The CEO and Chairman of Goldman Sachs (NYSE:GS), Lloyd Blankfein, and six deputies told on Sunday the firm’s bank compensation committee that they had decided to forgo their 2008 bonuses. According to WSJ, the seven execs made the decision to waive cash or stock bonuses themselves, giving up potentially on tens of millions of dollars in payouts in a year that transformed the securities industry.
“They felt it was the right thing to do,” Lucas van Praag, the firm spokesman said late Sunday. “We can’t ignore the fact that we are part of an industry that’s directly associated with the ongoing economic distress.”
The list of affected execs, besides Blankfein, includes President and Co-Chief Operating Officers Jon Winkelried and Gary Cohn, Vice Chairs John Weinberg, J. Michael Evans and Michael Sherwood, and Chief Financial Officer David Viniar. The executives will only be eligible for their base salaries, $600,000 for each.
Just a year ago firms across Wall Street were relatively untouched by the mortgage meltdown and were raking in record profits. Last year, Blankfein received total compensation of $68.5 million making him one of the highest paid CEO at Standard & Poor’s 500, while Winkelried and Cohn each made $67.5 million and Viniar earned $57.5 million. But over the last several quarters, mortgage related losses have slammed many firms, including Goldman. The global bank’s profits have declined 46% and its stock is down nearly 70% since the start of the year — though it must be said the co. has fared better than most financial institutions.
While the scrapping of the ‘08 bonuses for Goldman’s senior officers is a move that is being closely watched by many in Wall Street, it isn’t clear yet whether other firms will follow suit. Spokeswomen at Morgan Stanley (NYSE:MS) and Merrill Lynch & Co. (MER), notes WSJ, said no compensation decisions have been made yet. Morgan Stanley CEO John Mack, who received a $40 million bonus in 2006, took no bonus last year after the firm suffered a fourth-quarter loss.
Regulators including New York Attorney General Andrew Cuomo, who demanded compensation information last month from banks that received bailout funds, praised Goldman Sachs for “taking an important step in the right direction,” adding “this gesture by Goldman is appropriate and prudent and hopefully will help bring Wall Street to its senses. We strongly encourage other banks to follow.” Mr. Cuomo said in a prepared statement.
Since the start of fiscal ‘02, Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers (OTC:LEHMQ) and Bear Stearns have paid a combined total of $312 billion in compensation to its employees. But this compensation model has emerged again as a hot topic and is being scrutinized by lawmakers and taxpayers after the Treasury Department announced plans to inject billions of dollars in capital into financial institutions. Banks and brokerages have taken more than $700 billion in writedowns and losses since the subprime-mortgage market collapsed last year, and have cut over 150,000 jobs. Goldman is among the initial nine companies getting a combined $125 billion in the first stage of the $700 billion government rescue plan for the industry.
Despite insistence that its headcount would rise this year - Goldman notified earlier this month approx. 3,200 employees that they would get laid off.
Goldman Sachs converted in Sept. to a bank holding company supervised by the Fed and then raised $10 billion from Buffett’s Berkshire Hathaway Inc (BRK-A). Analysts are predicting the company is on course to post its first quarterly loss as a public company in December when it reports its fourth-quarter earnings. This will be the first time since its IPO in fiscal ‘99 that Goldman is expected to report a quarterly loss.