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Is Goldman's Brake Provision Just Smoke and Mirrors?

Given its status as Wall Street's 2010 No. 1 payer of total compensation, it's little wonder Goldman Sachs has bonus pay, and its public persona, on the front burner.

In a regulatory filing last week Goldman disclosed it had adopted a so-called brake provision: If the government is forced to bail out Goldman, most of the firm's outstanding compensation awards "shall immediately terminate." The firm also said it may gear some future bonus awards toward profit performance, not just the value of its stock.

Clearly a savvy move on both counts. Because if some pundits are racing to crown Goldman king of executive pay, others seem ready to crucify it for throwing so much cash at its people just now.

Into the Wind

Earlier this month our UK site reported that Goldman planned to pay top dollar against competitors like UBS, JPMorgan and Credit Suisse this year in salary and bonus - a total of $416,000, on average, per head. That compares to $377,000 per person at UBS, $347,000 at JPMorgan and $331,000 at Credit Suisse.

According to another item, "Goldman Sachs bosses are (also slated) to pick up $111million in bonuses in an "outrageous" pay deal that flies in the face the worst recession for 80 years.

Another voice: The Vancouver Sun called Goldman "the most admired and most hated investment bank" because of its outsized bonuses. "The growing disparity of wealth in the United States is not a healthy sign for the economy or the country itself."

About Face

Suddenly, though, observers are applauding Goldman's corporate governance prowess.

Robert J. Jackson Jr., an associate professor at Columbia Law School who was the deputy special master for executive compensation under TARP, believes the firm's brake provision is "just one more sign of Goldman's leadership on reforming pay structures." It'll be interesting, he said, to see whether others follow Goldman's lead.

Most likely, some will do just that. As the New York Times's Dealbook observes, there is virtually no danger that Goldman's adoption of the provision will derail its bonuses for 2010. The firm earned $5.97 billion during the year's first nine months and set aside $13.1 billion in pay for its 35,400 employees.

So though former Pay Czar Kenneth R. Feinberg didn't make any friends when he called for brake provisions during the summer, Goldman's move should cost its executives nothing - while allowing management to plump its feathers for free.

AUTHORJanet Aschkenasy Insider Comment
  • Go
    3 January 2011

    This can be true and good for Goldman Sachs, but if someone rated them excellent and caught in a fraud, what does that mean?

    Rubberstamp books?

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