NEW YORK AND LOS ANGELES — The campaign to clamp down on executive pay is getting an assist from an unusual source: the head of Wall Street's most powerful investment bank.
Lloyd Blankfein, chief executive of Goldman Sachs Group Inc., said Tuesday that the financial industry needed a "renewal of common sense" and pay standards to "discourage selfish behavior, including excessive risk-taking."
Blankfein said most compensation should be in stock rather than cash, employees should be required to hold their shares for longer periods and firms should "claw back" previously paid bonuses if employee risk-taking leads to losses.
The proposals would represent a notable shift in Wall Street compensation practices, primarily by binding employee pay to the longer-term financial health of companies.
But with Congress preparing its own crackdown on compensation, some analysts think Blankfein may be seeking to blunt an even tougher assault.
"Companies want to control these issues before legislation does it for you," said Alexander Cwirko-Godycki, research manager for compensation information firm Equilar Inc. "This is somewhat analogous to the movie industry, which created their own rating system before someone else did it for them."
To a degree, executive pay is already reflecting the harsher financial environment. Compensation for CEOs of companies in the blue-chip Standard & Poor's 500 index fell 6.8% last year from the previous year, according to a study released Tuesday by Equilar.
That was the biggest drop since 2002, when the decline was 9.9%. Median pay at financial companies plunged the most -- 38.3% -- to $6.5 million, mainly because fewer than half the companies paid bonuses, Cwirko-Godycki said. The next biggest drop was 21% at conglomerates such as General Electric Co.
Public fury over Wall Street compensation boiled over last month after it was revealed that American International Group Inc. was paying $165 million in bonuses to employees in the unit that generated such severe losses that AIG needed a series of government bailouts, which now total $182.5 billion in commitments.
Critics say the current financial crisis was spurred by compensation structures that encouraged employees to boost short-term revenue and profits in pursuit of massive bonuses. Thus, loan officers wrote subprime mortgages that later defaulted and traders loaded up on risky positions that cost their companies billions of dollars, the critics said.
