Golden Days at Goldman Sachs

New study reveals Goldman partners got 36 million stock options.

January 19, 2011, 12:54 PM

Jan. 19, 2011 — -- Talk about a dream deferred.

In 2008, during the depths of the financial crisis, when Lehman Brothers had just gone bust and public anger at Wall Street's profligacy seethed unabated, Goldman Sachs did something smart: Its senior partners declined to take cash bonuses and instead took stock options, thereby dodging what surely would have been a painful PR bullet.

At the time, the shares traded at under $79. Though the options could be exercised starting as early as January 2010, the shares could not be sold until 2014. How many options were issued -- and to whom -- got scant notice.

Until now.

An analysis of Goldman's regulatory filings and of internal documents by the New York Times and revealed Goldman issued 36 million options -- an amount exceeding the total number of options outstanding up to that point and 10 times more than had been given out the year before.

With Goldman's shares trading at around $175, those options constitute a $3.5 billion 'atta-boy. In the long history of birds alighting, no more valuable chicken ever has come home to roost.

The Times' report, published Jan. 19, appeared the same day Goldman released its fourth quarter earnings, down 52 percent from a year ago. Notwithstanding, 2010 was the firm's fourth-best year for profits in its history.

Analyst Benjamin Wallace of Grimes & Co. in Westborough, Mass., said he remains hugely confident of the firm's ability to make money -- and not just for partners.

Goldman's people, he said, are smart. They work hard. As for their methods, "I don't know if they have questionable ethics, but they push the ethics."

He finds it amusing and ironic that the public soon may be up in arms again over the firm's generous compensation -- this time in the form of options, not cash.

Goldman's intentions, he said, likely were the best: "At the time it was done, they were under pressure. The public didn't want a big cash payout. OK, said Goldman, so we'll switch to options."

As for what those options have become worth, Wallace takes the run-up in value as a further sign of the firm's near-infallibility when it comes to making money.

"There you go," he said. "Another one for Goldman."

Since becoming a publicly traded company in 1999, Goldman has had to disclose the compensation of its senior management. Those disclosures, plus the Times' digging, show that Lloyd Blankfein, CEO and chairman; Gary Cohn, president and COO; and David Viniar, CFO, have, respectively, since 1999 sold stock worth $93.8 million, $97 million and $99.9 million.

The partnership in total -- some 860 current and former partners -- has cashed out more than $20 billion during the same period. Average sale per partner: $24 million.

Yet collectively, they still hold more than $10 billion in Goldman stock. Blankfein, together with his family, still held shares worth $355 million as of Jan. 14.

These numbers are conservative, as they exclude shares sold in conjunction with the public offering. They also do not take into account compensation in the form of cash salaries and cash bonuses, which themselves are in the billions of dollars.

Numbers crunched for ABC News by Equilar, an executive compensation data firm, help put into perspective Goldman's generosity to itself.

Goldman Sachs has given its employees overall -- not just partners -- $7.3 billion in equity ($3.5 billion in options plus 3.8 billion in stock), a thank-you that has appreciated 267 percent since first having been bestowed in 2008.

Among Goldman's competitors, the next most generous, JPMorgan Chase, summoned up only $6.4 billion. After that, the ground all but falls away to Bank of America, which gave only $1.8 billion.

Total compensation for last year to Goldman's 35,000 employees is expected to reach $17.5 billion, up more than $1 billion from 2009 (but well below 2007's record of $20.19).

The rise in Goldman's stock has, of course, enriched many more than just the company's employees and partners. Anyone fortunate enough to own Goldman shares has done well. Since 1999, when the firm went public, these have returned nearly 175 percent. (The S&P 500, meantime, lost nearly 2.9 percent.)

As the sweetness of becoming a Goldman partner has increased, so, too, have the odds against it.

In 2006, the odds of a man (and yes, the group is preponderantly male) becoming partner were 1 in 230. In 2010, 1 in 322.

Even those who grab the ring don't get to hold on for very long: Of all the partners who were in the saddle at the time of the IPO, almost 60 percent were gone in five years.

About seven years is a partner's average tenure. Alumni include U.S. Treasury secretaries Henry Paulson and Robert Rubin, Federal Reserve Bank of New York president William Dudley, and former New Jersey Gov. Jon Corzine.

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