Goldman Execs May Be Forced to Give More to Charity
As it prepares to pay out big bonuses to employees, Goldman Sachs is considering expanding a program that would require executives and top managers to give a certain percentage of their earnings to charity.
The move would be the latest in a series of initiatives by Goldman to soften criticism over the size of its bonuses, which are expected to be among the largest on Wall Street, bringing average pay to about $595,000 for each employee — with far higher amounts for top performers.
Goldman set aside $16.7 billion for compensation in the first nine months of 2009, and in good years, the firm dedicates about three-quarters of its compensation budget to year-end bonuses.
The firm is expected to report later this month what could be record profit of about $12 billion for 2009, according to analysts’ estimates, compared with $11.7 billion in 2007. Its final compensation pool and executive bonuses will be announced then.
The firm said last month that its 30 most senior executives would be paid bonuses all in stock, but the bank placed no limit on how large those bonuses might be.
While the details of the latest charity initiative are still under discussion, the firm’s executives have been looking at expanding their current charitable requirements for months and trying to understand whether such gestures would damp public anger over pay, according to a person familiar with the matter who did not want to be identified because of the delicacy of the pay issue.
The charity idea would be similar to a decades-long program at the failed investment bank Bear Stearns, which required more than 1,000 of its top workers to give 4 percent of their pay to charity each year and then checked their tax returns to ensure compliance.
Assuming a similar percentage and level of participation, that would mean Goldman’s top employees would commit to giving hundreds of millions of dollars to charity, though the precise amount would depend on the level of contributions and the number of workers who are required to take part.
It could not be determined whether Goldman would create a new program for its mandated giving or run it through Goldman Sachs Gives, which oversees donor-directed charity funds for Goldman workers.
That program was created in 2007, weeks before Goldman paid its chief executive, Lloyd C. Blankfein, $68 million for that year. It required Goldman’s 400 or so partners to give an undisclosed amount to charity each year on their own or through the program. Goldman declined to comment.
Amid a growing public outcry over big bonuses at Goldman and other Wall Street banks, Goldman in October said the firm itself would donate $200 million to its charitable foundation, nearly doubling its size. (The foundation is separate from GS Gives.)
It also created a $500 million fund to lend to small businesses, a sector that has suffered in the tight credit environment. The plan will be overseen in part by Warren E. Buffett, who is a large Goldman investor.
Moreover, the firm — which initially was on track to pay closer to $650,000 to $700,000 on average to its workers — has scaled back planned bonuses by cutting the amount of revenue set aside for compensation, apparently in response to negative public reaction.
People familiar with the matter said that Goldman was planning to further reduce the portion of revenue dedicated to compensation in the fourth quarter.
Still, these moves have done little to quell criticism of banker bonuses, and it is unclear if Goldman’s latest idea, if adopted, would alter the public mood and the feeling in Washington that big pay packages are inappropriate given the troubled economy.
On Sunday, Christina D. Romer, head of the president’s top economic council, said on CNN’s “State of the Union” that it was “ridiculous” that banks planned to pay out billions in bonuses for last year. The payout, she said, “is going to offend the American people. It offends me.”
For their work in 2008, 953 Goldman employees were paid more than $1 million each; the bank accepted $10 billion in federal bailout cash, though it has since repaid the money, as have most other banks, freeing them of government limits on compensation.
Goldman, like its peers, is caught between conflicting constituencies. The bank cut worker pay somewhat last year, and some employees may leave for hedge funds or private equity firms if they are not paid handsomely for their contributions to the firm’s profits.
Some shareholders, however, want the bank to divert more of its money to them as dividends, though others think it should pay to keep workers happy. In the meantime, the public has little sympathy for bankers expecting compensation to return to previous levels.
The most important public relations tactic Goldman and other banks may use, headhunters said, is to instruct their employees to keep their heads down.
“They’ll try to make sure their people aren’t going out and celebrating their financial wins,” said Maurice Toueg, a recruiter with Capstone Partnership.