How much did Goldman’s lawyer make?

Posted by Marc Hodak on July 20, 2010 under Reporting on pay | Be the First to Comment

In an article about the Goldman SEC settlement, the NYT reporters couldn’t help but report on how much Goldman’s in-house counsel, Greg Palm, has made at the firm.

Several people who know Mr. Palm say they were shocked that he was short on cash because he was not a lavish spender and because Goldman has paid him lavishly. Goldman has given him stock and options worth $59 million since 2002, according to Equilar, an executive compensation research firm…

Yet Goldman continued to pay Mr. Palm richly. In 2008, he didn’t get a cash bonus but he did receive a substantial package of options and stock when Goldman’s shares were trading near their lows; less than a year later the package was worth nearly $12 million, according to Equilar.

So, from this reporting, one would figure that Mr. Palm made $52 million from 2002 to 2008, and $12 million more in 2008, for a total of $64 million.  That would certainly qualify as “lavish” and “rich.”  That’s how it would look to the average reader unaware of the distinction between grant-date values and realizable values.

Notice that the $52 million in pay calculated by Equilar represents the grant-date values of equity.  Options have a value on their grant date despite the fact that their exercise price is equal to the stock price.  Regardless of whether the stock price subsequently goes up or down, although their realizable value fluctuates, their grant-date value stays the same.  In Mr. Palm’s case, Goldman’s stock price dropped steeply over the 2002 to 2008 period, making his options worth very little in terms of realizable value.  On the other hand, the $12 million figure provided by Equilar for the 2008 grant is not a grant-date value, but a realizable value, reflecting the fact that the stock price has actually gone up since 2008.

The reporters had a choice of providing grant-date values or realizable values for each of the two periods they mention.  What if they had chosen realizable values for the first period (2002-2008), and grant date values for the second period (2008 – 2010)?  Then their report would have looked like this:

Goldman has given Mr. Palm stock and options since 2002 that are currently worth about $3 million, according to Equilar (which could easily do the calculation, if asked)…

In 2008, Mr. Palm didn’t get a cash bonus but he did receive a substantial package of options and stock, worth about $2.5 million, when Goldman’s shares were trading near their lows.

Well, that doesn’t actually sound as “lavish” or “rich” as the first version.  Why did the NYT not provide a consistent rendering of Mr. Palm’s pay either in grant-date terms or in realizable terms?  Why did they choose the combination of methods that yielded the highest number?  Well, we all know the obvious answer, but a good researcher never settles for that.  A good researcher looks at the data.