How much should Goldman pay Lloyd Blankfein?

December 3, 2009

Lloyd Blankfein

By Antony Currie and Rob Cox

NEW YORK – How much should Goldman Sachs pay Lloyd Blankfein? A year after the investment bank’s chief — and virtually all his peers — received what for them was a relative pittance, it’s the big question on Wall Street. And so it should be.

Compensation for the head of the industry’s top money-maker will set a new benchmark. That gives Goldman’s directors a golden opportunity to show that the firm is less out of touch than critics suggest. The first, and hopefully most obvious, step in deciding Blankfein’s take — which will also set standards for Goldman’s other top executives — is to throw out bubble-year pay precedents, and any spurious calculations that produced them.

Take the 0.6 percent of net income Blankfein was paid in 2007. Based on Goldman’s expected net income this year, he would be in line for a 2009 payday of around $64 million, only just shy of the bumper $68 million he received two years ago. That would provoke justifiable uproar.

Yet back in 2007, Goldman was far from the most egregious in setting executive pay. As a proportion of earnings, Blankfein’s 2007 haul was just half what Lehman Brothers handed Dick Fuld. A year earlier, of the major investment bank bosses only Morgan Stanley’s John Mack received less, some 0.5 percent of profits. Bear Stearns’ chummy board, meanwhile, awarded chief executive Jimmy Cayne a whopping 1.9 cents for every dollar the bank made the year before it effectively went bust.

The better paid of the bunch on this metric presided over some of the biggest failures of the past two years. It’s ironic that, at the time, one argument for paying the likes of Fuld and Cayne more handsomely than rivals was that they had been in the job for more than a decade and were responsible for safely navigating their firms through a variety of crises as well as for recent growth.

Those and other justifications for towering paychecks proved false. The credit crisis of 2008 exposed deep flaws in a business where investment banks magnified returns with short-term debt financing. When that funding dried up, a taxpayer-funded relief effort was needed to prevent the industry from collapsing.


The recent history explains why Blankfein’s pay this year is even more of a yardstick than usual for the industry. Not only is Goldman cranking out more money and better returns than any other firm, but changes of leadership at most rivals have made him one of the industry’s elder statesmen — just three years into the job. It’ll be tough for others to justify paying chiefs more by almost any metric.

Figuring out the right level of pay is hard, though. For starters, while Goldman is on course to earn almost $11 billion this year, it has done so in part on the back of myriad taxpayer sponsored and funded programs to kick start capital markets. Goldman still seems reluctant to admit that it, too, would have fared poorly without the government’s intervention.

But the continuing backlash over the nearly $20 billion in compensation and benefits the firm is expected to accrue through the year may tempt its board to keep Blankfein’s pay in the single-digit millions to avoid public censure. That, however, would be a flawed strategy. Firstly, it’s not clear that critics of Wall Street and executive pay would oppose a $9 million payout any less than one twice as large.

And more to the point, Blankfein genuinely deserves to be rewarded for managing the firm through the worst crisis in decades. That’s worth more than the $11 million or so average payout of an S&P 500 boss — and a premium to the $9 million that Robert Benmosche is to receive for running government-owned AIG <AIG.N> is certainly justified, too.

The right number may be somewhere around $20 million. And in a nod to concerns about limiting short-term incentives, Goldman could pay 90 percent of that in stock — compared with 60 percent in 2007. At a time of high unemployment, and after significant government assistance in bailing out the capital markets, even that may seem too generous. But it would be far less than boom-time bonanzas, and at 0.2 percent of earnings would set a more reasonable ceiling for Goldman’s less profitable peers.


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The major reason for the income is control of inside infomrmation and access to power, all of which is being abused. Wall Street is rapacious and no longer providing a useful service. They need to be regulated and censured. No one trusts them as they have shown their true natures to be destructive.

Posted by rhess595 | Report as abusive

That’s it. Use a union tactic of demonstrating comparables, instead of providing any evidence for a better measure. If you want proper leadership in a company, erase the bullshit compensations for people who can easily take a position to easily soak up such overblown payments. Then you can actually have a model that’s based upon performance, not convenience.

Posted by BeeRich | Report as abusive

Like the new look of reuters, but looks like formatting issues prevail in this version, cant read words with close proximity to the right pane.

Posted by Fin_consultant | Report as abusive

you still don’t have a way to get a good print out of a blog column!

Posted by EdK | Report as abusive

$20 million? What a load of crap. People are out of work, times are tough. Wall Street just doesnt get it. This is the greed that got us in this mess in the first place.

He should take that $20 million and donate it to people without insurance or who cannot afford their hospital costs.

There is a reality out there in America. Its on our backs that you can wake up every morning knowing you have health insurance, several houses, social clubs to attend.

How much is enough?

While my sister worked everyday and could not afford health insurance. Now she has cancer and cant afford to pay for treatment. Do you realize two hours of your $20 million salary would pay for her cancer healthcare costs.

Middle America has no sympathy for your kind!

Posted by 5wa | Report as abusive

Go back to 1980 when a CEO got 20 times what the workers got. Take the pay of the lower 80% of the companies workers, average it, give the CEO 20 times that. Bonus?? Everyone gets the same bonus as a percentage of their pay.

Posted by xxxrepub | Report as abusive

As much as I agree that bankers get paid way too much, over regulation will not see an end to this sort of corporate greed. After the collapse of Worldcom and Enron earlier in the decade the reaction to that with the introduction of Sarbanes Oxley Act has not made corporate America any more cautious. Remuneration should be based on KPI set against short-term and long-term goals and who better to vote on management performance than the shareholders themselves? No amount of mandated regulation will provide any comfort for the public, if anything, it adds more cost to the business and the shareholders are the ones that end up paying for it anyway. Bring on the binding vote!!

Posted by meth | Report as abusive

The profits made by banks this year has nothing to do with bankers’ skills or management’s leadership. In an environment where the cost of money is negligible and the the yield curve is at its steepest in 25 years, a bank would have to be incredibly inept NOT to make money. They have had a free ride since March this year. This year’s bonus pools should NOT be allocated to bankers but given to the Fed and the Treasury (i.e. taxpayers) who have done all of the heavy lifting.

Posted by Hedgie08 | Report as abusive

Well I am all for getting paid based on worth. The real issue here is how to measure worth. I would feel much better if I could see something tangible. For example, linking his pay to performance objectives which are clearly stated and comprised of smaller intermediate goals/objectives. That why the public, if it really is any of our business, can see that Mr. B. met objectives x, y, and z by fulfilling the requisite goals of each which in turn has generated x-number of dollars for the company.

Posted by BARTHALIMOO | Report as abusive