Chasing Goldman Sachs by Suzanne McGee

Author:Suzanne McGee [McGee, Suzanne]
Language: eng
Format: epub, mobi
ISBN: 978-0-307-46012-7
Publisher: Crown Publishing Group
Published: 2011-10-10T16:00:00+00:00

Efforts at Reform?

Several Wall Street firms began to tweak their compensation packages in late 2008 in response to the public outrage, introducing the concept of the clawback to investment banking pay packages. The first and most obvious step was for CEOs and other top executives to waive their bonuses for the year, and one by one, the announcements appeared. In some cases, those announcements were accompanied or rapidly followed by new pay policies, such as John Mack’s proclamation at Morgan Stanley that in the future compensation would be tied to “multi-year performance and each employee’s contribution to the Firm’s sustainable profitability.”

The ten-page brochure published by Morgan Stanley the following spring spelled out the basic tenets of this new approach to pay, including a commitment that 75 percent of compensation would be in the form of stock and that those stock awards to senior executives would be “at risk” for three years and would depend on the firm continuing to earn a solid return on equity, generate profits for shareholders, and perform well compared to its peers. Moreover, an employee who “engages in certain conduct detrimental to the Company or one of its businesses—causing, for example, the need for a restatement of results, a significant financial loss or other reputational harm”—up to three years after the compensation is first awarded could have any bonuses clawed back by the firm.

Before 2009 was over, Goldman, embroiled in a public relations nightmare that had a lot to do with plans to pay out what might be record bonuses to its own team, announced something roughly similar. Goldman’s top managers wouldn’t get a penny of cash in their bonus checks, only stock. Moreover, those shares would remain “at risk” for five years, longer than those issued by Morgan Stanley as bonus payments. Other firms devised even more creative new policies. At Credit Suisse, illiquid assets such as leveraged loans and commercial mortgage-backed securities were placed into a $5 billion fund, shares of which were then awarded to executives as part of their bonus. The fund, set up in January, had already gained 17 percent by August 2009, Credit Suisse told its banking team. (The bank’s stock, however, had soared 86 percent on the Swiss stock market in the same period.)

To a large degree, these initiatives recognize and respond to the degree of public outrage at Wall Street’s lavish paydays of the kind displayed during congressional hearings when Representative Henry Waxman displayed a chart showing the growth in the pay packages awarded to Lehman Brothers CEO Dick Fuld. Fuld, sitting at the witness table, quibbled with Waxman’s calculation that he had earned $484 million between 2000 and the firm’s collapse in 2008, arguing that it was closer to $250 million, mostly in Lehman stock. “Is that fair?” Waxman demanded (largely rhetorically) of Fuld. While getting rich, Fuld and his colleagues “were steering Lehman Brothers and our economy towards a precipice.” Overblown and hyperbolic statements on the part of other representatives and senators—many of whom had been quite happy to accept donations from Wall Street during its glory days—followed thick and fast.

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