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...Or Is Goldman Still Getting the Last Laugh?

Justin Fox is unimpressed with the latest Goldman bonus manuever, in which the top 30 Goldman execs would get their bonuses in so-called "shares at risk" rather than cash, and the shares could be clawed back if the execs turn out to have placed some costly bets:

Yawn. Bonuses for top management at Goldman were already paid out mostly in stock. Goldman already used clawbacks to make sure it wasn't paying for ephemeral performance. Personally, I like the idea of a corporation that pays out half its revenue as employee compensation. If only more companies did that! ...

I'm not saying we should all be happy that Goldman will be paying out record bonuses for this year. But the issue isn't the division of profits between employees and shareholders, it's the profits themselves. Goldman is making billions and billions this year because (1) Treasury and the Federal Reserve stepped in to save the global financial system in 2008, (2) the timing and nature of that rescue worked very much to Goldman's benefit, by wiping out competitors while leaving Goldman standing, and (3) Goldman put itself in position to take advantage of the crisis and rescue by managing risk better than its competitors. Let's say two-thirds of Goldman's profits this year are the result of government intervention. Shareholders are benefiting from this windfall as much as employees are. So it's the windfall we ought to be yelling about. Not the bonuses.

Well, it's obviously a political ploy, no question about that. But, as I've said, I'm a bit more sanguine because I think it's an improvement on the status quo, and one that both Goldman and Wall Street are going to have a tough time undoing, even though the intent was only to do it this year 30 executives.

But I completely agree with Fox's broader point about profits, not compensation, being the issue. In fact, when I first glanced at the Goldman-bonus headlines yesterday, I thought the story was that the firm's top 30 managers were forgoing their 2009 bonuses altogether. (I know, I know--not in this universe.) Anyway, while I was still under that impression, I had the same thought as Fox: What difference does it make if these guys don't get a bonus, since it doesn't change the fact that Goldman made a killing thanks to an enormous taxpayer subsidy? (That's setting aside the issue of incentives, of course, and just focusing on distributional fairness.) As the taxpayers who provided this subsidy, should we be less offended if it makes several hundred or thousand large Goldman shareholders super-wealthy, rather than several dozen or hundred Goldman executives? The former doesn't seem like a great improvement on the latter. Which is why the U.K.-style bonus tax seems so appealing. At least it targets the right problem, which is towering profits at taxpayer expense.

P.S. Another thought occurs to me: Maybe permanently implementing the new bonus rule and spreading it to more executives is the endgame Goldman had in mind. If, as Fox argues, it's not *that* much tougher than the status quo, maybe Goldman starts off just proposing it for 30 top executives this year so it looks high-minded and magnanimous when it later adopts the provision permanently. Oh, damn you, Goldman!