Goldman: Look, we really do deserve these bonuses

3 December 2009

2 minute read

Goldman: Look, we really do deserve these bonuses

Lloyd Blankfein has already hinted at why Goldman Sachs employees deserve every penny of their average $700k per head compensation this year. But now the bank has rolled out all manner of charts and statistics in an attempt to appease shareholders and (possibly) the public over its pay practices.

In a 14-page document which uses the words 'attract and retain' , 'talent' and 'human capital' with brain-washing frequency, Goldman has outlined how its performance justifies the lavish rewards it gives its staff.

It says:

We operate in a human capital driven industry where we compete for the best talent available globally.

Compensation for institutional financial services companies is the equivalent of other industries' COGS and SG&A

The institutional financial services business model when appropriately managed has produced significantly more attractive results for shareholders than other industries.

As well as repeating the message that its average pre-tax margins (at 29%) are significantly greater than its peers, it also provided further graphical arguments about why paying for performance is a good thing (click for big):

And, here's why it's good for Goldman's shareholders:

By tying compensation to performance, GS incentivizes employees to create long-term value for our shareholders

- GS has generated the highest average EPS growth rate, ROE and BVPS growth and still been able to pay out more on average per employee

- By maintaining a sizeable portion of compensation in equity awards that are restricted over an extended period of time, GS encourages employees to take a long-term, firmwide approach to performance.

According to reports in today's Wall Street Journal, Goldman is also meeting with major investors in an attempt to pacify any concerns over compensation.

AUTHORPaul Clarke

To
Todd
3 December 2009
The first graph is hilarious. Perfect correlation between Revenue growth and compensation growth.
An idiot might even get into thinking let's increase compensation and revenue will grow ...
Clearly, only the best human talent can produce such a product of the intellect as that chart.
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Jo
John
3 December 2009
GS pay less than 1% div yield and their stock price is still below pre-crash levels. These guys have turned out a huge profit but in a market place where two of its main rivals were eliminated and they have been give vast amounts of free money, not to mention an epic rally in all asset classes.
Obviously bonuses need to be paid to retain staff but if they really wanted to act in their shareholders best interests they should be paying out special divs or stock buy backs. Lets be honest, do we honestly believe that any GS staff would leave if they made $2m in bonus instead of $5m? its not like they actually had to earn it this year after all.
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An
Angostura
3 December 2009
Ah, I love the way percentages can be used to obfuscate the issue. The last slide shows that their most profitable years had the lowest rates of comp (06 and 07). True. Especially compared to the 49% given out in 2001. But, the absolute amounts are 1.5-3.0x times the higher rate years. So the same person was being paid double or triple the amount in the good years as the bad. Lower rate maybe, big sacrifice, I don't think so.
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Jo
Joleon
3 December 2009
Anyone bitching about banking bonuses obviously haven't pulled up a stock price chart recently.
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