Lloyd Blankfein will dole out some the fattest bonuses on Wall Street this year, but the Goldman Sachs Group Inc. chief executive officer says the time is now ripe to regulate how bankers get paid.
Mr. Blankfein acknowledged yesterday that the public is right to be angry about bloated executive pay, which many critics blame for dragging banks into the kinds of risky deals that helped trigger the credit crisis.
"Compensation continues to generate controversy and anger," Mr. Blankfein told a meeting of bankers in Frankfurt. "And, in many respects, much of it is understandable and appropriate. There is little justification for the payment of outsized discretionary compensation when a financial institution lost money for the year."
His comments come amid growing momentum - at least in Europe - for regulating pay in the banking industry.
European leaders are pushing the United States and other countries at the Sept. 24-25 G20 summit in Pittsburgh to adopt strict international limits on bonuses.
Other countries are going ahead unilaterally. Dutch banks unveiled a new code of conduct yesterday that includes a cap on executive bonuses and measures to ensure bonus payments do not encourage bankers to take undue risks. The Dutch government said it intends to put the code, signed by all of the country's leading banks, into law.
In the United States, however, the push for reform has slowed as the financial crisis has waned and banks resume making hefty profits. And critics warn that Wall Street banks are already reverting to their old ways in the face of inaction by U.S. President Barack Obama and Congress.
"Congress and the White House hold the pin that could pop the executive pay bubble," said Chuck Collins, a senior scholar at the Washington-based Institute for Policy Studies. "They have so far failed to use it."
Earlier this year, Congress capped bonus payouts at banks that received bailout cash. Several banks, including Citigroup Inc. and Bank of America, responded by boosting base salaries. Other banks have quickly reimbursed the government, in part to escape greater oversight.
White House pay czar Kenneth Feinberg is expected to approve within a month the compensation packages laid out by the largest recipients of government bailouts, including Citigroup, American International Group Inc., Bank of America, GMAC Inc., General Motors Co. and Chrysler Group LLC.
Mr. Obama has given Mr. Feinberg the power to pare back compensation, if warranted.
In a recent report, New York Attorney-General Andrew Cuomo complained of a "heads I win, tails you lose" pay culture on Wall Street, where nearly 5,000 bankers pocketed bonuses of at least $1-million (U.S.) last year.
Large pay packages remain the norm on Wall Street, where banks insist they must pay well or lose their best employees to rival companies.
So far this year, the top five U.S. banks have put aside $61-billion to cover bonus payments, only slightly off last year's pace.
And because most banks have fewer employees now, the average payout could top those paid during recent boom years, experts said.
Goldman Sachs is often cast as one of the leading villains in the Wall Street pay controversy.
But in his speech yesterday, Mr. Blankfein said multiyear guaranteed contracts should be banned and that banks should be allowed to "claw back" incentive pay to dissuade excessive risk-taking. More executives should be paid in stock, and senior bankers should have to hold those shares until they retire, he added.
Mr. Blankfein's suggestions come just two months after Goldman disclosed that it has set aside $11.3-billion in the first half of 2009 alone for employee bonuses. That puts the bank on a pace to pay out average bonuses of $768,000 this year.
At the time, the New York Post reported that Mr. Blankfein warned employees to avoid flash purchases because now isn't the right time to be "seen living high on the hog."