Goldman “Leaders” Choose Poverty over Incarceration

Goldman Leaders Forgo 2008 Bonuses

In a recent email from one of our readers, we were asked to weigh in on the Goldman Sachs Group’s leadership decision to request no bonuses for the current calendar year.

What are your thoughts on the following article?  How does this reflect leadership during these troubled times? – Tye Mills

(To read the article Tye mentions, follow this link.)

Lloyd Blankfein, CEO of Goldman Sachs, and six other top executives asked the board’s compensation committee to skip them during bonus time this year.

Pardon us if we don’t cheer.

While it is certainly admirable that these executives would take a seemingly proactive step to helping right the ship at Goldman, this decision should have come from the board (not from the executives) and should have come much sooner than November 2008. (In the nature of full disclosure, the executives likely gave up their bonuses because Attorney General Andrew Cuomo warned them last month that the bonuses might break New York State law.)

We never begrudge any executive their compensation nor any corporation their profits. This is the way our system works; and our system has worked better than any other in the history of the world. The prosperity enjoyed from Joe Six-Pack to Joe the Plumber is in large part due to the spoils enjoyed by the executives of the Fortune 500.

Take away their incentive to make money and you take away our standard of living.

Further, the seeds of destruction at corporations like Goldman and Lehman that plunged the world into economic turmoil were not planted by large bonuses. Rather, it was inattentive executives and especially their boards of directors who drove us off this cliff – while laughing and smiling all the way to the bank.

But How Will They Feed Their Families?

TheManager will not get a bonus this year, either. Not because I petitioned the board, but because my bonus is set up to pay out only when the shareholders make money. In 2008, my company’s shareholders lost quite a bit.

The removal of truly performance-based bonus pay is where most executives and boards have failed the owners of their companies; and why many of these men and women should be in jail. Leveraging your shareholders for personal gain, as Lehman has been reported to have done, by ratios of 30:1 or worse is criminal. No owner (and that’s what stockholders are) would ever agree to assume risks of this magnitude.

Before you worry about poor Lloyd and his crew, they will still receive roughly $600,000 each in base salary this year. Additionally, we can only wish that they were able to save some of their bonus from last year. (Just as the wheels of the economy were coming off in 2007, the top three executives at Goldman Sachs made more than $57 million each.)

It’s No Longer a Free Market

Companies, and especially their highly paid executives, have argued that multi-million dollar bonuses were necessary to “to attract and retain top talent.”

Top talent? By top talent, I’m hopeful you don’t mean Dick Fuld of Lehman or even Lloyd Blankfein.

Before we break our arms patting old Lloyd on the back, let’s remember that Blankfein was the CEO when Goldman posted a 70 percent drop in profits last quarter. Additionally, Blankfein was the CEO when Goldman stock plunged 69 percent this year. Doesn’t sound like bonus time to me.

In a free market, Goldman is free to pay its executives whatever they can grab. However, the market is no longer free for Goldman, Morgan Stanley and many other firms. Goldman, you see, took 10 billion of your tax dollars in the recent bailout. This makes them, in our opinion, a quasi-governmental entity. At the very least, they should be heavily regulated until we get our $10 billion back – this includes their executive compensation plans.

Back to Tye’s Question

Tye asked, “How does this reflect leadership during these troubled times?”

Tye, if this were truly a leadership move and not a classic CYA*, I would be impressed. I am not.

I would have been impressed if the leadership of Goldman Sachs had taken the long view toward building wealth for their shareholders and clients instead of focusing on their multi-million dollar paydays.

Once Goldman became a publicly traded entity in 1999 they moved the risk from themselves (the partners) to the shareholders. Without the risk, they were like drunken coeds on South Padre Island waiting for their shot on Girls Gone Wild.

Leadership is about service and sacrifice. Giving up a bonus because you’re afraid to go to jail is self preservation. Self preservation is as far from leadership as $57 million is from $600,000.

To read some interesting notes about the current crisis and how we really got there, check out a great article published last week by Liar’s Poker author Michael Lewis. It brings some closure to the fall of Salomon Brothers and some great insights into today’s troubles. Lewis convincingly argues that Salomon’s move from a partnership to a publicly traded corporation led to the current collapse. To read Lewis’ article, follow this link.

*Editor’s Note: CYA is code for “cover your ass.”