CapitalistMarks

Compensation . . . Goldman starts to get it right!

Posted on 11. Dec, 2009 by scott in economic daydreaming

I was cruizin’ down the road contemplating the Universe and the Utah Jazz’s win last night over Dwight Howards’ Orlando Magic.  Then I heard something on NPR’s news broadcast that made me swerve to the side of the road and listen intently.

Could this possibly be true?  Was Goldman Sucks Sachs really paying their all-important bonuses in a new, innovative and fiscally responsible way that  might benefit shareholders?

Sounded like it in the brief overview NPR (typically) provides important economic/corporate news.

The gist?

Goldman executives were not going to receive cash bonuses at all this year.  Instead bonuses would be paid in stock . . . stock that could not be sold for at least 5 years!

One round of the Hallelujah chorus please (Christmas is coming early).

Wow, I was blown away.  A major U.S. financial institution doing something right for a change?

I tried to call my broker and buy the three shares of their stock that I can afford.  Sadly his line was busy for, well, like ever! Probably on another line (buying some of that stock for himself?).

Good thing, too.

I turned the car around, headed for home and rushed to my computer to buy on-line (where the commission is actually less than the total purchase price).

First I checked out the breaking financial stories on the net and reigned in my enthusiasm.

Turns out this ‘BIG’ news only covers the 30 top execs at the firm.  You know the ones that get bonuses big enough to buy small tropical islands or perhaps entire former Soviet republics.

The other 31,000 employees?  Same old same old.

Of course my rapidly diminishing enthusiasm brought me to a standstill.

Then I remembered Wednesday’s news and started smiling again.

You see, the dastardly and fiendish Inland Revenue Service   (the British answer to the IRS) has been instructed to come up with their own solution to ridiculous bonuses.

Its true.  They now have a handle on the equity of all this.  Effective immediately they have been instructed (by the Queen or whoever there is like our Congress I guess) to levy a one-time tax on any bonuses paid to bankers in excess of  $40,000.

And the tax rate?

A whooping but well-deserved 50%!

Another chorus please.

As frequent readers know, I have pontificated on this before (see Capitalism Redux as one example).

Executive compensation in this country is out of control.  Same for the outlandish pay that goes to movie stars, singers, athletes and such. Same for the equally outlandish compensation, perks and benefits that go to Senators and Congresspeople.

It has to end.

We have to stop paying any ‘big-wig’ in today’s dollars for tomorrow’s expectations (same for giving out Nobel prizes by the way).  The big bucks must be earned the old -fashioned way.  Hard work . . . over a period of time.   That means not just one quarter or one year but–well, five sounds about right. (As a side I must add this important thought:  how about paying all elected officials the minimum wage until they finish serving and then giving them a bonus based on performance?  Think that would solve a lot of problems?  shoot, yeah, we wouldn’t even need term limits.)

Back to the issue at hand (and excuse me for wishin’).

I think Goldman is starting to get it right but they didn’t go far enough.

A five year time frame for performance compensation is fair! I could live with that as an investor and a tax-paying citizen.

Any less and it is not earned or worth it.

Let me give you an example that irks me right now.

Utah’s Carlos Boozer.

A great basketball player when it suits him but apparently not when it suits the team.  He has been mostly a no-show for the last couple of years . . . until now.  Right, his contract is up soon and he will have to negotiate a new one.  Holy mackeral, Batman!  The dude is putting forth ‘all-star’ caliber play and big numbers.  At the end of his contract?  Where has that been when we needed it?

Apply that to everyone who makes more than the President of the most important nation on earth.

On top of that, no one, and I really mean no one, is worth anything close to a $million a year  (at least in direct compensation).  Not with more than 20,000,000 people under or un-employed.

Let the high-flyers earn their $$ over a long period so that shareholders (investors, owners, producers etc.)  see some benefit.  Lets do it the ‘old-fashioned’ way.  Earn it!

Otherwise we are just letting the hyenas into the corral–alone–with the sheep–at night–with the lights out–and ketchup by the gate.

I guess I really don’t care if companies want to pay out the big $$ without risk to the payee. . .  but if they do then the recipient should be taxed at a marginal rate of at least 50% and probably more like 70 or 80%!

Capital gains?  The stuff from working hard and holding your stock bonuses for a long time while proving your worth?  While putting your own capital at risk?

Different story entirely.

Let it ride to encourage and promote American ingenuity.  Little or no taxes on that because everyone benefits and the economy grows.

Up the ante Goldman.  Push the limits IRS.  All big bonuses must be long term.  All exorbitant compensation must be taxed fairly at VERY high rates!

If you don’t agree then you are either working for Morgan Stanley or are a modern day Rumple Stiltskin.

Your comments are appreciated and will be given the consideration they are due (unless you disagree in which case I will be tempted to turn you name over to Britain’s tax dudes!).

Have a great weekend!

thanks to flickr’s timmy for the photo

Tags: executive compensation, Goldman Sachs, high marginal tax rates for unreasonable wages, long-term bonus compensation