New share windfalls for Goldman Sachs partners

London staff compensated for last year's bonus tax restraint
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The Independent Online

Goldman Sachs, the US investment bank, has handed every partner in its London office a one-off award of shares to compensate them for the unusually small bonuses they received last year.

The hand-outs, thought to be worth millions of pounds, follow mounting concern at the bank that it was losing staff because of the awards it made for the 2009 year, which were capped at a £1m per partner as part of Goldman's strategy for dealing with the one-off tax on bank bonuses implemented by the last government.

Since then, at least four Goldman partners in London have quit the bank for new roles amid complaints that their bonuses would have been much more generous had they worked for rivals. It is understood that Goldman felt compelled to make last month's awards in order to avoid further staff losses.

Around 100 Goldman partners are based in the London office, and many are believed to have been angered by the decision the bank took last year in response to Alastair Darling's announcement of a levy on bonuses.

Mr Darling, who was then chancellor, said his tax – a 50 per cent charge to be paid by the banks on all bonuses worth more than £25,000 – was intended to discourage the sector from making large payments, in the face of mounting public anger at the City. As it turned out, many banks felt obliged to pay their staff generous bonuses anyway; the Treasury subsequently revealed its take from the levy had been around £3.5bn. Of that, Goldman contributed around £380m, despite the caps it placed on payouts to partners.

Goldman refused to comment last night and it is not clear how valuable the share awards granted in August were, though the bonuses handed out in January were many times smaller than partners would usually have expected. The awards cannot be cashed in for five years, at which time they will be subject to the tax rates of the day; they could, in theory, be taken back if Goldman's trading performance subsequently disappoints.

The move mirrors a similar initiative from Credit Suisse, which handed shares to 400 senior employees in London last month. Like Goldman, it limited bonuses for 2009, in line with the spirit of Labour's tax; it too is thought to have become worried about staff moving elsewhere.

However, while Goldman won some credit for its cap on bonuses in January – and while many City bankers will understand its fears about losing such senior figures to rival banks – the awards will attract controversy.

By paying the bonuses in August, the bank avoids having to make additional contributions under the one-off Labour tax on bonuses. As a result, staff will not have to miss out on large payments despite the intention of the previous government to crack down on City excess.

The fact that it is Goldman Sachs that made the awards will prove particularly controversial, as the bank often acted as a lightning conductor for anger directed at the financial services sector. Earlier this year, the Goldman agreed a $550m settlement with the Securities and Exchange Commission, the US regulator, over allegations about a deal it conducted at the height of the credit crisis. It was subsequently fined £17.5m by the Financial Services Authority in the UK for failing to make disclosures in the UK relating to the SEC affair.

The bank is desperate to restore its tarnished image and earlier this week launched a high-profile advertising campaign in the US, seeking to highlight the socially useful businesses in which it has invested.

The August share awards were cleared by the Financial ServicesAuthority, and the bank has broken no rules in making them. However, news of the bonuses comes just a week after Vince Cable, the Business Secretary, promised "an enormous kickback" against the banks if they offered staff another generous round of payments against a background of public spending cuts of unprecedented size.

Although George Osborne, the Chancellor, has so far been less aggressive in his language, he is likely to faceincreasing pressure to introduceanother tax on bonuses this year.