Goldman Sachs First Bank To Cut Executives' Bonuses

Sydney Morning Herald

Tuesday November 18, 2008

Christine Harper

GOLDMAN SACHS, the firm that set a record for Wall Street pay last year, became the first US bank to scrap this year's bonuses for senior officers in the face of the worst financial crisis since the Great Depression.

Its chief executive, Lloyd Blankfein, and six deputies had told the bank's compensation committee they would forgo the year-end awards, Lucas van Praag, a company spokesman, said.

Each executive receives a salary of $US600,000 ($927,000); Mr Blankfein's bonus last year was almost $US70 million.

"They believe it's the right thing to do," Mr van Praag said. "We can't ignore the fact that we are part of an industry that's directly associated with the ongoing economic distress."

Wall Street bonuses, typically about two-thirds of the firms' total annual compensation, are under scrutiny by politicians and taxpayers after the US Government passed a $US700 billion rescue plan for the industry. Banks and brokerages have taken $US707 billion in write-downs and losses since the subprime mortgage market collapsed last year, and have cut almost 160,000 jobs. Lehman Brothers, once the biggest underwriter of mortgage securities, was forced to file for bankruptcy.

New York's Attorney-General, Andrew Cuomo, who demanded pay information last month from banks that received bail-out funds, lauded Goldman for taking a "step in the right direction."

"This gesture by Goldman Sachs is appropriate and prudent and hopefully will help bring Wall Street to its senses," Mr Cuomo said in a statement. "We strongly encourage other banks to follow."

Mr Blankfein, Goldman Sachs's chief financial officer, David Viniar, its co-presidents, Jon Winkelried and Gary Cohn, and its vice-chairmen, J. Michael Evans, Michael Sherwood and John Weinberg will not receive year-end pay-outs.

Goldman paid record bonuses to Mr Blankfein, Mr Cohn and Mr Winkelried last year, awarding more than $US65 million to each after the company reported the biggest profits in Wall Street history. Mr Viniar received more than $US56 million as a bonus last year.

Goldman's revenue is down 32 per cent so far this year, profits have declined 47 per cent and some analysts predict the firm will report a loss in the fourth quarter. The share price has fallen to 69 per cent.

Earnings at smaller rival Morgan Stanley have shrunk in the same period, while Merrill Lynch, which runs the biggest US brokerage, and Citigroup, the nation's fourth-largest bank, have not posted a quarterly profit since last year.

Morgan Stanley's chief executive, John Mack, who received a $US40 million bonus in 2006, did not take an award last year after his firm reported its first quarterly loss. The bank, whose stock is down 77 per cent this year, will decide on this year's compensation in the next two weeks.

"These senior executives have made a lot of money historically, so not getting a bonus for one year is not going to affect them like someone at a lower level," Jeanne Branthover, the managing director at Boyden Global Executive Search, a recruiting firm, said. "It will free up cash to give to people that they want to retain because there's still a war for talent."