Goldman Sachs: Lloyd Blankfein’s Missing Paycheck

The Times of London wrote that Goldman Sachs (NYSE:GS) CEO Lloyd Blankfein would be paid $100 million for his work as the head of the bank during 2009. Goldman’s public relations staff denied the story as quickly as it could and called the reports “speculative nonsense.” Goldman made $13.4 billion during its 2009 fiscal year, so by many calculations he deserved as much or more than the $68 million he received in 2007. Blankfein had enough sense to forego any incentive pay immediately after the credit crisis in 2008.
The press has begun to speculate that Blankfein and the Goldman board will keep his bonus low, not because of his performance, but because of the backlash frenzy that would occur in Congress, The White House, and among the country’s taxpayers. This decision would be based on the premise that by taking a more modest reward for performance Goldman management could avoid the most severe criticism. It would not be an unusual decision. CEOs often give up bonuses completely in hard times. The heroes in the “chief executive hall of fame” like Lee Iacocca and Steve Jobs, worked for $1 a year for long portions of their tenures.

Blankfein’s dilemma is a unique one. He should make, based on most Wall St. compensation programs, tens of millions of dollars for his performance last year. The case against him is that Goldman got $10 billion from TARP to help tide it through the financial crisis. The bank has argued that it did not need the money. The $5 billion investment that Goldman got from Warren Buffett in September 2008 was more than enough to provide the firm a financial safety net. Goldman, according to Goldman, was forced by Treasury Secretary Henry Paulson, the bank’s former CEO, to accept government money. Paulson did not want the public to believe that some banks were much worse off than others and decided to make all the major companies in the industry to take billions of dollars in capital.

Blankfein may have been injured twice now. He took TARP money and by doing so-called into question how healthy Goldman was at the peak of the credit crisis. Now, Blankfein is being “asked” to take something less than what he earned for his 2009 performance.

Goldman does nothing for the common good of the taxpayers or financial industry by asking Blankfein to take less than what he has earned. The large payout he would receive under Goldman’s compensation formula is actually a sign of how quickly the best-managed companies in the financial world have bounced back. This may or may not have to do with government aid. But, there is no moral hazard in large pay packages and large risks taken by banks that took TARP funds so long as there is moral enforcement. Members of Congress and the Administration believe that Wall St. runs a system based on moral relativism. In fact, the system has a simple ethical compass which is based solely on making money, both for the banks themselves and the people who run them.

Pay packages can be “managed” by the government executive-by-executive.  The Congress could, alternatively, force the system to take less risk by requiring banks to keep larger sums of safe capital on their balance sheets and create and market fewer of the most potentially toxic financial instruments. Wall St. simply has to maintain the practice of paying people based on performance of their firms in the new, more regulated world.

Blankfein has not lived in a highly regulated world. He has been paid for taking risks, almost all which paid off, based on Goldman’s earnings since he became CEO as it was always under the CEOs who preceded him.  Many of these chief executives became rich enough to work as Treasury Secretaries and governors. Those former Goldman executives’ public service records may be uneven, but at least some of the bank’s management was willing to take substantial time to help the government during a period when many wealthy and well-educated people decided that the life of a public service required too much exposure.

Blankfein may never serve in Washington or a state house. He may eventually retire to a private island and go to and from there on his private jet. He made his $50 or $60 million for the work he did in 2009. The rules may change next year or the year after. In the meantime, a “$1 a year gesture” is nothing more than a kabuki act for the taxpayer.

Douglas A. McIntyre