This morning we learn that the chief executive of Goldman Sachs in the US, Lloyd Blankfein, and six of his “deputies”, have told the bank’s compensation committee that they have decided to forgo their bonuses this year.
This morning we learn that the chief executive of Goldman Sachs in the US, Lloyd Blankfein, and six of his “deputies”, have told the bank’s compensation committee that they have decided to forgo their bonuses this year.
That’s very big of them. Solemn praise all round.
But excuse me – they were going to get bonuses this year?
In the nine months to August, Goldman’s revenue dropped 32%, profits fell 47% and the share price has fallen more than 70%. And Goldman is one of nine banks sharing in the first $US125 billion of the US Government’s $US700 billion bailout package.
So having presided over an utter debacle in the firm’s revenues and profits, and watched shareholders lose a fortune, Lloyd Blankfein and his cronies were apparently going to be given some or all of the taxpayers’ bailout money as bonuses, except they have voluntarily decided to forgo them.
They will each just get their $US600,000 in base salaries. Last year Blankfein topped this up with a $US70 million bonus, which will have to tide him over this year.
Citigroup’s chief, Vikram Pandit, had a “town hall” meeting with staff overnight, showing them a very upbeat slide presentation about Citigroup’s great strengths, in which he revealed, by the way, that 50,000 of them would have go. Actually half of that number was a sham – it’s from selling businesses. No word on bonuses yet.
The only other investment bank to cough up bonuses at this stage is Zurich-based UBS, which said on 2 November that none of the 12 members of the executive board or the chairman, Peter Kurer, would get bonuses this year. That’s also big of them: UBS has been kept afloat with a $US59.2 billion government aid package this year.
UBS also said it would (belatedly) reform its executive pay arrangements and make sure they are more strongly tied to performance and that bonuses would be partly held in escrow, in case the loans blow up.
The problem with Wall Street bonuses is that they are mostly paid on top-line revenue, not profit, and certainly not risk-adjusted profit. That has been a major factor in promoting the risk-taking behaviour that led to the credit crunch.
Reform of remuneration practices – not just in the financial sector but among listed companies – is well and truly afoot now, but it’s too late.
Excessive risk-taking and a focus on short-term gains by financiers and investment banks has helped produce a devastating global recession in which millions are now losing their jobs and their savings. It’s done. The top investment bankers have got their money out already; after them, the deluge.
Taxpayers are now being forced to bail out the banks, to take over the mortgages they shouldn’t have sold, and now to bail out the car makers and car dealers that have been living in a fool’s paradise that was also created by these lenders who were paid bonuses to increase assets any way they could.
And still they get bonuses!
Today Macquarie Bank will issue its interim profit report to shareholders who have seen their share price fall from above $90 to $20.60.
It will announce asset writedowns estimated by Goldman Sachs JBWere analyst James Freeman at 50% of carrying values. Interim profit is expected to be a bit more than $600 million, down from $1 billion last year.
And what about the bonuses? How is the alignment between staff and shareholders of Macquarie going? Let’s hope CEO Nicholas Moore makes a full disclosure of this today.
This article first appeared on Business Spectator
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