Let’s see if this works

Posted by Marc Hodak on December 10, 2009 under Executive compensation, Reporting on pay | Be the First to Comment

Goldman Sachs has decided to take their usual 30/70 split of cash and stock for bonus payments this year and make 0/100 split instead.  This is supposed to satisfy the mob crying out for no bonuses for bankers.

GS  is either the cause or the symptom of a disease in this country, depending on your point of view.  The disease has no name, as far as I know, but it is manifested by extreme anger rooted in the fear of something one does not understand.  In this case, the anger comes from non-bankers (what the press insists on calling “Main Street”) directed toward bankers.  What the non-bankers don’t understand is how money is being made, or, more generally, how markets work to derive so much value from the messy allocative processes that we call banking or trading.  The bankers and traders, of course, don’t understand the anger directed towards them because they do understand how banks and markets work, though this esoteric knowledge is of little use or defense against the mob.

Few people understand how banks, markets, or, for that matter, “Main Street” work better than Goldman Sachs.  That’s why they make so much money.  The problem is that right now they aren’t allowed to pay themselves what they earn, so they are disguising it in the form of restricted, deferred stock.  Same value; different form.  We’ll see if the public, festooned with arbitrary distinctions about pay, will accept this one with a nod.  The press seems to view this as some sort of victory.