Tuesday, April 17, 2012

Goldman Sachs Compensation for its CEO Illustrates What’s Wrong Wall Street – Pay for Performance Has Turned Into

Pay for Failure

The people on Wall Street seem genuinely confused and hurt that the rest of the country has rather strong negative feelings about banking executives and their compensation.  They don’t understand that the regular people don’t understand how hard they work for their money and the great stuff they all do for their companies and their shareholders.

Actually the problem for Wall Street execs is that those of us in the rest of the world understand what is going on with their compensation all too well.  See they have a relatively small salary.  For example until this year the base compensation for the head of Goldman Sachs was only $600,000.  Now that is a large number for the rest of us, but for Wall Street executives it is small change.  They make the rest of their largess in the form of incentive compensation, bonus for overseeing exceptional performance.

Now in theory this seems like a pretty reasonable system.  Whatever compensation was paid the late Steve Jobs no one would question it given the tremendous value Mr. Jobs delivered for Apple shareholders.  But let’s get back to Goldman Sachs and what it paid its CEO in 2011.  First there is the performance of the company for that year.

Net income at the company fell 47% to $4.4 billion, while revenue plunged 26% to $28.8 billion. Shares of Goldman Sachs sank 46% last year, amid broader weakness among bank stocks, though it has since climbed 28% year-to-date.

Well that’s too bad, so lets see how the CEO did for the same year.

In its proxy statement filed with the SEC on Friday, Goldman said Mr. Blankfein—by the SEC's pay guidelines—was awarded a $3 million cash bonus and $10.7 million in stock awards as well as $2 million in salary. The salary was triple that of the prior year.

In 2011, Goldman boosted the base salaries for Mr. Blankfein and other top executives for the first time since the company went public in 1999, bumping the CEO's salary up from $600,000 in prior years.

So Mr. Blankfein gets a big salary increase and a big bonus.  For what?  For dreadful performance.

See this is why people are unhappy with Wall Street compensation.  The game is fixed.  CEO’s get huge compensation packages when their performance is abysmal.  Regular people get severance pay when their performance is abysmal, that is, if they get anything at all when they are fired. Quite frankly Mr. Blankfein, paying you your old base salary of $600,000 and nothing else was overpaying you for 2011.


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