Goldman Sachs, the Wall Street firm often at the center of outrage over multibillion-dollar employee compensation practices, said today that its top 30 managers will receive no cash for their 2009 bonuses and instead be awarded stock that can't be sold for five years.
The stock, Goldman said, can be "clawed back" -- taken back by the firm -- if it is determined that the executive took excessive risks.
Historically, these managers would have received more than half of their year-end compensation in stock and the remainder in cash. The stock would fully vest most often over a period of three years. Now, the entire bonus for this year will be stock and vest over a longer period.
The bank said it was expanding on principles it presented last spring at its annual shareholder meeting to align long-term performance with managers' compensation and to discourage short-term, risk-taking activities that could damage the firm.
"We believe our compensation policies are the strongest in our industry and ensure that compensation accurately reflects the firm's performance and incentivizes behavior that is in the public's and our shareholders' best interests," Goldman CEO Lloyd Blankfein said in a written statement today.
In addition, shareholders will have for the first time an advisory vote on Goldman's compensation principles and the compensation of the five highest paid executives which include the CEO and the chief financial officer. Congress has been considering legislation that would provide a similar vote for shareholders of other firms.
James Reda, who manages an independent compensation consultancy that has done work for Goldman Sachs, said shareholders will benefit from the changes not only because they will have a "say on pay" but also because by preventing the sale of stock for five years, the bank will likely retain key employees.
"I think it's a very good compromise," he said "It is a very well thought out response that they didn't have to do, but they felt they wanted to be a leader and not a follower."
Goldman Sachs, which received and later paid back $10 billion in funds from the federal Troubled Asset Relief Program during the financial crisis, has set aside $16.7 billion for employee compensation in the first nine months of this year and is on track to pay out an average $700,000 per employee.
Concerned about a possible backlash over large bonuses only a year after the federal government rescued the financial system from collapse, representatives from Goldman Sachs have recently met with some of its largest shareholders to explain the firm's compensation principles. Corporate governance experts said the firm is also keeping an eye on Congress after last winter's thrashing of AIG for paying retention bonuses.
"One of the reasons Goldman has been successful is that it is good at paying attention to political climate and so I think there is a recognition that people are pretty upset about what they are reading," said Jonathan Koppell, a management professor at Yale and the director of the Working Group on Global Governance.
Paying year end compensation for these thirty employees in stock versus cash, said Kopppell, is "obviously a political move." He added, "It also seems to me that it is a recognition that the compensation structure was an issue."