Goldman Sachs is to give its top 30 executives year-end bonuses in stock they can't sell for five years.
The awards will be consists of so-called shares-at-risk, allowing Goldman Sachs to repossess them if the firm determines that the executive failed to adequately analyse or raise concern about risks, the New York-based company said in a statement today. Goldman Sachs will also give shareholders a non-binding vote on compensation.
"They're trying to take the heat off the very large amounts of compensation they're going to pay," said Alan Johnson, president and founder of compensation consultant Johnson Associates in New York.
The tactic may not work because the public will focus on the dollar value of the bonuses, which may not be reduced by today's change, he said.
Goldman Sachs, the most profitable securities firm in Wall Street history, has been criticised for allocating a near-record amount to pay employees in the first nine months of 2009 after benefiting from government support last year.
The new policy will apply to the 30 members of Goldman Sachs's management committee, including chairman and chief executive Lloyd Blankfein, chief financial officer David Viniar and the leaders of the firm's global and regional divisions.
"It's been done to address the populist movement that has put so much pressure on the financials over the last year," said William Fitzpatrick, an analyst at Racine, Wisconsin-based Optique Capital Management, which oversees about $900 million, including Goldman Sachs shares.
"As a shareholder, I view this very favourably. This better aligns our interests with theirs as a management team."
The size of Goldman Sachs's pay has been criticised by politicians including Senator Jon Tester, a Democrat from Montana, and Senator Bernard Sanders, an Independent from Vermont, who called the bank's compensation plans "obscene" in July.
Goldman Sachs, which had 31,700 employees as of September, set a Wall Street pay record in 2007 when it set aside $20.2 billion for compensation, including $16.9 billion in the first nine months. Mr Blankfein (55) was awarded a $67.9 million bonus that year, an all-time high for a securities firm CEO. It included $26.8 million in cash and $41.1 million in restricted stock and options.
The new shares-at-risk will be treated like restricted stock and will vest in equal portions over three years, although employees won't be allowed to sell them for five years, said Lucas van Praag, a spokesman. Goldman Sachs recognises the expense of stock awards when they vest, he said.
Johnson at Johnson Associates doesn't expect competitors to follow Goldman Sachs's example. "Certainly they're going to consider it, but I think at the end of the day, most won't do it, because I think they're not going to pay as much as Goldman Sachs," he said.
The announcement came a day after British Chancellor of the Exchequer Alistair Darling said the UK will require banks to pay a 50 per cent tax on any bonus to employees for 2009 that exceeds £25,000. Six of the 30 members of Goldman Sachs's management committee are based in the UK.
Bloomberg