That first ever quarterly loss on Goldman's prestigious balance sheet is already having some negative effects.
The FT reported late last night that GS Partners will be seeing an 80% decline in their bonuses this year with compensation packages halted at a paltry (for GS) $400 k.( http://www.ft.com/cms/s/0/ef5a2422-cc82-11dd-acbd-000077b07658.html?nclick_check=1 )
FTPartners at Goldman Sachs are set to see their bonuses fall by up to 80 per cent this year and the cash component of their year-end packages capped at $400,000.The rest of partners’ compensation packages will be paid half in stock and half in options, which will be priced based on the close of Goldman’s share price on Wednesday.
In addition, Morgan Stanley also announced it would be cutting bonuses by 50% this year. They are also introducing 'claw back' provisions in which they can withhold up to 1/3 of an employee's cash compensation for up to three years to reduce the risk of bankers/traders taking short term risks.
Ouch. Does that strategy actually work?
While the cuts in pay certainly do represent a sea change in the finance industry, the clawback provisions seem to have been dreamed up in the PR departments. I suppose it does encourage long-term behavior, but another way to encourage that is to have proper risk management techniques. Or, another way to encourage less risk taking, is to just cut pay all together. Oh wait, already done. http://deltahedged.com/
At Wachovia they announced bonuses would be down 90%, then a few days later came back and said 90% was too high and that bonuses would be down 97%
Damn...
I didn't think that bonuses would be this low. I guess that this starts a gloomy bonus season for the rest of the industry.
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