Andrew Ross Sorkin has a good column today about the public anger that will inevitably result when Goldman announces its bonus pool, which he says is estimated to be in the ballpark of $23 billion. He puts the number into perspective and explains that, even though the bonus pool is incredibly large, Goldman's compensation style is pretty much in line with what policymakers are calling for. I think this also illustrates a point I've made before: banks' bonus culture as a target for reform is a waste of Washington's time.

First, yes, people will be annoyed to hear that number. Sorkin explains:

To put that $23 billion bonus pool number in perspective, it is the most Goldman Sachs has accumulated for bonuses in its history -- twice as much as in 2008. And it is doing so while memories are still fresh that just a year ago taxpayers had to step in when Wall Street, and even Goldman, were facing a run on the bank.



While the rest of the country is feeling the sting of the worst recession in many of our lifetimes, Goldman has a record bonus pool. That's sure to cause some ugly reactions. Sorkin also notes that insiders are indicating Goldman might respond by giving a billion or so to charity, to try to improve the negative publicity that's almost certain to result. I think they'll have to do a lot better than that for anyone to really care.

As the old saying goes, don't hate the player, hate the game. Goldman knows the game better than anyone. And they really do play by the rules. Sorkin additionally makes the following keen observation:

On this score -- putting the large amount to the side for a moment -- it is actually hard to argue with Goldman's compensation scheme. Goldman's executives are paid mostly in stock, which vests over three years starting at the end of the next year, so it is more like a four-year period. Excluding the eye-popping bonus numbers, no Goldman Sachs executive made more than $225,000 in cash last year. Mr. Blankfein and the rest of his management team, in deference to popular opinion at the time, waived their compensation completely.



So when you hear about a Goldman banker getting a bonus of $1 million, don't think there's a cool million burning a hole in his or her pocket. As Sorkin says, if the bank mimics 2008, then it's at most $225,000 cash and the rest stock or options, much of which won't fully vest for several years. This isn't a response to angry lawmakers who whine about bonuses promoting short-term risk -- this is how Goldman and many others have always done it.

This kind of reminds me of the story when Brer Rabbit begs not to be thrown in the briar patch. Washington "reforming" bonuses by deferring their collection for several years and making them overwhelmingly stock is akin to throwing the clever banker-rabbits into a briar patch. That's already their culture's standard.

To my knowledge, none of the compensation reforms currently being touted by policymakers that have a chance of passing call for caps of any kind. Instead, they would require almost exactly the kind of scheme that Goldman already has in place, possibly with the addition of a clawback provision. So does that mean that Washington won't complain about Goldman's bonuses this year? Of course it will. But I'll be amused to hear how its supposed reforms will "fix" this problem in the years to come, and whether they really change anything at all.

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