Blankfein's pay hike looks hard to defend
-- The author is a Reuters Breakingviews columnist. The opinions -- The author is a Reuters Breakingviews columnist. The opinions expressed are his own --
NEW YORK, Jan 31 (Reuters Breakingviews) -
Breakingviews pens an imaginary letter to Goldman's directors from an irate shareholder.
To the Directors of the Board:
And here it seemed the smart people at Goldman Sachs (GS.N) had learned from their mistakes. The business ethics report published at the start of the year offered some sense that a gradual shift was underway. But now the firm is lurching into another fiasco. On pay. Again.
First, there's the $12.6 million bonus awarded to the top brass for last year's work. It may be chump change to Mr. Blankfein, who earned five times more in 2007. And it's less than Wells Fargo and JPMorgan (JPM.N) paid their chiefs last year. But how can a 42 percent increase from 2009 be justified? Goldman's net income fell by more than a third and return on equity nearly halved. Meanwhile, it seemed like Mr. Blankfein and the firm made headlines every day, getting lambasted for one transgression or another. One even required turning over $550 million to the Securities and Exchange Commission.
Some bosses get shown the door for less. But this board sees reason for extra rewards. And even though for more than a decade $600,000 has been deemed an ample salary for senior executives with a claim to the firm's special partner bonus pool, now was somehow the right time to triple that figure. It's nice that the senior-level bonuses are locked up in stock for five years. And it's true regulators have been seeking to rebalance the compensation structure in banking.
But executives have spent much of the past year or more trying to convince authorities, investors and the taxpayers whose funds have underpinned the financial industry that they understand the outrage about excessive Wall Street pay and that Goldman only rewards performance. This latest decision sends precisely the opposite message.
Yes, Citigroup's boss Vikram Pandit is getting a massive increase in pay. But the poor chap was only taking home $1 a year. And he at least has some claim to earning it. Citi's stock, despite a massive overhang as the government unleashed its flood of shares on the market, was up 43 percent last year. Goldman's, meanwhile, flatlined. And with no dividend increase, shareholders are playing second fiddle to Goldman employees yet again.
It sure sounds like directors have a tin ear when it comes to issues related to pay. Releasing details of a decision taken three weeks ago on a Friday night also suggests an attempt to bury the news. Normally, this whole affair would be one to take straight to the chairman. Alas, that would only lead right back to Mr. Blankfein's door.
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-- Goldman Sachs disclosed in filing to securities regulator on Jan. 28 that it was more than tripling the base salary of several of its senior executives. Chief Executive Lloyd Blankfein's will increase from $600,000 to $2 million in 2011.
-- Being paid $1.85 million annually will be Gary Cohn, president of investment banking; David Viniar, the chief financial officer; Michael Evans, vice-chairman and new head of emerging markets; and John Weinberg, vice-chairman.
-- Goldman, in a separate document, disclosed that all five men received a bonus for 2010 of 78,111 of restricted shares worth $12.6 million.
-- Michael Sherwood, who runs the firm's European operations, received a 2010 bonus of 89,270 in restricted stock, worth $14.4 million.
-- Reuters story: Goldman CEO gets salary boost, $12.6 mln shares [ID:nN28221742]
-- Goldman Sachs salary and bonus filings: here
Unequal share [ID:nN19222449]
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