Goldman wallops pay restraint with one-two punch

2 min read

The culture of entitlement is back at Goldman Sachs. For a couple of years it looked as if the Wall Street firm realized that exercising some restraint on executive pay sent the important message it had learned some humility from the financial crisis. But the board's decision to give an additional $5.4 million cash bonus for 2010 to Chief Executive Lloyd Blankfein and four of his deputies shatters the notion.

The revelation came just two months after Goldman announced it had awarded Blankfein and the others restricted stock worth $12.6 million each for their work last year, a 40 percent increase on 2009. As with that announcement, Goldman left it until after hours on a Friday to unveil its latest cash bonanza, in what looks like a shameless pattern of trying to bury controversial decisions.

The stock bonus already was hard to defend. Goldman's 11.5 percent return on equity last year was almost twice the average of 6 percent generated by the four firms it identifies as core competitors: Bank of America, Citigroup, JPMorgan and Morgan Stanley. But the comparison is strained.

Three of those rivals have big commercial operations, which tend to weigh down investment banking returns. And all four are still, to varying degrees, recovering from blows suffered during the crisis. Using them as a benchmark means Goldman's 2010 bonus round effectively pats staff on the back for performance before last year.

In any case, Goldman lags by other metrics. Earnings decreased by a third last year while JPMorgan's improved by 48 percent. Goldman's stock was flat, whereas Citi's soared 43 percent. And while Goldman's return on equity beat rivals, it fell by half from 2009. Then there's the matter of a $550 million payment to the Securities and Exchange Commission.

That's all reason to rein in rewards not double them. Goldman's directors aren't just thumbing their noses at shareholders, regulators and common sense; they're riding roughshod over the mantra of legendary senior partner Gus Levy to focus on being long-term greedy. They've basically ripped that page out of the bank's hymnal.