We’ll know we have entered a new era in compensation for top bankers when a board of directors actually exercises a “clawback” provision of the newly minted and less generous bonuses being proffered on Wall Street.
The headlines, of course, are about the dollar value of the bonuses now being handed out for work in 2009. Most noted and notable was Friday’s news that Golman Sachs Chairman and Chief Executive Lloyd Blankfein ‘only’ got a $9 million bonus, all in stock and no sale allowed for five years.
Beneath the news headlines is another reality. Yet more power is is being given to boards in their greater ability to pull back stock awarded in bonus packages if after the fact any tarnish is found on the results that supported the bonus payments.
These emboldened clawback provisions apply not just to Goldman executives but at other financial services companies, too. Indeed, the lack of certainty built into these stock-based bonuses (themselves a better way to tie executives to the firms’ long-term interests than cash) have spurred a new term, “shares at risk.” They earn that sobriquet because “the shares could be clawed back or lost if something goes awry at the firm,” recently wrote The Wall Street Journal.
How ironic that corporate boards of directors, accused of broadly being asleep at the switch during the accounting scandals of the late 1990s and the over-the-top risk-taking that led to the credit crunch, keep increasing heir power in the reformist wakes of every scandal.
Now they are getting more strings to attach to stock-based bonuses after widely being accused of letting top executive compensation, on Wall Street and Main Street, get out of control.
So the skeptic in me wants to see a board actually use such clawback power in coming years, when justified, of course, to see if it is going to be different this time.
Meanwhile, the debate about whether a bonus of $9 million was ‘enough’ for Blankfein after the sterling year enjoyed by Goldman will continue.
No doubt the heat and glare of the public and politicians about post-meltdown bonuses at commercial and investment banks helped rein in Blankfein’s 2009 compensation, along with the pay of other top people at Goldman. The New York firm has been dead center in the populist loathing.
Another question is whether the new sensibility about pay will last if and when the spotlight shifts elsewhere.
As for Blankfein, it’s worth keeping in mind that he was paid more than $68 million in cash and stock in 2007 and The New York Times reported his total compensation since 2000 comes in above $181 million, though not all has been cashed out.