Friday, February 05, 2010

Great Work, If You Can Get It

Even as the Department of Labor announced U.S. unemployment had abated to 9.7%, investors learned that Goldman Sachs (GS: NYSE) would be paying its CEO Lloyd Blankenfein a $9 million bonus, well below the pay that Goldman had originally planned and well below bonuses given to previous Goldman executives. There is something disquieting about the relative reactions to each of these announcements.

The joblessness news was taken as a positive by investors, despite the fact that the government also revealed its number crunchers had under estimated the number of jobs lost over the last year. Government bean counters now estimate 3.6 million jobs were lost over the last thirteen months.

Main Street found a certain satisfaction in hearing that the CEO of a large investment bank would be receiving a far small bonus that some of his predecessors. The news may have seemed especially satisfying after Congressional hearings that suggested Goldman had been given preferential treatment by top policy makers.

Personally, I am not impressed. How can an economy produce profits that justify the payment of $9 million to one individual while 9.7% of the labor force has no wages at all? Is Goldman and the rest of the investment banking industry earning inordinate profits on unfair fees? Perhaps compensation schemes are skewed to far in the favor of senior management and others in positions of control or influence.

Acquaintances recently queried me about what a chief executive or other officers do that merits multi-million dollar bonuses. Frankly I have no answer. Where would Goldman be without Blankenfein at the helm? My guess is that the company would likely be exactly where it is today without Blankenfein. On the other hand, consider those who are on the other end of the compensation spectrum. Where would the educational system be without teachers or emergency rooms without EMTs or nurses?

My hat if off to Blankenfein. His job is great work, if you can get it.


Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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