November 17, 2008 11:35 pm

Goldman rivals urged to cede bonuses

The decision by Goldman Sachs’ top executives to forgo bonuses this year is putting pressure on their competitors to follow suit or risk being demonised in the court of public opinion.

The growing pressure was evident on Monday after Citigroup’s chief executive, Vikram Pandit, convened a “town hall” meeting of the bank’s 352,000 employees worldwide to announce 50,000 job cuts as well as other cost-cutting efforts.

In response, Andrew Cuomo, New York attorney-general, called on Mr Pandit and Citi’s other top executives to forgo their own bonuses for the year – just as the Goldman Sachs executives had said they would do only hours before.

“After four consecutive quarterly losses, it seems only fair that top executives should shoulder their fair share of these difficult economic times,” Mr Cuomo said. “It would send exactly the wrong message for Citigroup’s top brass to collect bonuses while investors, taxpayers, and now Citigroup’s own employees suffer.”

Citi said its board would “make decisions about the structure and level of compensation after the end of the year”. Citi added that it would not use the $25bn it had received from the government to pay bonuses but declined to comment further.

However, senior bankers say that Citi’s top management is well aware of the political mood and would not take decisions that would enrage shareholders, regulators or customers, especially when the company’s share price continues to hover around 10-year lows.

Lloyd Blankfein, Goldman chief executive, collected $68.5m in salary, bonus and stock awards last year. The firm’s two co-presidents, Gary Cohn and Jon Winkelried, received $67.5m each. This year, their compensation and that of several other top Goldman executives will consist of their base salaries of $600,000.

The pre-emptive decision by the Goldman executives to forgo bonuses this year won applause from regulators and corporate governance experts.

“Goldman has always shown leadership on Wall Street,” said Richard Ferlauto, director of corporate governance and pension investment for the American Federation of State, County and Municipal Employees union. “It’s the appropriate example for other firms to follow, and should ratchet up the pressure for top earners to turn some of their money back.”

John Coffee of Columbia Law School said he believed Goldman’s decision would put pressure on its longtime rival, Morgan Stanley, to “follow suit”.

A Morgan Stanley official said bonus decisions would be made in the next few weeks. The official pointed out that the chief executive, John Mack, voluntarily went without a bonus in 2007.

A Merrill Lynch official said no decisions about bonuses had been made yet. Shareholders are slated to vote December 5 on whether Merrill should accept Bank of America’s takeover offer.

If the deal is approved, Merrill Lynch bonuses in 2009 and beyond will have to be approved by BofA chief executive Ken Lewis, who has criticised lavish compensation packages in the past.

JPMorgan Chase declined to comment. People close to the situation said bonuses for its bankers would be down sharply this year in line with the expected sharp decline in its annual profits. They added that no decision had been made on whether its top executives, led by chairman and chief executive Jamie Dimon, would receive a bonus this year.

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