Hell hath no fury like the American public scorned.
In a stunning climbdown, Goldman Sachs (GS) has succumbed to popular outrage, announcing Thursday that its top 30 executives won't receive wads of bonus cash in their stocking this Christmas, but rather stock that cannot be sold for five years. Goldman, long the bastion of Wall Street's super-elite, also said it would grant shareholders a say in executive compensation -- a previously unthinkable concession.
Goldman's move represents a breathtaking capitulation for a firm that had planned to dole out over $20 billion in bonuses to its employees -- many of whom are already millionaires. Still, it remains to be seen whether Blankfein's no-cash decree will blunt public outrage at the firm. After all, it's not like the executives have taken ascetic vows and gone off to live in the wilderness like the Desert Fathers.
The bank has faced withering criticism over both its role in creating and trading some of the toxic financial instruments that caused the real estate crisis, and its decision to shower employees with billions in bonuses. Last fall, as Goldman supposedly teetered on the brink of collapse -- along with the rest of the U.S. banking system, taxpayers were told -- the firm accepted billions in public funds.
Since then, Goldman has been on a tear, minting gobs of profit left and right, even as millions of Americans have lost their jobs and smaller regional banks have been closed by the dozen during a devastating recession that has pushed the real unemployment rate toward an astounding 20%.
During the first nine months of 2009, Goldman Sachs earned over $800 million profit per month. In other words, at a time when nearly 1 in 5 Americans is either unemployed, underemployed, or has given up looking for work, Goldman Sachs is seeing one of the most profitable years in its 140-year history.
Many Americans simply can't understand how a company that was saved from collapse by taxpayer largesse could then turn around and lavish billions on already-wealthy bankers and traders.
Public antipathy toward Goldman Sachs, whose alumni roster includes a who's-who of powerful politicians and political appointees, was already high. But popular outrage hit the stratosphere after bank Chairman and CEO Lloyd Blankfein announced that popular preconception to the contrary, Goldman is doing "God's work" and its success is good for America.
Stung by criticism over that remark -- after all, millionaire bankers are presumably not who Jesus referred to when he said "the meek shall inherit the earth" -- Goldman Sachs announced it would team up with Warren Buffett, the symbol of virtuous American capitalism, in a $500 million project to help small businesses. Nobody bought that stunt -- after all $500 million over five years represents less than 1% of this year's bonus pool -- and the public was only further incensed.
Perhaps it's not surprising that some Goldman employees have decided to arm themselves.
Blankfein's Concern For Public Interest
Presumably, Blankfein, who is worth several hundred million dollars himself, said enough is enough. He and other Goldman officials have been meeting in recent weeks with large shareholders to come up with a more publicly acceptable compensation regime.
"The measures that we are announcing today reflect the compensation principles that we articulated at our shareholders' meeting in May," Mr. Blankfein said. "We believe our compensation policies are the strongest in our industry and ensure that compensation accurately reflects the firm's performance and incentivize behavior that is in the public's and our shareholders' best interests."
Of course, it won't be all coal in the stocking of senior Goldman execs this year. Last month, two Goldman vice chairmen quietly sold $55 million worth of company stock and pocketed the cash.
Blankfein's move to blunt public outrage may or may not work. But one thing is certain: Thursday's stunning bonus stand-down is further evidence that the heady days during which Goldman Sachs behaved as if it were a class above everyone may -- and that's a very strong "may" -- be coming to a close.
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