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Are Bonuses the Next Bailout Casualty?

POSTED: 02:09 PM ET, 11/17/2008 by Derek Kravitz


Lloyd Blankenfein (AP Photo / Goldman Sachs, file)

Goldman Sachs' decision to forgo handing out bonuses to seven of its top executives could reverberate throughout the economically-weakened Wall Street economy, as firms face blistering quarterly earnings reports and harsh questioning from lawmakers and a cash-strapped public.

The executives called the move the "right thing to do."

A Goldman Sachs spokesman, Lucas Van Praag, told The Associated Press' Madlen Read that seven executives, including chief executive Lloyd Blankenfein, would not get cash or stock bonuses this year.

Last year, Blankenfein took in an estimated $54 million, according to AP calculations, on top of his $600,000 salary. (He will still take home his annual salary this year.)

The Wall Street Journal said Goldman Sachs' decision would be "closely watched" and said it might start a trend. (Elsewhere, John Mack, the chief executive of Morgan Stanley, announced in December that he was giving up his 2007 bonus. His 2006 bonus was worth about $40 million.)

Portfolio.com's Jeffrey Cane noted that Goldman Sachs "is offering up martyrs to the year-end bonus season, recognizing that the public is not in any mood to read about huge multimillion-dollar paydays at a time when the economy is in trouble and Wall Street is being bailed out by the federal government."

Cane called Goldman Sachs "far more savvy about its public image" than American International Group, which angered lawmakers when reports of pricey retreats for top executives and a $1 million-per-month exit package for one poor-performing executive were disclosed at congressional hearings on Capitol Hill.

Rep. Henry Waxman (D-Calif.), the chairman of the House Committee on Oversight and Government Reform, and New York Attorney General Andrew Cuomo have already begun their own independent investigations into potentially illegal bonus payments.

And other European banks have taken similar steps in light of disastrous losses.

Overseas, the Swiss bank UBS announced that its chairman, Peter Kurer, would not receive any bonuses for 2007 or 2008 and that its 12 other board members and other senior managers would see their bonuses "held back" as part of a "bonus-malus" system to discourage risky short-term investments.

UBS has been under pressure to change how it compensates its executives amid revelations of large bonuses and a U.S. federal probe into potential illegal offshore investments by American clients with UBS.

The German Deutsche Bank has already announced it will forgo its 2008 bonuses.

By Derek Kravitz |  November 17, 2008; 2:09 PM ET Economy Watch
Previous: 12 Juveniles at Gitmo, College Leader's Salaries Climb, Bush Could Pardon Spies | Next: Vetting Bill Clinton Could Bring Controversy

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Sun rises in the north: CEO's don't get bonuses.

Posted by: UnPatriotic | November 17, 2008 3:31 PM

About time, if your company doesn't perform you don't get bonused, These automatic golden parachutes are such a rip off as well, a guarentee with out the work is a crock.

Posted by: job22 | November 17, 2008 3:44 PM

Bonuses should have been the 1st casualty of the current crises. Imagine how many jobs might have been saved and how much better off the economy would be right now.

Posted by: Weribe | November 17, 2008 3:45 PM

I think stockholders in these bailed out companies and those who are stockholders of companies who have lost value yet pay bonuses should get together in Class Action lawsuits against the boards and executives of these companies for not meeting their fiduciary responsibilities and the Justice Department should investigate if this constitutes fraud (sounds like it to me). All the executives who receive bonuses should be named in the lawsuits and criminal actions. They should not only have their bonuses taken away they should have EVERYTHING taken away, house, cars, trophy wives (& husbands), the works.

Posted by: rcc_2000 | November 17, 2008 4:49 PM

These guys are so out of touch with what average Americans are going through. It's a shame that it took a hammering from the media for them to finally get it through their skulls. I bet they were surprised when lawmakers expressed their anger. These guys have no idea how greedy they are. The public has to hold up a mirror for these gluts to finally see themselves.

Posted by: forgetthis | November 17, 2008 4:55 PM

Americans may be cash strapped, but not for lack of credit... its for the lack of good paying jobs.

The bailout is a bad joke on the American people, but a costly one because it is actually theft. None of this money is serving the taxpayer.

Our economy has been debt-based too long, and now we are suffering. The ideas of lowering interest rates, and making more credit available will do nothing but kick the can down the road... and not very far as only the desparate are borrowing. There is always cash for good ideas. This isn't a good idea and ony the bad apples are making out.

The global financial crisis is not born from a lack of credit, either. It is the result of fradulent products being traded by Wall St. with bogus ratings. We have to clean up Wall St. We have to make commercial banks commercial banks, investment houses investment houses, and mortgage companies mortgage companies again. We must end the unregulated free-for-all which put professionalism in the trash bin.

After re-regulation, the only thing that will heal the financial markets is cleaning house and letting the markets work, let the chickens come home to roost--these people made billions off their shennanigans... we shouldn't be paying for it.

The only thing that will help the economy is getting those manufacturing and service jobs back from India, China, and the Phillipines. In shipping off the jobs for cheaper goods we forgot that if you don't have money you can't buy cheap goods... and by the way, you get what you pay for and much of what we are getting back isn't worth the transportation cost.

$700 billion for bridge and infrastructure projects so in need would have been money wisely spent... then maybe if more people had jobs more people would be interested in buying a new car.

BTW: Bailout for the auto industry is another top-down boondoogle. We need a base that can afford a car before we start subsidizing car makers.

Posted by: wayoffbaseguy | November 17, 2008 5:00 PM

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