17 Nov 2008
Nov. 17 (Bloomberg) -- Goldman Sachs Group Inc., the firm that set a record for Wall Street pay last year, became the first U.S. bank to scrap 2008 bonuses for senior officers in the face of the worst financial crisis since the Great Depression.
Chief Executive Officer Lloyd Blankfein, 54, and six deputies told the New York-based bank's compensation committee yesterday that they would forgo the year-end awards, according to Lucas van Praag, a company spokesman. Each of the executives receives a salary of $600,000; Blankfein's bonus last year was almost $70 million.
``They believe it's the right thing to do,'' van Praag said in a telephone interview. ``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 lawmakers and taxpayers after the U.S. government passed a $700 billion rescue plan for the industry. Banks and brokerages have taken $707 billion in writedowns and losses since the subprime-mortgage market collapsed last year, and have cut almost 160,000 jobs. Lehman Brothers Holdings Inc., once the biggest underwriter of mortgage securities, was forced to file for bankruptcy.
New York Attorney General Andrew Cuomo, who demanded pay information last month from banks that received bailout 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,'' Cuomo said in a prepared statement. ``We strongly encourage other banks to follow.''
Shrinking Revenue
Blankfein, Chief Financial Officer David Viniar, Co- Presidents Jon Winkelried and Gary Cohn, and Vice Chairmen J. Michael Evans, Michael Sherwood and John S. Weinberg won't receive year-end payouts, van Praag said. In the nine months through August, Goldman's compensation expense dropped 32 percent from last year to $11.4 billion.
Revenue is also down 32 percent so far this year, profits have declined 47 percent and some analysts predict the firm will report a loss in the fourth quarter. The share price has tumbled 69 percent.
Earnings at smaller rival Morgan Stanley have shrunk in the same period, while Merrill Lynch & Co., which runs the biggest U.S. brokerage, and Citigroup Inc., the nation's fourth-largest bank, haven't posted a quarterly profit since 2007. All the companies are based in New York.
Morgan Stanley CEO John Mack, who received a $40 million bonus in 2006, didn't take an award last year after his firm reported its first quarterly loss. The bank, whose stock is down 77 percent this year, will decide on 2008 compensation in the next two weeks.
Record Payouts
Goldman paid record-setting 2007 bonuses to Blankfein, Cohn, 48, and Winkelried, 49, awarding more than $65 million to each after the company reported the biggest profits in Wall Street history. Viniar, the CFO, received more than $56 million as a bonus last year.
``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,'' said Jeanne Branthover, managing director at Boyden Global Executive Search, a recruiting firm in New York. ``It will free up cash to give to people that they want to retain because there's still a war for talent.''
Goldman isn't the first financial firm to rein in bonuses this year. Deutsche Bank AG, Germany's biggest bank, said in October that Chief Executive Officer Josef Ackermann and investment banking chiefs Anshu Jain and Michael Cohrs won't receive the payouts.
`Unfavorable' Opinion
Goldman, which converted from the largest U.S. securities firm into a bank holding company in September, is one of nine U.S. banks that received a total of $125 billion in the first stage of the $700 billion aid plan. U.S. Representative Henry Waxman, a California Democrat, and Cuomo, also a Democrat, have called on the nine companies to provide information on their pay plans.
``The image of New York investment bankers has been that they will take money no matter what,'' Branthover said. Goldman ``is saying we understand, we take it seriously, we are going to do what's right and we will be accountable.''
A poll of 800 U.S. voters conducted last month by Public Strategies Inc., an Austin, Texas-based public relations company, found that 79 percent had an ``unfavorable'' opinion of the CEOs of major U.S. banks and that 85 percent thought they were paid more than they deserved. About two-thirds of the people surveyed supported the establishment of government guidelines for executive compensation.
