Goldman Sachs (GS) recently said that media reports that its employees would make huge sums based on the firm’s 2009 earnings were not true. It turns out that they probably are. In an article in The Wall Street Journal, the paper says Goldman “is on track to pay out as much as $20 billion this year, or about $700,000 per employee.”
Goldman is just asking for trouble.
Somewhere along the line, large banks which plan to pay their employees richly this year and, in some cases, offer tremendous compensation packages to retain top talent must have missed the Congressional and public outcry about the greed that many believe brought Wall St. down. The incentives for making tens of millions of dollars caused executives to look for financial instruments that would offer big profits, no matter how risky they were.
The wounds from the crumbling of the credit markets are still fresh enough, particularly at The White House and in certain parts of Congress, that if Goldman and its peers insist on returning to the compensation systems that they used in 2007 and earlier the chances of pay caps mandated by the federal government will move up exponentially. Taxpayers will not countenance putting hundreds of billions of dollars into the country’s banking system only to watch a Wall St. firm that got TARP money pay its average worker $700,000, at least not while school teachers make $30,000 and are being laid off in droves as municipal budgets get cut.
Watch for the Congressional hearings on Goldman pay to begin right after the 4th of July recess.
Douglas A. McIntyre