Goldman Sachs’s Ungrateful Announcement

When Goldman Sachs announced its 1Q net income a couple of days ago, my first feeling was that of relief. Our world had finally seen the light at the end of the tunnel after months of nothing but gloomy news of job cuts and more job cuts, I uttered to myself. As I proceeded down the article, I was dismayed to find out that the positive earnings had been contributed mainly by its fixed income, currency and commodity unit. The performance of other divisions clearly still reflected a market that was far from recovery. And worse still, the exceptional performance as the name suggested, were exceptional and had a high chance of not repeating itself. Well, a bit of good news is better than nothing and so I thought Goldman deserved a pat on the back for the commendable effort in trying to create a bright spark in the current downturn.

Just when I was about to do that, I caught 2 points from later part of the article that made me change my intention completely. Firstly, it had set aside almost US$5 billion in salaries and bonuses for employees before paying off the US$10 billion loan from the government. Secondly, it would raise equity to pay the loan, effectively saying that it will use its business earnings for uses other than paying loan. How could a respectable institution allocate a large amount of its earnings to things such as salaries and bonuses before paying off the loan that had saved it from the brink of collapse? Didn’t Goldman which hired many top brains understand the simple logic that without the loan, there might be no Goldman today and hence, not a single cent of the US$1.7 billion net income?

I fully understand the importance of talent retention to many institutions such as Goldman, but I don’t agree with Goldman’s way of showing that importance, considering the situation that it was in. It immediately gave the impression of Goldman as an extravagant and ungrateful child who had forgotten who his savior was. It also appeared to show that Goldman’s decision-making process did not really consider taxpayers’ reactions.

I think it would have been more proper if Goldman limits its compensation to basic salaries and bonuses at least until it has fully paid off the loan. By doing so, it can free up those money and use them to pay the loan instead, thus portraying itself as a responsible player in the industry that had been labeled as greedy and selfish.

If limiting compensation is really not possible, then perhaps Goldman could share with the public the mechanisms of checks and balances that had been put in place to make the new compensation structure different from the infamous “head I win, tail you lose” structure such as gradual disbursement of bonuses and requirement that certain percentage of bonuses remains with the institution.

To Goldman Sachs: Do remember that the public deserves more. After all, you owe the public for your very existence.