Goldman Sachs has held out a carrot in its latest annual report.
Executives will be offered the option to defer 30% of their compensation — a significant increase from last year — if they agree to remain at the firm through the end of 2020.
Such generous “cram-down” packages are often used to retain top talent in the wake of a year of less-than-stellar performance.
But there’s a twist: If they don’t choose to stay on, they forfeit the 30% of salary.
During the prior year, the compensation from Goldman’s proxy structure, which is set by board leadership and not by the bosses, was deferred more than 90% of the time.
This year, the compensation percentage is due to decline, especially since much of that deferred pay is probably from pre-tax bonuses rather than restricted stock, according to Goldman Sachs.
That’s because the firm expanded its share purchase program in 2017 to buy back more stock and pay out high bonuses.
The numbers back up what traders and investment bankers have been telling their bosses.
During the first three months of the year, the firm’s trading and investment banking revenue was well below expectations and ranks the second worst this year. The first-quarter revenue was almost 30% below the same period last year.
And Goldman Sachs shares have underperformed the market since the middle of 2017. Its stock is up just 6% this year, compared with more than 21% for the benchmark Dow Jones Industrial Average.
The Trump administration’s tax overhaul and the prospect of higher pay for Goldman Sachs’ employees is one reason that many Wall Streeters are seeing bigger earnings for their work.
Executives at the New York firm will get a company dividend of $15.6 billion if they stay on through the end of 2018. The firm also announced plans to give stock-based compensation to 200 employees.
Employees’ total compensation “is growing,” Goldman Sachs’ CFO, Marty Chavez, said during the company’s annual shareholder meeting.
With millions of Americans already worried about rising costs, some economists have found that a perception of rising compensation for executives doesn’t necessarily lead to higher wages for lower-paid workers.
John Ryding and Conrad DeQuadros, economists at RDQ Economics, recently reported on a comprehensive analysis of compensation data over the last eight years from 179 companies with one to five million workers.
When they control for differences in management, regional location and size, Ryding and DeQuadros found that inequality in compensation is rising.
“This pay windfall apparently does not help much to solve any of the underlying problems — either narrowing inequality, or raising middle class pay.”