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Goldman Wins by Not Paying Cash Bonuses

By Michael J. Moore and Christine Harper

(Bloomberg) — Goldman Sachs Group Inc.'s plan to pay top executives in restricted stock will let the firm defer compensation expenses, reducing what it must report this year after being pilloried for setting aside more than $16 billion for employees.

The awards will consist of so-called shares-at-risk that start vesting next year and can't be sold for five years, the New York-based firm said yesterday. Because the expense isn't recorded until they vest, the firm avoids incurring an immediate cost, said Robert Willens, founder of Robert Willens LLC, which advises investors on accounting and tax rules.

"That's just what they needed to make this year look better," said Willens, a former managing director at Lehman Brothers Holdings Inc. "The first charge won't be until 2010, so this will definitely reduce their compensation expense. These 30 people make a disproportionate amount of the compensation."

Goldman Sachs (GS), which has repaid with interest the $10 billion it received from the Treasury Department last year, was derided for allocating a near-record $16.7 billion to pay employees in the first nine months of 2009 after benefiting from government support. Senator Bernard Sanders, an Independent from Vermont, called the bank's compensation plans "obscene."

The new policy, announced yesterday, will apply to the 30 members of Goldman Sachs's management committee, including Chairman and Chief Executive Officer Lloyd Blankfein, Chief Financial Officer David Viniar and the leaders of the firm's global and regional divisions.

Record for PayGoldman Sachs had 31,700 employees as of September and set a Wall Street pay record in 2007, when it set aside $20.2 billion for compensation, including $16.9 billion in the first nine months. Some analysts have estimated that the firm would break its 2007 record this year.

Switching to restricted stock awards won't camouflage how much the firm is paying its five named executive officers, whose pay will be disclosed in the annual proxy statement and in Form 4 filings with the Securities and Exchange Commission, said Graef Crystal, a compensation specialist and consultant to Bloomberg News.

"The game's up the minute the proxy comes out," Crystal said. "In fact, the minute they award it, it will show up in the Form 4."

U.S. Treasury Secretary Timothy Geithner, in an interview with Bloomberg Television last week, urged an end to "an era of irresponsibly high bonuses" and called for "fundamental constraints on how senior executives are paid" at big banks.

Shares-At-RiskThe new shares-at-risk will be treated like restricted stock and will vest in equal portions over three years, although employees won't be allowed to sell them for five years, Lucas van Praag, a spokesman for Goldman Sachs, said yesterday.

Goldman Sachs reduced its 2008 fourth-quarter compensation expense by an estimated $1 billion as workers were for the first time required to stay at the company at least one year to lock in part of their stock and option grants. Goldman Sachs's plan will affect only the employees who can best afford a one-year hiatus on cash awards, while enabling the bank to continue bestowing grants on most of the staff, said John Benson, founder and chief executive officer of U.K.-based recruiting Web site, which is owned by Dice Holdings Inc.

"You're talking about 30 people out of a total workforce of more than 31,000 and those 30 people have been very well compensated in the past and have a lot of stock already," Benson said. "You're still going to have a very large overall number for the pay at Goldman and the detail on whether that is in cash or stock is going be lost on most people."

Employee CountEarlier this year, Goldman Sachs changed how it reports the number of employees at the firm to include consultants and temporary staff instead of just full-time employees. That caused a jump in the number of employees to 31,700 at the end of September from 27,898 six months earlier and helped reduce the average compensation-per-employee figure at the firm, which came to $527,192 for the first nine months of the year.

While eliminating cash bonuses will align executives better with shareholders, Crystal said the strategy still seems designed to allow Goldman Sachs employees to take a bigger portion of revenue than they deserve.

"Why don't they just give it to shareholders?" he said. "They will not settle for the fact that they ought to be paid a heck of a lot less."

In yesterday's statement, Blankfein said, "We believe our compensation policies are the strongest in our industry and ensure that compensation accurately reflects the firm's performance and incentivizes behavior that is in the public's and our shareholders' best interests."

Last year, Goldman Sachs reported its first quarterly loss as a public company and accepted $10 billion in taxpayer funds from the Treasury, which it repaid with dividends in June. Blankfein and six of his top deputies agreed to forgo bonuses last year, accepting only their $600,000 cash salaries.

To contact the reporters on this story: Michael J. Moore in New York at; Christine Harper in New York at

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