After years spent raking in millions as a top executive of Goldman Sachs Group Inc., Lloyd Blankfein said Wednesday that outsized banker pay encouraged excess and worked "against the public interest."
The furor over bankers' pay after last year's financial crisis often was "understandable and appropriate," Blankfein told the Handelsblatt Banking Conference, according to remarks prepared for delivery in Frankfurt, Germany.
"There is little justification for the payment of outsized discretionary compensation when a financial institution lost money for the year," the Goldman CEO said. He said bonuses are important to attracting and retaining top talent, but "misapplied, they can also encourage excess."
Blankfein agreed not to take a bonus last spring for his work in fiscal year 2008. But in 2007 he topped the list of highest-paid Wall Street executives, with a pay package totaling $42.9 million, according to an Associated Press analysis. Most of that was in the form of stocks and options awarded for his performance in 2007.
In the speech Wednesday, Blankfein laid out compensation principles that he said should apply throughout the financial industry. They included: making the largest pay packages more performance-based, deferring compensation to reflect long-term performance, banning contracts that guarantee high bonuses, and making top managers keep most of their pay in stock until they retire.
New York-based Goldman first released the standards in May. They are similar to ideas under discussion at the Federal Reserve, which is developing new guidance for compensating financial executives.
But as it has returned to health, Goldman has set aside significantly more to pay its employees. Goldman's costs for compensation and benefits rose to about $11.4 billion in the first half of 2009, up 33 percent from a year earlier. All of that wasn't paid out; the company can use it for discretionary compensation at the end of the year.
Based on the latest compensation and benefit figures Goldman disclosed, that breaks down to $386,429 for each of its 29,400 employees.
The Obama administration appointed a pay czar, Kenneth Feinberg, to address pay practices at banks that took money from the $700 billion financial bailout. Feinberg's rules will not affect Goldman because the bank repaid its $10 billion in June.
The House of Representatives passed a bill in July that would give shareholders more say in executive compensation and expand regulators' power over pay packages. The Senate has yet to take up the measure.
European governments have taken a tougher line, arguing for strict caps on individual payouts and collective bonus pots at financial institutions. But that idea was rejected at a meeting of top finance officials from major governments in London last week. The group, which includes Europe, the United States, Russia, India, South Korea and other major economies, instead agreed to draft principals for consideration at a meeting of national leaders in Pittsburgh later this month.
The policies that group will consider are likely to resemble Blankfein's call for greater accountability to limit risk.
Blankfein also addressed concerns that overly complex financial products destabilized the financial system, and laid out broad principles for regulation that would limit systemwide risk. He has been chairman and CEO of Goldman since 2006, and was president and chief operating officer starting in 2004.