Goldman Sachs (GS) has a tin ear. It cannot hear or wishes to ignore the tremendous bad publicity that has come from news that it will pay out record bonuses this year. It will pay those bonuses after taking billions of dollars in government bailout money, which it has paid back, and in the face of a Congress that is looking closely at limiting executive pay.
Goldman acts as if it wants to be rebuked by the federal government, shareholders, and the broader public. But, the firm has been the most successful investment bank in the world for years, and it may simply think that its management deserves large bonuses for the quality of work that they do and the returns that they provide.
Goldman has poured some more fuel on the fire over compensation. Executives at the financial firm sold $700 million in stock between September and April. According to the FT, “The surge in selling among Goldman partners, at a time when the US government had thrown a lifeline to Wall Street, is likely to draw criticism from lawmakers on Capitol Hill.” That may be the understatement of the year.
The likely decision by Goldman to raise bonuses and the dumping of shares by management are going to increase the pressure from Congress to clamp down on the amount that Wall St. firms pay their executives, but that position may not be reasonable. Goldman’s stock is up 100% over the last six months while the DJIA is up 2%. Goldman has done a great service to its investors, even if it did so with a hand from the government. The Treasury still holds warrants that can convert into Goldman shares, so the taxpayer does get something for his risk.
Goldman may be an example of the effectiveness of pay-for-performance, but that may not keep Congress from pushing to hold down the compensation in the financial industry.
Douglas A. McIntyre
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