Somehow, even after all we’ve been through, I still don’t connect Wall Street types with “getting religion,” as our forbears used to say. Yet, here is Lloyd C. Blankfein, CEO of mighty Goldman Sachs, confounding expectations.
He gave a speech the other day to the Council of Institutional Investors that started with a mea culpa. “…much of the past year has been deeply humbling for my industry. We held ourselves up as the experts, and the loss of public confidence from failing to live up to the expectations that we created will take years to rebuild. Worse, decisions on compensation and other actions taken and not taken, particularly at banks that rapidly lost a lot of shareholder value, look self-serving and greedy in hindsight.”
Perhaps this is the place to mention that Blankfein received comp valued at nearly $43 million in 2008, according to the New York Times. This was down from almost $54 million in each of the two previous years. I don’t know about you, but if I were sitting on that kind of comp I’d probably find it easier to own up to past mistakes.
However, it’s also true that Goldman’s executive management team “elected not to receive a bonus in 2008, even though the firm produced a substantial profit,” as Blankfein stated. But this was due “in part” to the fact that “compensation continues to generate a lot of controversy and anger,” he said. “We recognize that having TARP money creates an important context for compensation.”
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In any case what Blankfein did in his speech is state that evaluating the value a person creates and the compensation that goes with it “must be made on a multi-year basis to get a fuller picture of the effect of an individual’s decisions.”
He further said: “No one should get compensated with reference to only his or her own P&L. Compensation should encourage real teamwork and discourage selfish behavior, including excessive risk-taking, which hurts the longer-term interests of the firm and its shareholders.”
What about regulation? “For policymakers and regulators, it should be clear that self-regulation has its limits. At the very least, fixing a system-wide problem, elevating standards or driving the industry to a collective response requires effective central regulation and the convening power of regulators.”