Goldman CEO: Wall St. executive pay needs overhaul

Goldman Sachs CEO calls for overhaul of Wall Street executive pay, hedge fund oversight

WASHINGTON (AP) -- Goldman Sachs CEO Lloyd Blankfein says Wall Street compensation needs to be overhauled and hedge funds subjected to government oversight to reduce the kind of excessive risk taking that stoked the global financial crisis.

Lloyd Blankfein, who received compensation valued at nearly $43 million last year, said Tuesday that lessons from the crisis include the need to "apply basic standards to how we compensate people in our industry."

The chief executive of the Wall Street powerhouse suggested a handful of guidelines, including having an individual's performance evaluated over time to avoid excessive risk taking and only paying junior employees mostly in cash. The percentage of pay awarded as company stock should increase significantly along with an employee's total compensation, he added.

Blankfein also said unregulated pools of capital that are big enough to potentially endanger the financial system in a crisis should be put under "some degree" of government oversight. Those would include large hedge and private equity funds.

Public anger over the financial distress and taxpayer bailout of the banking industry spilled over to Blankfein's appearance as protesters confronted him at a gathering of the Council of Institutional Investors. The organization represents public, corporate and union pension funds that together have an estimated $3 trillion in assets.

A wave of public outrage over compensation crystallized around the millions in bonuses paid to employees by embattled insurer American International Group Inc., which has received $182 billion in federal bailout money. Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke have urged a new regulatory regime that would set compensation standards for financial institutions.

Many believe that banks and other financial institutions reward their executives for short-term, high-risk gains with negative long-term consequences.

"Much of the past year has been deeply humbling for my industry," Blankfein said, acknowledging it could take years to rebuild the investor confidence lost partly by industry practices that appear "self-serving and greedy in hindsight."

Capital and lending standards for banks should be subject to more "dynamic regulation," while hedge funds -- which draw hundreds of millions of dollars from pension funds, charities, university endowments and wealthy individuals -- and private equity should be regulated, he said.

The Obama administration recently presented a plan to Congress that would require larger hedge funds, and other private pools of capital like venture capital funds, to register with the Securities and Exchange Commission. Such a move would open their books to federal inspection.

Goldman Sachs Group Inc. said recently it hopes to return its $10 billion investment from the government under the financial bailout program as soon as possible.

Former Goldman executives have populated the White House and Cabinet under both parties, and the company casts an influential footprint in Washington. Former Treasury Secretary Henry Paulson -- the primary architect of the government's bank bailout -- was Blankfein's predecessor as Goldman CEO.

Blankfein's remarks in Washington, urging Wall Street to higher standards, were reminiscent of a speech Paulson made in 2002 at the height of the corporate scandals. Paulson, then Goldman's CEO, called for changes in how public companies are run and regulated to help restore battered investor confidence and the limping financial markets.

As Blankfein began his address Tuesday to the gathering in a hotel ballroom, two members of CodePink, the women's anti-war activist group, appeared on the stage with a large pink banner saying, "We want our $$$$$ back."

Blankfein asked them to leave and they did. But the women later charged onto the stage and podium yelling protests against the bailout. The protesters reflected a prevailing view that is "real and visceral," he said.

"Any money that was given to Wall Street was never intended to be permanent capital," Blankfein said.

The standards he proposed for executive compensation in the securities industry should reflect an individual's ability "to identify and create value," he said.

Under other guidelines Blankfein proposed:

--Compensation should include an annual salary plus deferred compensation.

--All awards of stock should be subject to future delivery or a deferred ability to exercise them over at least a three-year period.

--Senior officials should be required to keep the bulk of the stock they receive until they retire.

Jim Schnorf, a member of the board of the Eastern Illinois University Foundation, said Blankfein's remarks were constructive in light of the need to recast the role of stock option awards as incentives to company executives.

"There certainly has to be some mechanism to align management's interests with what's best for shareholders," Schnorf said.

Blankfein received compensation valued at $42.9 million during fiscal 2008, virtually all of it coming from stock and options awarded for his previous year's performance, according to an Associated Press calculation of data recently disclosed by the company. He got no performance-based pay for his work in fiscal 2008, when Goldman Sachs reported its first quarterly loss since becoming a public company and its stock fell more than 60 percent amid the deepening credit crisis.