Goldman Sachs Chief Executive Lloyd C. Blankfein. (Jemal Countess / Getty Images )
Reporting from Los Angeles and New York — Facing persistent criticism of its huge pay packages, investment banking powerhouse Goldman Sachs Group Inc. said Thursday that it would buck long-standing Wall Street tradition and pay no year-end cash bonuses to 30 top executives.
Instead, the firm will give those employees bonuses made up entirely of Goldman Sachs stock and will bar them from selling the shares for five years. The company also said it would give shareholders a formal voice regarding executive pay.
By implementing a number of compensation reforms that Wall Street critics have long championed, Goldman is acting to discourage its employees from taking excessive financial risks. Incentives for Wall Street bankers and traders to place dicey bets with the large sums at their disposal have been widely blamed for contributing to the mortgage meltdown and the global financial crisis.
But Goldman stopped short of the most dramatic step that critics have called for -- actually reducing compensation -- leaving outsiders to ask whether the latest move was little more than window dressing to tamp down the appearance of unbridled greed.
"This is as much a PR move as it is a move to change their pay structure," said Dan Pedrotty, the AFL-CIO's director of investments and a critic of corporate pay practices. "You still have this bottom-line issue that a firm that was just recently bailed out by the American taxpayer is paying out enormous sums of money."
Still, Wall Street has been loath to cede any ground in a years-long tussle over compensation. Goldman's action demonstrates the pressure on the New York company at a time of high unemployment and general suffering that many Americans blame on the country's big banks.
"I'm not surprised they're making this move in light of the scrutiny they're getting over their payouts this year," said Aaron Boyd, research manager at Equilar Inc., a Redwood Shores, Calif., firm that tracks executive pay.
Goldman spokesman Samuel Robinson called the reforms "perhaps the strongest in the industry."
"What we have announced today for the 30 most senior people at Goldman Sachs represents a closer alignment than there has ever been of incentives and compensation with the interests of shareholders and the public," he said.
Bonuses represent a vast majority of the compensation for Goldman senior managers.
The company, however, didn't commit to paying all-stock bonuses beyond this year, although Robinson didn't rule out the possibility.
Long admired on Wall Street for a seeming ability to mint money, Goldman is now reviled by much of the public for the same reason. It has been debated whether the firm would have failed without the $10-billion infusion it received from the government last fall -- money the firm paid back, with interest, in June. But Goldman's survival would almost certainly have been in doubt without the government's many actions to rescue the financial system at large.
In any case, Goldman has recovered solidly from last year's calamity. After losing $2.12 billion in the last three months of 2008, the company posted earnings of $8.5 billion in the first nine months of 2009.
And its more than 31,000 employees -- from lowly assistants to Chief Executive Lloyd C. Blankfein -- are on pace to reap total compensation this year averaging more than $700,000 a person, rivaling the record payouts the firm made in 2007.
Such largesse is unlikely to play well on Main Street or in Washington, even with the reforms that Goldman unveiled Thursday.
"I do believe you're finally beginning to see some small signs that some of the folks [on Wall Street] may be getting the message, but not enough," said Rep. Chris Van Hollen (D-Md.), a member of the House Democratic leadership team.
Goldman's action came a day after the British government announced a one-time tax on bankers' bonuses that is aimed at limiting big year-end payouts and recouping some of the tax money that was used to bail out financial firms. Under the British plan, any bonus exceeding $41,000 will be hit with a 50% levy.
Among the changes in its pay practices, Goldman is toughening rules that allow the company to reclaim the shares if bets that initially seemed profitable end up going bad a few years later.
The goal is to pay traders and bankers based on the company's long-term health. Advocates of such compensation structures say they're also better for the overall economy.
Financial deals that generated huge commissions for bankers and brokers -- such as writing increasingly speculative subprime mortgages -- played a central role in the housing collapse and ensuing financial crisis that felled onetime Goldman rivals Lehman Bros. and Bear Stearns.
Goldman also said it would let shareholders vote on executive pay at its annual meetings. But such "say on pay" votes are nonbinding, leaving company boards free to determine compensation.
Goldman was widely criticized for earmarking $5.4 billion for compensation in the third quarter -- almost half of its $12.4 billion in revenue for those three months.
So far this year, it has allocated about $16.7 billion for 2009 compensation, a 46% jump from 2008 and just below the $16.9 billion in total compensation in 2007, its best year ever.
That works out to an average of about $527,000 for each of Goldman's 31,700 employees. Extrapolating to all of 2009, the firm is on pace to shell out an average of $702,000 to each employee.
Times staff writer Jim Puzzanghera contributed to this report.