Many companies have long-term incentive plans, but Goldman's program is notable for dangling hefty cash payouts at a time when banks are tilting toward deferred-stock awards.
Post-bailout anger at Goldman was still strong when the cash bonus plan was introduced a year ago, but the Occupy Wall Street movement had not yet made income inequality a hot-button political issue.
The program is now also playing out against stark internal conditions. Wall Street firms -- including Goldman -- are laying off thousands of employees, capping cash portions of bonuses and requiring repayment of past bonuses if profits prove to be fleeting, illegal or the result of excessive risk-taking.
Morgan Stanley this year capped cash bonuses for bankers and traders -- who often receive millions of dollars in cash -- at $125,000.
Bank of America limited its top bankers to $150,000 in cash.
In Europe, Credit Suisse Group cut bonuses by 41 percent and BNP Paribas Group by about 50 percent while Deutsche Bank AG lowered the cash component of its short-term bonus plan by 37 percent. Barclays PLC cut its bonus pool by one-third and Lloyds is pulling back 40 percent of its former chief executive's 2010 share bonus as a result of an illegal insurance scheme.
GOLDMAN'S CASH PAYOUTS
By contrast, Goldman, which isn't expected to disclose complete pay data until April, more than tripled Chief Executive Lloyd Blankfein's base salary in 2011 to $2 million while cutting his stock-based bonus by 44 percent. The cash increase comes after a year when the firm's profit fell 66 percent and its shares plummeted 46 percent.
In its proxy statement last April, Goldman couched the new cash-bonus plan as, in part, a peace offering for executives. They received little or no bonuses in 2008, 2009 and 2010, the compensation committee wrote, despite "outperforming" core competitors such as Bank of America, Citigroup, JPMorgan Chase and Morgan Stanley.
The plan provides Blankfein, President Gary Cohn, Chief Financial Officer David Viniar and vice chairmen Michael Evans and John Weinberg an initial $7 million each. They'll collect if Goldman's return on equity averages 10 percent in 2011, 2012 and 2013 and its book value per share rises an average of 7 percent. The grant is adjusted at the end of every year, based on an adjusted ROE, with bonuses awarded in January 2014.
At a maximum, they can pocket 150 percent of the grant --$10.5 million if it stays at $7 million -- if ROE averages 15 percent or more and book value jumps at least 12 percent. On the low end, they'll collect half the grant as long as ROE hits 5 percent and book value rises 2 percent over the three years. Each metric comprises half of the award, but anything under the bottom targets yields no bonus.
The quintet participating in the plan at its initiation do not have to be employed at Goldman to collect, according to the company's 2011 proxy. That clause could create shareholder questions given rumors that Blankfein, 57, may be considering an early retirement.
EASY TARGETS
By historical standards, critics say, the compensation committee set marshmallow targets. Goldman's ROE averaged 19.3 percent from its initial public offering in 1999 through 2010, and its book value compounded annually at 18 percent.
"The disclosed metrics appear designed to drive substantial rewards for historically average performance," ISS Proxy Advisory Services wrote in an April report that counseled shareholders to vote against ratifying the compensation of Goldman's executives. About 27 percent of shares were voted against the plan, more than any other proposal supported by the company.
Goldman's 2011 proxy statement insists that executives won't collect "if our firm generates low or negative returns." That appears to bode ill given that last year the bank had a dismal ROE of 3.7 percent -- the lowest since its 1999 initial public offering -- and book value per share that inched up only 1 percent.
The compensation committee, however, gave itself wide discretion to make adjustments. For example, it deducted $5.7 billion paid last year to redeem preferred stock held by Warren Buffett's Berkshire Hathaway from the ROE calculation. That lifts ROE to 5.9 percent, sufficient to qualify over three years for a payout.
Shareholder activists are in a lather, meanwhile, over the committee's failure to specify how it initially determined the base for the cash award.
"Seven million dollars is an extraordinary amount of money, even to America's wealthiest citizens, and even on Wall Street," said Charles Elson, director of the John L. Weinberg Center for corporate Governance at University of Delaware. (The center was named for a former senior partner of Goldman whose father also once ran the firm and whose grandson is co-head of investment banking and eligible for the cash bonus.) "Why aren't they just using stock?"
Shareholders expecting updates on the plan's performance targets in the 2012 proxy are likely to be disappointed. Goldman does not expect to disclose tweaks made to adjust for its weak 2011 results, said a person familiar with the proxy planning.
A Goldman spokesman declined comment about the plan and calls to the compensation committee's pay consultant, Semler Brossy Consulting Group, were not returned.
The plan's metrics and targets are more liberal than those of many competitors.
Morgan Stanley's long-term performance plan pays only restricted stock and its ROE metric has a higher floor of 8 percent, according to its 2011 proxy. Citigroup's plan pays out partly in stock. American Express Co is closest to Goldman in offering cash payments if three-year performance goals are hit, but restricts its chief executive's award to stock and requires ROE to hit 25 percent to qualify him for some of his share grants.
Goldman's executives also may have a second opportunity to hit their targets. The compensation committee will decide at the end of this year whether to extend the program through 2018.
"It seems to give them another bite at the apple," said Joe Sorrentino, a managing director at Steven Hall & Partners, a compensation consultant in New York.
(Reporting By Jed Horowitz; Editing by Alwyn Scott)
