Reuters is reporting some good news this morning, the top seven executives at Goldman Sachs will voluntarily give up any bonus money for 2008. This is how the free market is supposed to work.
Yesterday morning the top seven--CEO Lloyd Blakfiend, Presidents and Co-COOs Jon Winkelried and Gary Cohn, CFO David Viniar, and three vice chairmen Michael Evans, Michael Sherwood, and John Weinberg--all approached the Goldman compensation committee and ask that they no receive a bonus this year. This is a significant amount of money they are giving up. The base salary for each man is $600,000. But with bonus money and other perks they typically earn much, much more. For instance last year CEO Blankfien made $68.5 million, the COOs earned $67.5 million, and CFO Viniar got $57.5 million.
With the compensation committee agreeing to this request the top brass at Goldman will have a little bit less for Christmas presents this year, though I imagine they'll be all right in the long run. What this does do for Goldman, however, is give them a good name. If you are looking to invest money or conduct business in the financial industry who are you going to approach with your money?
Goldman's executives have shown they are willing to sacrifice for the financial good of the company. They also understand political wind when they see it and are looking to rebuild public trust in the wake of the Wall Street meltdown. They've made a good faith gesture that should pay off in the end.
And they didn't need the government to force them to do it. With the government feeling like its their duty to limit the "excessive" pay of corporate executives, they are further demonizing the men who have a lot to do with the overall prosperity of our nation. Sure these men make a lot of money, but they help a lot more people and companies make a lot of money too. And those people and companies employ other people, which is the free market's way of distributing wealth.
Instead of the government trying to limit pay based on what they arbitrarily think is a "fair wage", let the market pick winners and losers. If Congress winds up bailing out out the Big Three they should not demand corporate pay limitations. Instead, GM and Ford should self limit the amount of money their top people make in these economically hard times to show the public that they care about the long term success of their company. If GM limits exec pay but Ford doesn't, then people may be more likely to buy from GM. If that happens and people buy Fords anyway, then that shows the public doesn't care... so neither should Congress.
Companies can be smart, or they can be stupid. The perfect example is AIG. If they wanted the public to have faith in them after failing they would have taken the voluntary step to end their salesmen spa retreats. Sure they had their half a million dollar vacation planned before the crisis. But they should have known what the perception would have been. As a result they will make less money in the future because less people will trust them... at least that is the way it is supposed to be. If the government continues to support them they can continue to be dumb. And if the government had forcibly kept AIG from making their poor business move then the public would not have been aware of the ineptness of their leadership.