Senior Wall Street executives, under heavy criticism for failing to foresee the current economic turmoil (and according to some critics, actually casing it), while continuing to draw heavy salaries and bonuses, will now have a tough act to follow with senior Goldman Sachs officers forgoing their generous annual payouts.
The firm, which set a record for Wall Street pay last year, became the first US bank to scrap 2008 bonuses for senior officers in the face of the worst financial crisis since the Great Depression. CEO Lloyd Blankfein and six deputies told the New York-based bank's compensation committee yesterday that they would forgo the year-end awards, according to Goldman spokesman Lucas van Praag. Each of the executives receives a salary of $600,000; Blankfein's bonus last year was $68.5 million
Other payoffs were no less generous. Co-presidents Jon Winkelreid and Gary Cohn received $67.5 million each while finance director David Vinar was rewarded with $57.5 million. All these three, along with directors Michael Sherwood, Michael Evans and John Weinberg, have decided to forgo their bonuses this year.
Goldman has, in recent years, outperformed rivals on Wall Street. Its its big bonuses have also been the subject of much publicity - inside and outside the industry. The decision not to pay bonuses - typically making up the bulk of a Wall Street executive's pay package - could well set a precedent that others feel compelled to follow.
Its Swiss counterpart UBS had declared a similar policy earlier this month. Senior executives at the bank, who have already made it clear they will not take bonuses for 2008, are also introducing a pay plan that would prevent bonuses being paid for three years.
The bonus will be based on a malus system. A maximum of one third of the bonus will be paid out and the rest put in an escrow account and will be paid out on future performance. For instance, if UBS makes a loss in subsequent years, the bonus will not be awarded and the cash balance reduced.
Several analysts have recently predicted that Goldman will post a loss for its fourth quarter ending this month. The loss would be a first for the company since going public in the 1990s. The extent of any loss for Goldman will depend primarily on what happens in the world's stock markets during the rest of November.
The bank has entered the last fortnight of its financial year and will announce bonuses to staff next month. So far this year it has set aside $11.4 billion, which is a third less than last year. Staff below the boardroom could yet receive bonuses this year as the bank tries to operate a progressive pay structure.