Wednesday, December 20, 2006

Goldman-Sachs CEO Lloyd Blankfein Receives $53.4 Million Bonus

The Fort Lauderdale Sun-Sentinel reported on December 20th, 2006 that Goldman-Sachs CEO Lloyd Blankfein (pictured at left, courtesy of New York Times) was awarded a bonus totalling in value $53.4 million by the company's board of directors. The package includes a cash bonus of $27.3 million, $15.7 million in restricted stock and options to buy Goldman stock valued at just under $10.5 million. It shattered the previous record of $40 million paid to Morgan Stanley CEO John Mack just last Thursday. The New York Times also reported on this story.

Blankfein took the helm of the investment bank in June after President Bush nominated former CEO Henry Paulson to be Treasury Secretary.

The bonuses come after Goldman reported last week that it had earned the highest yearly profit in the history of Wall Street. Net profit rose 70% to $9.4 billion on revenue of $37.67 billion. Shareholders also benefitted from a rise of about 58% in the company's share price, the strongest returns of any Wall Street investment house. Goldman and other firms have benefitted from a surging market for takeovers and a recent sustained surge in the stock market. Goldman further stated it had set aside a total of $16.5 billion this year for salaries, bonuses and benefits. On average, this would translate to $622,000 per employee.

In addition to Blankfein, 11 other senior Goldman executives as a group were granted slightly more than $150 million in shares and stock options. The highest paid among those were Gary Cohn and Jon Winkelried, who both hold the titles of president and chief operating officer. They each received $25.6 million in shares and options in 2006. However, any cash bonuses for the other executives were not mentioned in the reports filed with the Securities and Exchange Commission (SEC).

Lehman Brothers Holdings Inc. and Bear Stearns Cos. have said they would pay about $12 billion in compensation each. Lehman said last week it paid its chief executive, Richard Fuld, $10.9 million in stock this year.

The trend in compensating executives has been to keep salaries level while increasing bonuses. The highest-paid executives in the country earned 48.2 percent more in bonuses and 31.2 percent more in cash, according to the Executive Compensation Index done by Economic Research Institute (ERI) and as of last month. It compared year-over-year numbers, and in the same period, salaries fell by 0.31 percent.

Shares of Goldman rose $2.11, or 1 percent, to $203.35 in mid-morning trading on the New York Stock Exchange.

Analysis: Stocks and stock options are just that - nothing more than pieces of paper until they arec cashed in or exercised. They can fall as well as rise. Consequently, it's more intellectually honest to consider the real bonus as $27.3 million.

And this is the same approach embraced by the group United for A Fair Economy. In the Executive Excess Report 2006, which they co-authored, they revealed that the average CEO makes 411 times more than the average worker. They explain their methodology as follows:

For 13 years, our Executive Excess reports have followed the traditional methodology used by the Wall Street Journal, Forbes, and Business Week for calculating total direct compensation. This is based on salary, bonuses, restricted stock awards, payouts on other long-term incentives, and the value of stock options exercised in a given year. Some other business publications and researchers include the estimated value of stock options grants. We prefer the definition that includes options exercised and not options granted because it fits the common-sense definition of pay understood by most laypeople of "how much money you got this year". Estimated values of option grants are just that, estimates. What the CEO actually puts in his pocket is often drastically different.

Even $27.3 million is a windfall. Coupled with the fact that ordinary workers wages in many cases have stagnated, this merely further opens up the gap between rich and poor in America to yawning proportions.

Some propose that a CEO "deserves" this type of compensation because he or she added this type of value to the company. Really? All by himself? Sure, the CEO formulates his own ideas, accept ideas from others, brainstorms solutions, and makes the critical calls upon which can ride millions of dollars. But success depends upon an entire army of worker bees to implement the decisions. No workers, no products. Our economic system promotes too much of a "winner-take-all" mentality. The statement that the CEO added $27 million of value to the company is not provable either objectively or empirically. It is an assumption, and assumptions can founder.

Indeed, many assumptions have foundered throughout history. The assumption that the sun revolved around the earth, prevalent during Galileo's time, ultimately proved false, although Galileo was forced to recant. The 18th century assumption that one could cure a disease by cutting an incision and letting blood flow out and suck out all the "impurities" with it, also proved false, but not before many patients died of the treatment. And modern-day assumptions such as homosexuals comprising exactly 10% of the population and exactly six million Jews getting gassed in the Holocaust are being subjected to sustained and credible challenges. The point is that today's assumption could be quickly relegated to tomorrow's dustbin.

And ordinary American workers are quickly finding America less affordable. In Alaska, Enstar has announced a proposed 30% hike in the cost of natural gas to consumers. Much of the increase is because Enstar must pay considerably more for their supplies of the commodity. However, one of the most alarming trends has been the astronomical rise in the cost of single family housing. The best illustration has been provided by Oscar Yeager. On his Day Of The Rope blog, Yeager states the following:

In 1964, the average wage earner's yearly salary was $5,065 minus income taxes for a yearly take home pay of $3,175. The average 3-bedroom house at the time was $15,200.This means that the house cost roughly 4-3/4 times the average yearly take-home salary. Today, the average worker makes $28,270 a year, minus income taxes for a take-home yearly salary of $15,657. The average price of a new home today in the U.S. is $264,540. That translates to a whopping 17 times the average yearly take-home salary. That is why it now usually takes two incomes to own a home these days, where in the past it only took one, so whites [Ed. Note: This problem affects Americans of all races] of both sexes have to work and have less means and time/ability to produce offspring, and can still only afford a new home by submitting to creative Jewish usury banking schemes that will keep them indebted to the Jew for their entire lives.

Unfortunately Yeager fails to provide a reference, so I can't verify the specific numbers, but other sources such as the World Almanac support the general trend. The fact that some people might be offended by Yeager "naming the Jew" should not cause one to disregard the remainder of the message.

And what is to be done? Wage caps are definitely NOT the answer; they're socialistic. Give back the Bush tax cuts? These rich CEOs would merely find another way to game their tax returns through the endless potpourri of pork-barrel deductions and exemptions to make up for it.

The answer is comprehensive tax reform. We need a simpler and fairer Federal tax system holding deductions to the bare minimum of those likely to be applicable to the largest number of people. It also needs to be at least mildly progressive, extending from 10% at the low end to as much as 25% at the high end, as rich people have a greater capacity to pay taxes than others. I know you libertarian readers want to see a flat tax, but income disparities combined with our national debt and trade deficits are simply too great to permit a flat tax at this point. If we intend to continue to dish out huge windfalls to CEOs, at least they can share more of the "profits" with the American people through progressive taxation.

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