Bank Bonuses: The 'Fat Cats' Try to Look Slimmer

December has been tough for the global banking elite. First Britain's Chancellor of the Exchequer, Alistair Darling, slapped a 50% tax on bonuses paid to bankers. Then, days later, President Barack Obama chided "fat-cat bankers" on national television in the U.S. On Dec. 14, Wall Street began cranking up its PR machine to contain the damage, sending U.S. Bancorp (USB) CEO Richard Davis—a lesser-known, lesser-paid member of its ranks—to address reporters in Washington. America's top bankers, he said, "agreed very much" with the President "on the principles of executive compensation," adding that they "are looking forward to you seeing the good efforts we've taken in the last couple of months."

But a close look at Goldman Sachs' (GS) recent maneuvers shows that some of the changes in pay practices on Wall Street are more stylistic than substantive. Goldman, the target of so much animus in recent months, has led Wall Street's charge to get back in Main Street's good graces; on Dec. 10 the firm announced it would pay its top 30 executives annual bonuses solely in restricted stock that can't be sold for five years.

Moves like these should take off some of the heat. Because Goldman is using more stock and forcing its people to hold it for years, it's aligning employees' interests more closely with the firm's long-term health. The plan "incentivizes behavior that is in the public's and our shareholders' best interests," CEO Lloyd Blankfein said in a statement on Dec. 10.

Raising the Head Count But the changes aren't likely to inflict much pain on the banks—or their employees. Goldman's awards will consist of so-called shares-at-risk. Some of those shares won't vest right away, and Goldman won't have to account for the 2009 compensation expense on its books until they do. That means it can effectively boost its profits now while lowering its compensation tab, a number that politicians will be scrutinizing. "That's just what they needed to make this year look better," says Robert Willens, a former managing director at Lehman Brothers and founder of Robert Willens LLC, a consultancy that advises investors on accounting and tax rules.

Of course, the bankers will be getting stock that could, in theory, lose all its value, as any former Lehman Brothers employee can attest. Then again, the shares could rise. Even a modest 20% increase over five years' time would add $2 million to a $10 million stock grant.

Another Goldman pay measure might alter perception more than reality. In July the company said it had begun to include consultants and temporary staff among its total head count, which has risen from 27,898 in March to 31,700 by the end of September. That should help Goldman slash its pay per employee significantly. "We match our reported head count as closely as possible to our reported compensation and benefit expense," says Goldman spokesman Samuel Robinson.

Taken together, Goldman's changes are mostly "cosmetic," says Mark Borges, compensation consultant at Compensia Inc. in Corte Madera, Calif. "This is largely being done…to show that their program is more in line with what the government is saying."

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