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Goldman Sachs CEO: Executive Pay Looked 'Greedy'

Lloyd Blankfein, chief executive of Goldman Sachs, spoke to the Council of Institutional Investors in Washington this morning and said that "decisions on compensation and other actions taken and not taken, particularly at banks that rapidly lost a lot of shareholder value, look self-serving and greedy in hindsight."

In the speech, Blankfein laid out his plan for executive compensation reform:

-- Compensation should include an annual salary plus deferred compensation, which is appropriately discretionary because it is based on performance over the entire year.

-- The percentage of compensation awarded in equity should increase significantly as an employee’s total compensation increases.

-- For senior people, most of the compensation should be in deferred equity. Only the firm’s junior people should receive the majority of their compensation in cash.

-- An individual’s performance should be evaluated over time so as to avoid excessive risk taking and allow for a “clawback” effect. To ensure this, all equity awards should be subject to future delivery and/or deferred exercise over at least a three-year period.

-- Senior executive officers should be required to retain the bulk of the equity they receive until they retire. In addition, equity delivery schedules should continue to apply after the individual has left the firm.

Blankfein also listed what he believes are the three underlying causes of the current economic crisis:

-- First, there has been enormous growth in the amount of foreign capital, much of it held in large pools, and a very significant shift in the balance of payments of many emerging markets.

-- Second, and linked to this, nearly 10 years of low long-term interest rates.

-- Third, the official policy of subsidizing homeownership in the United States.

Blankfein said that "risk management will come to define the events of 2007 and 2008. First, models, particularly those predicated on historical data, were too often allowed to substitute for judgment."

He added that "complexity got the better of us. The industry let the growth in new instruments outstrip the operational capacity to manage them."

And he dropped this fascinating little stat: "While real home prices increased nearly 50 percent in the U.S. between 1998 and 2006, they increased more than 130 percent in Ireland, 120 percent in the U.K. and Spain and over 100 percent in France."

-- Frank Ahrens
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By Frank Ahrens  |  April 7, 2009; 11:24 AM ET
Categories:  The Ticker  | Tags: Goldman Sachs, Lloyd Blankfein  
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