This way partnership lies.
Goldman Sachs is pushed toward awarding annual bonuses to its senior managing directors (its so-called partners) in shares that vest over several years rather than partly in cash and partly in shares.
The bank has reacted to pressure from some shareholders by suggesting that it should eliminate the cash part of bonuses to its senior executives, according to this FT story.
Its bonus structure is already more weighted towards deferred compensation than rivals. Its partners receive about 70 per cent of their total compensation in restricted stock, and must hold 25 per cent of their equity awards until they retire.
Restricted stock means they receive nothing for a year and then the stock vests in thirds over the next three years. Thus, they do not fully collect bonuses until four years after they are awarded.
In the second of my October columns on Goldman, I suggested that it should go further towards replicating a partnership-like reward structure:
By returning to the system of locking up all (or 90 per cent) of its managing directors’ bonuses until they retire, it would make them even more careful.
If taxpayers could see not only that Goldman’s bonuses were a form of equity partnership, but also that the bank would be allowed to founder in any future crisis, it might sap some simmering resentment.
Goldman is tip-toeing down this road in its talks with shareholders but I suspect it will not be able to halt at this point. Investors may ask why all its “partners” are not paid entirely in stock, rather than simply its “top executives” including Lloyd Blankfein, its chief executive.
