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Sunday, November 16, 2008
Goldman's Top 7 Execs to Forgo Bonuses for 2008
Joanna Ossinger
FOXBusiness
Goldman Sachs’s (GS) top seven executives will not receive bonuses for 2008, a spokesman for the firm told FOX Business.
The executives made the request of the board’s compensation committee, and the board on Sunday approved the request, the spokesman said.
The list of executives includes CEO Lloyd Blankfein, who in 2007 earned $68.5 million in cash and stock; as well as David Viniar, the chief financial officer; Co-Presidents Jon Winkelreid and Gary Cohn, who earned more than $65 million each last year themselves; and Vice Chairmen Michael Evans, Michael Sherwood and John Weinberg.
“Our senior officers decided on this course of action because they believe it to be the right thing to do,” the Goldman spokesman said.
This means that the seven will be eligible only to receive their base salaries of $600,000 each, according to The Wall Street Journal.
Because Goldman is part of the Treasury Department’s Troubled Asset Relief Program, it was facing limits on compensation for its CEO, chief financial officer and three other highest-paid executives anyway.
The move may turn out to be a wise one, because Americans -- including officials in Washington -- have expressed anger that U.S. taxpayers may be subsidizing companies through the TARP program that will turn around and give millions or even billions of dollars in bonuses to people who are already highly compensated.
Goldman has come in for particular scrutiny because Treasury Secretary Henry Paulson used to be its CEO, and the administrator of the TARP program, Neel Kashkari, worked at Goldman as well.
The firm has had a turbulent 2008, along with the rest of the financial-services industry -- but it has fared better than many of its rivals in a year that saw three of the biggest U.S. investment banks either go belly-up or be bought. Of its main rivals, Morgan Stanley (MS) is still independent, but Lehman Brothers filed for bankruptcy, Bear Stearns was bought by JPMorgan (JPM) earlier this year and Merrill Lynch (MER) agreed in September to be taken over by Bank of America (BAC).
Goldman recently decided to change its status to that of a bank holdings company, which means it’s subject to more regulation, but it’s also eligible for more government protections.
Goldman’s shares are down 69% year to date. They closed Friday at $66.73, down 4.7% in the session.
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Some mutual funds want you to pay for the privilege of them (or your investment adviser) taking your money to invest. It's called a load, and it works like a cover charge to get into a nightclub. Luckily, there are such things as no-load funds. As the name implies, shares of these funds are sold without a fee paid to a broker or investment advisor.
The entire amount you invest in no-load funds goes to work for your returns. On the other hand, with load funds, right off the bat you're charged commission (not to mention other fees incurred over the life of the investment). Let's say, for example, you invest $25,000 into a load fund that charges a 5% commission. This costs you $1,250 off the top, bringing your actual investment down to only $23,750.
The often-cited horse race analogy argues against investing in load funds. Here's the logic behind it: Would you place a bet on a horse that had to start a race 200 yards behind the others? Well, maybe you would if you got a tip from a sketchy, trench coat-clad man in a dark alley. However, under most circumstances, it's not smart to put your money on that handicapped horse.
But some argue that at times that man in the trench coat (aka your broker) knows more about the horses than you do, and has a better shot at picking a winner. Also, sometimes these fees are unavoidable because some funds are available only through investment advisers.
Cost-benefit analysis can help determine when a load fund is worth it (in other words, when it will score you a load) and when it is better to "do it yourself" and avoid the fees. Load-fund fees range depending on share class and can cover a variety of costs, such as paper work and fund management.
