Goldman Sachs (GS) has now paid back the TARP funds which removes the firm from what it must consider the government’s most draconian pay restrictions, those applied to companies living on taxpayer bailout dollars.

Goldman still has to face an angry Congress which is considering legislation that will allow monitoring and perhaps capping  of all pay at Wall St. firms. The current Administration proposal will allow shareholders and independent board members more leverage in management pay. Goldman could live with that, if the programs go no further.

Management at the premier investment bank has already begun to tell workers that 2009 may set a record for bonus payouts. According to the Guardian, “A lack of competition and a surge in revenues from trading foreign currency, bonds and fixed-income products has sent profits at Goldman Sachs soaring.”

So, it would appear that Goldman’s management is prepared to thumb its nose at the spirit of the government’s programs to restrict paying investment bankers and financial executives tens of million of dollars a year. It will make further restrictions on Wall St. pay tempting for politicians who have blamed the great majority of the failure of the financial and credit systems on the greed of a small number of financiers.

Goldman plans to pay its most productive people, whether the move is popular or not. It almost certainly believes what the CEOs of a number of large American banks have said which is that their best people will leave for hedge funds, private equity firms, boutiques, or foreign banks where they can be paid competitive fees for their efforts.

With some risk that it cannot maintain its culture of high performance/high paid managers, Goldman has decided to defy the future plans of the administrations to make the financial industry more responsible and to keep these firms from paying extravagant bonuses.  Financial companies argue that they can not take the risk of losing their top performers  and highly paid managers.  This battle will take place between now and the end of the year.

Goldman’s position will probably be very simple. The government should not have any right to say what employees at public companies are paid as long as they do not owe the government any money and that Goldman’s board should set compensation without interference. That might have been a reasonable position before the collapse of the credit system.  Now, the Administration and Congress may have to make an example of the bank to show that they are serious about curbing what the public sees as exorbitant compensation.

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Douglas A. McIntyre

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