Goldman Sachs practises abstinence

Goldman Sachs top executives will forgo their bonuses for the year, says a report in BS today. That would be in order. The firm is due to post a loss for the coming quarter. Even otherwise, as part of the troubled financial sector, the firm's top brass would have come under fire had they dare to make bonus payouts this year.

Is it enough to forgo bonuses? Goldman is one of the recipients of equity from the US government. It was allowed to turn itself into a bank, giving it access to unlimited central bank liquidity. Surely, there is a cost to be assigned to this? There should be "shadow" costs for subsidies for these kind which should be factored into a firm's annual profit/loss figures. If there is a loss, there is a case for top executives to pay back some of their ill-gotten gains of the earlier years.

This would not be revolutionary in today's context- UBS is said to be contemplating a move get its senior executives to cough back their bonuses from the past. Incidentally, UBS is the first investment bank to implement a model that I have consistently advocated since the outbreak of the crisis- bonuses when the firm is making profitsl and paybacks to the firm when there are losses. Here is the relevant excerpt from an FT report:

For next year, compensation for the group’s top 2-3 per cent of staff will be revised to put more emphasis on long-term performance. Under the changes, bonuses in cash and shares will be staggered over a period of three years. The bonuses will also be adjusted to take into account losses as well as profits. Mr Kurer said the system would set a trend.