WASHINGTON — Bowing to intense public pressure, Goldman Sachs on Thursday scaled back plans to distribute at least $16 billion in year-end bonuses, stripping cash awards from members of its 30-person management committee in favor of restricted stock.
Those executives will be unable to sell the "at-risk" stock for five years and could be forced to relinquish it if they engage in improper risk analysis or fail to "sufficiently raise concerns about risks," the company said. Bonuses, which are based on the firm's overall performance, represent the bulk of compensation to members of the committee of global divisional and regional leaders.
The campaign to restrain executive pay escalated after big investment banks plunged into the risky subprime mortgage market, fueling a huge housing bubble that contributed to the worst economic crisis since the Great Depression.
Goldman and other Wall Street firms have been under pressure from the White House and the public to revamp their compensation policies so that the allure of multimillion-dollar bonuses doesn't encourage risky short-term behavior that can have reverberations for the broader economy.
In February, President Barack Obama imposed $500,000 caps on the pay of executives for banks receiving federal bailout money. Goldman paid back its $10 billion in taxpayer money by mid-year, avoiding those restrictions. More recently, however, the British government announced that it would levy a 50 percent one-time tax on any portion of banking executives' bonuses exceeding $41,000. France is considering a similar tax.
Goldman's board of directors made the compensation changes as the company nears the end of a year of record-smashing profits despite the weak global economy. The 140-year-old firm is on course to record net income of more than $9 billion in 2009, not counting the more than $16 billion set aside during the first three quarters for bonuses.
The firm's profits have soared amid the economic crisis that forced rescues of other Wall Street firms. McClatchy, in a four-part series published in November, reported that Goldman sold more than $40 billion in securities tied to risky home mortgages in 2006 and 2007 without telling the buyers that it was secretly placing insurance-like bets that a housing downturn would depress the securities' value.
McClatchy also reported that Goldman shuffled risky mortgage securities to foreign buyers in secret offshore deals and that it's been seizing homes from delinquent borrowers who might not have gotten home loans if Wall Street hadn't created a huge secondary market for their loans.
Goldman denied that it had misled investors, but within two weeks, Goldman Chairman and Chief Executive Lloyd Blankfein publicly apologized for the firm's role in the subprime market.
Goldman didn't say that it would alter bonuses for most of the more than 31,000 employees on its payroll. The employees were poised to receive an average of about $700,000 in bonus payments.
The pay shift came after Blankfein spent weeks on a speaking tour in which he sought to defend the company's compensation policies. The Wall Street Journal reported that Goldman also held private meetings with large shareholders to try to sell them on the importance of bonuses to avoid defections of top people. Blankfein said Thursday that shareholders would be given an advisory vote on the new compensation policies at Goldman's 2010 annual meeting.
Blankfein said that the compensation revisions "reflect the . . . principles that we articulated at our shareholders' meeting in May."
"We believe our compensation policies are the strongest in our industry and ensure that compensation accurately reflects the firm's performance and incentivizes behavior that is in the public's and our shareholders' best interests," he said.
MORE FROM MCCLATCHY
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Goldman's chief executive apologizes for part in fiscal crisis
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