In response to shareholder anger over its incredibly large bonus pool, Goldman Sachs has altered its bonus policy. According to reports, the bank has lowered its bonus pool amount by $0.00. Huh? Exactly. Rather than decreasing the size of bonuses, Goldman has chosen to pay its top 30 bankers' bonuses in a special kind of stock and no cash. It will also give its shareholderes a non-binding vote on compensation. This sounds pretty weak, but let me clarify.
In fact, it might not be quite as bad as it sounds -- at least from a long-term risk standpoint. One of the biggest criticisms of banks during the financial crisis was that the bonus culture promoted short-term risk. The new policy actually addresses that, as the stock being awarded in lieu of cash will be locked up for 5 years. This portion of the bonus pool is also considered at-risk if the firm needs to take some of it back due to future losses over that time period.
This might satisfy shareholders from a risk perspective, but it doesn't shift more of the firm's earnings from its bankers to its shareholders, which I understood to be another of their complaints. I wouldn't be too satisfied with a non-binding vote either. That's kind of like when your parents told you and your siblings you could vote on something, but then could override it anyway.
I'll be curious to see if other banks follow suit. Such compensation schemes that allow "clawbacks" of bonus money have received a lot of attention over the past year, but this marks the first time I've heard a bank voluntarily setting up such a system. While this may make life a little more difficult for Goldman's top bankers during the time period while the stock is untouchable (smaller yachts?), unless something goes terribly wrong, they'll still have a very good payday ultimately.
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