Financial Regulatory Forum

Goldman top executives to take bonuses in stock

By Reuters Staff
December 10, 2009

By Steve Eder

NEW YORK, Dec 10 (Reuters) – Goldman Sachs Group Inc plans to pay top managers their 2009 bonuses in stock, rather than cash, as it seeks to deflect outrage over a near-record pay haul months after it repaid billions of dollars in taxpayer aid.

The decision to pay top managers in stock that cannot be sold for five years puts Goldman at the forefront of the push to align Wall Street pay with long-term performance. Still, the firm’s total compensation is on pace to top $20 billion this year.

That figure has put Goldman in the crosshairs of an international debate on pay.

“I think Wall Street is well aware of the broad direction they need to move,” said Douglas Elliott, a former JPMorgan investment banker now with the Brookings Institution. “The devil’s in the details.”

Goldman’s plan, announced Thursday, applies to its 30-person management committee, an elite group that includes Chief Executive Lloyd Blankfein as well as some of the firm’s most senior risk-takers and managers, including the heads of sales and trading operations.

Those managers will receive all of their discretionary compensation in “shares at risk” — stock that must be held for five years. They will also face a stricter clawback provision that allows the company to recoup pay should employees later be found to have engaged in improper risk-taking.

The plan, however, leaves room from for some of Goldman’s elite performers not on the 30-person management panel to receive outsized cash paydays. Those salaries would not have to be publicly disclosed by the firm.

Goldman CEO Blankfein said in a statement that the firm believes its compensation policies are the strongest in the industry.

TREND SETTER?

Goldman has felt the brunt of a public backlash for setting aside nearly $17 billion in the first three quarters of 2009 for year-end compensation, even as the firm earlier this year repaid a $10 billion taxpayer bailout.

The anger on pay has gone global.

Earlier this week, Britain slapped a 50 percent tax on bank bonuses. Wall Street is trying to guard against such measures in the U.S.

Others are likely to follow Goldman’s lead, said Joe Sorrentino, a compensation consultant with Steven Hall & Partners in New York.

“I think they’re leading the pack here. Based on their prestige in the industry and their size and reputation, I wouldn’t be surprised to see other companies, the Wall Street firms, carry that forward and adopt certain provisions,” Sorrentino said.

Goldman’s plan comes as U.S. pay czar Kenneth Feinberg readies his next wave of pay rulings. Feinberg has the authority to set compensation for the highest-paid employees at companies that have not paid back extraordinary bailouts.

Feinberg has made aligning pay with long-term performance a point of emphasis in his rulings. The U.S. Federal Reserve has also unveiled rules based on similar principles.

Goldman shareholders will have an advisory vote on the firm’s compensation plans at the annual shareholder meeting in 2010, the firm said.

New York City stands to lose about $20 million in tax revenues for every $1 billion not paid in cash. A state official could not immediately provide such an estimate, though the state gets about one-fifth of its tax dollars from Wall Street.

Goldman shares gained on the news. They were up 0.6 percent, or 96 cents, at $167.40 in afternoon trading.

(Additional reporting by Elinor Comlay and Joan Gralla in New York and Karey Wutkowski in Washington; editing by Gerald E. McCormick and Matthew Lewis) ((Reuters email: steve.eder@reuters.com; +1 646 223 6069))

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