praag, a spokesman. Goldman Sachs recognizes the expense of stock awards when they vest, he said.
Copycats Unlikely "They're trying to take the heat off the very large amounts of compensation they're going to pay," said Alan Johnson, president and founder of compensation consultant Johnson Associates Inc. in New York. The tactic may not work, however, because the public will focus on the size of the bonuses, he said.
Johnson doesn't expect competitors to follow Goldman Sachs's example. "Certainly they're going to consider it, but I think at the end of the day, most won't do it, because I think they're not going to pay as much as Goldman Sachs," he said.
The announcement came a day after Chancellor of the Exchequer Alistair Darling said the U.K. will require banks to pay a 50 percent tax on any bonus they pay to employees for 2009 that exceeds 25,000 pounds ($40,611). Six of the 30 members of Goldman Sachs's management committee are based in the U.K.
"We believe our compensation policies are the strongest in our industry and ensure that compensation accurately reflects the firm's performance and incentivizes behavior that is in the public's and our shareholders' best interests," Blankfein said in the statement.
Management Committee Listed By limiting the bonus restrictions to management committee members, Goldman Sachs will remain free to pay cash bonuses to the traders, bankers and sales people who generate the revenue, said Optique's Fitzpatrick.
"I would want to make sure those folks are compensated in line with market conditions," Fitzpatrick said. "It's more important to protect the producers than the management folks."
Following is a list of the members of Goldman Sachs's management committee, which is available on the company's Web site:
Lloyd C. Blankfein
Gary Cohn John S. Weinberg J. Michael Evans Michael S. Sherwood Kevin W. Kennedy Richard A. Friedman Timothy J. O'Neill Gregory K. Palm Masanori Mochida David A. Viniar Christopher A. Cole Esta E. Stecher David B. Heller Marc A. Spilker Edward C. Forst Richard Gnodde Richard M. Ruzika Yoel Zaoui Gordon E. Dyal David M. Solomon Edith W. Cooper Isabelle Ealet Edward K. Eisler Gwen R. Libstag John F.W. Rogers Pablo J. Salame Donald R. Mullen Harvey M. Schwartz Alan M. Cohen