Goldman Trims Its Bonus Pool: Will Its Bankers Flee?
The pay cut makes me wonder if Blankfein thinks we forgot about his argument that he needed to pay the talent or he'd lose it. Either that argument is (and always has been) bogus or Goldman decided that it would be better to lose talent than to face an angry public if it decided to keep paying out half its revenues as a bonus.Before getting into that, let's review the facts. According to The New York Times, Goldman's 2009 revenues totaled $45.2 billion and it earned $13.4 billion, yielding a hefty net profit margin of 29.6%. Goldman set aside $16.2 billion for bonuses -- far less than the $23 billion that had been estimated earlier and below the $20.2 billion it paid out in 2007.
But the big change is that 2009's bonus/revenue ratio of 35.8% is way below the usual 50%. That's a nasty pay cut -- which will yield a mere $498,000 per employee -- 36% below the $782,313 that had been expected for 2009. And it makes me wonder whether Goldman is now worried that such low pay will cause its talent to bolt for higher paying employment.
Either Goldman realized all along that there is no other firm that can match its compensation, with the possible exception of tightly-run hedge funds, or Goldman is about to face a major talent exodus.
Since I don't believe that will happen, I have to conclude that all of Wall Street's posturing about needing to pay bonuses to its talent was just a negotiating ploy with the government. By agreeing to take temporarily lower pay, Goldman is probably trying to fend off what could be far more costly financial reform in the long term.
I hope nobody calls foul when they realize that Goldman's previous argument against cutting bonuses was a steaming pile of horse fertilizer. But I doubt the millions of unemployed Americans will feel much sympathy for Goldman's poor bankers getting a mere half million in bonuses thanks to 2008's taxpayer-funded financial rescue.