Marketplace Scratch Pad

Goldman CEO speaks out

Scott Jagow Apr 7, 2009

Today, one of Wall Street’s most powerful CEO’s called for well-designed regulation and new pay guidelines for financial companies. Goldman Sachs leader Lloyd Blankfein spoke to the Council of Institutional Investors. He was interrupted by two protestors holding a sign that read: We want our $$$$ back!

The protestors were scolded for rudely interrupting Blankfein. One woman shouted as she was led away: “Why did taxpayers bail out the failure of Goldman Sachs?”

Blankfein’s response after the protestors left the room:

Aside from the demeanor and the lack of consideration, I think that reflects a prevailing view in the world… it’s real and it’s visceral… and maybe felt by everybody in the country, and I include myself in that.

You can see what happened here:

Read the full text of Blankfein’s speech here and a summary here.

On pay, he proposed several guidelines:

Compensation should include an annual salary plus deferred compensation, which is appropriately discretionary because it is based on performance over the entire year.

The percentage of compensation awarded in equity should increase significantly as an employee’s total compensation increases.

For senior people, most of the compensation should be in deferred equity. Only the firm’s junior people should receive the majority of their compensation in cash.

An individual’s performance should be evaluated over time so as to avoid excessive risk taking and allow for a “clawback” effect. To ensure this, all equity awards should be subject to future delivery and/or deferred exercise over at least a three-year period.

And, senior executive officers should be required to retain the bulk of the equity they receive until they retire.

On 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…

Though honest disagreements will occur, the best companies don’t shy away or selfishly frustrate efforts to compel better industry practices. These companies recognize that they are the first to benefit from better standards, especially if their business requires extensive dealings with partners or counterparties. But, we have to recognize a higher responsibility: to speak up, to draw attention to potentially destabilizing trends and to act like an owner responsible for the integrity of the system.

In other words, behaving like an adult, instead of a child who’s only worried about the candy jar on the top shelf.

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