Cuts in Executive Compensation: Its Only A Question of Time before the Excess Returns

by J. Robert Brown, for The Race to the Bottom, February 18, 2010.

We’ve been meaning to comment on the compensation decisions by Goldman Sachs.  This is typically the poster child for excess.  Once the Goldman numbers come in, every other company can pay excessive rates, blaming it on the need to keep people from bailing and going to Goldman.

Towards the end of 2009, it looked like Goldman would continue to pay amounts that, in a time of 10% unemployment, looked excessive.  The investment banking firm was on a path to set a record.  Push back from shareholders and a generally pillorying in the press apparently had some impact.  The firm announced that it would not pay a record amount of compensation, setting it at a percentage in the 30’s, well below the typical percentage (between 45% and 50%) over the last ten years.

The other shoe was the bonus paid to top management.  The CEO (and chairman), as well as four additional officers, received a bonus of $9 million on top of the $600,000 in salary.  The bonus was also in stock and couldn’t be sold for 5 years.  The pay was even less than the amounts authorized by the Pay Czar with the companies subject to his oversight.  He allowed a couple of compensation packages to weigh in at $10 million plus…(continue reading)