Goldman: It’s not the bonuses, it’s the profits

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Goldman Sachs, in response to the continuing bad press it’s been getting for planning to shower its employees with money, announced today that bonuses for its top 30 managers will be paid out entirely in stock.

Yawn. Bonuses for top management at Goldman were already paid out mostly in stock. Goldman already used clawbacks to make sure it wasn’t paying for ephemeral performance. Personally, I like the idea of a corporation that pays out half its revenue as employee compensation. If only more companies did that! And the idea that shareholders are somehow the dupes here is a bit rich—they had to know when they bought in to Goldman that employees came first.

I’m not saying we should all be happy that Goldman will be paying out record bonuses for this year. But the issue isn’t the division of profits between employees and shareholders, it’s the profits themselves. Goldman is making billions and billions this year because (1) Treasury and the Federal Reserve stepped in to save the global financial system in 2008, (2) the timing and nature of that rescue worked very much to Goldman’s benefit, by wiping out competitors while leaving Goldman standing, and (3) Goldman put itself in position to take advantage of the crisis and rescue by managing risk better than its competitors. Let’s say two-thirds of Goldman’s profits this year are the result of government intervention. Shareholders are benefiting from this windfall as much as employees are. So it’s the windfall we ought to be yelling about. Not the bonuses.