Goldman Sachs, feeling the political and public heat over its multibillion-dollar bonus pool, has scaled back the proportion of revenues that it sets aside for employees, and hired a consultancy specialising in philanthropy in order to consider a big charitable donation.
By putting aside 43 per cent of its revenues in the third quarter, instead of the 49 per cent it earmarked for remuneration earlier this year, Goldman Sachs was able to head off a damaging new round of headlines about record bonuses. It put $5.4bn (£3.3bn) into the 2009 bonus pool yesterday, taking it to $16.7bn for the year to date, compared with $16.9bn at this point in 2007, the record year.
But the swelling size of the pool drew political fire on both sides of the Atlantic, nonetheless. The Liberal Democrats' Treasury spokesman, Vince Cable, described the size of the bonuses as "farcical". He said: "People will be rightly furious to see Goldman Sachs paying out bumper bonuses just 12 months after it was bailed out by the US government. It is farcical that so soon after the reckless greed of bankers brought the world economy to its knees, we are seeing a return to business as usual."
Goldman investors are already planning to mount an attack on the scale of compensation at the company, submitting resolutions demanding an audit of its pay practices which could be considered at the annual shareholder meeting in the spring.
As well as reducing the proportion of revenues diverted to employees, Goldman also highlighted in its earnings statement yesterday that not all of the fund goes to pay bonuses. Some is used to fund healthcare benefits, redundancy cheques and payroll taxes.
And it also made a higher donation than usual into the Goldman Sachs Foundation, a 10-year-old charitable venture which offers money and mentoring to bright youngsters from minorities and low-income backgrounds across the world. The $200m donation represented 1.6 per cent of revenues.
It emerged yesterday that Goldman has been working with Bridgespan Group, a Boston-based philanthropy consultancy and recruiting firm, about a potential new charitable scheme. Only a few senior executives are involved in the talks, and no decision has been reached about what, if anything, will be set up ahead of the actual payment of bonuses at the end of this year.
Goldman executives are increasingly frustrated that the fury over huge bonuses is swamping other discussion of the firm. On a conference call with reporters yesterday, David Viniar, Goldman's chief financial officer, said he "would prefer people were focused on the performance of the business". No decision about the size of bonuses will be taken until after the year-end, he said.
So far, Goldman has put aside the equivalent of $527,000 per employee for salary, bonus and benefits this year, with one quarter still to go. The equivalent figure at this stage in 2007 was $566,000.
The firm made a profit of $3.19bn in the third quarter, it said yesterday, up from $845m in the same period last year, when the collapse of Lehman Brothers took the financial system to the edge of catastrophe – and Goldman itself to the brink of collapse.
Its swift rebound has been driven by the strong performance of its trading division, particularly its fixed income trading, where several major competitors have been taken out of the market by the turmoil.
The Goldman performance stood in contrast yesterday to continuing woes at Citigroup, which – unlike Goldman – has been unable to pay back taxpayer bailout funds and is now 34 per cent-owned by the US Treasury. Vikram Pandit said bad loans on the company's retail banking side were continuing to drag down results.
No pay or bonus for Lewis
Ken Lewis, chief executive of Bank of America, has agreed to repay $1m in salary his earned this year and depart the company with no pay or bonus for 2009.
The demand was made by the Obama administration's pay czar, Ken Feinberg, who is regulating compensation at the nation's bailed-out companies. BofA required two infusions of taxpayer cash after Mr Lewis acquired loss-making Merrill Lynch in a controversial deal last year.
Mr Lewis has agreed to step down in December, and will depart the company with a pension package worth around $100m.