Goldman cancels cash bonuses for top execs

NEW YORK - Goldman Sachs Group Inc.'s top executives will not receive cash bonuses this year, as the Wall Street giant bows to sharp criticism over its pay practices.

The 30 high-ranking executives will instead receive stock that cannot be sold for at least five years, the New York-based bank said Thursday.

But the restrictions won't affect the more than 31,000 other employees at the bank, potentially including some of its top traders, who could be rewarded handsomely for helping Goldman turn big profits this year.

Banking bonuses have been a hot-button political issue. Financial markets have recovered much faster than the broader economy, and the nation's unemployment rate sits at 10 percent. Surging financial markets allowed companies like Goldman Sachs to rebound and start posting big quarterly profits, while setting aside billions of dollars to pay out year-end bonuses.

Goldman has also been criticized for using $10 billion in government bailout money to help ramp up its aggressive trading practices. Goldman received the money late last year as part of the $700 billion bank rescue program. Goldman paid back the money this summer, allowing it to escape restrictions on compensation.

Trying to stem the negative publicity over the issue, Goldman has said in recent months it was reviewing its pay policies.

"The measures that we are announcing today reflect the compensation principles that we articulated at our shareholders' meeting in May," Goldman CEO Lloyd Blankfein said.

On Wednesday, British officials said they are levying a one-time tax of 50 percent on any bonuses paid to bankers in the country above 25,000 pounds ($40,642.50).

A British treasury spokesman said the tax applies to "all forms of bonuses, including shares, gifts, any loans, paid as discretionary." It is calculated on the value of shares or options when they are awarded.

That means Goldman employees working in Britain may have to give up half of their year-end bonuses.

Seven of the top 30 executives who will receive stock bonuses are in London, a person familiar with the list said. The new tax would prove costly for the seven if they must pay cash to offset the value of stock they receive but are unable to sell it for five years.

Mike Shah, a partner at Jones Day in the firm's executive compensation group, said banks will look very closely at every possible option so employees can avoid paying the tax, ranging from renaming the bonuses to deferring them to a later date.

Goldman set aside $16.71 billion, or about 47 percent of net revenue, through the first nine months of the year for compensation. That includes not only bonuses, but also salaries and associated costs such as benefits and payroll taxes.

The exact size of the bonus pool will not be disclosed until mid-January when Goldman releases fourth-quarter results, the Goldman spokesman said. The bank has yet to finalize how much it will pay out in bonuses, he added.

The majority of compensation for Goldman's senior management has traditionally been paid out in year-end bonuses.

Aside from not being able to sell the stock for five years, the 30 executives' stock awards could be taken back by the bank in cases where the employees took too large a risk or failed to raise concerns about risk in the company, Goldman said.

Politicians have chastised Wall Street bankers for taking excessive risk, which resulted in big bonuses but also helped lead to the credit crisis and recession.