Partners at Goldman Sachs are set to see their bonuses fall by up to 80 per cent this year and the cash component of their year-end packages capped at $400,000.

The rest of partners’ compensation packages will be paid half in stock and half in options, which will be priced based on the close of Goldman’s share price on Wednesday.

Goldman will continue its regular practice of deferring a large part of the compensation package to foster retention and loyalty.

The US bank is seen as a bellwether for the industry because it has fared better than its rivals in the credit crisis and has one of the earliest bonus payouts.

Morgan Stanley, Goldman’s arch-rival, on Wednesday said its bonus pool for this year would drop by 50 per cent to reflect a sharp fall in annual profits.

Morgan Stanley is also introducing “claw back” provisions that enable the company to withhold up to a third of employees’ cash compensation for three years to reduce bankers’ and traders’ incentives to take short-term risky bets.

Under the plan, implemented on Wednesday, employees who cause large losses
or other harm to the company will not receive the deferred sum.

Apart from receiving the biggest bonuses, partners are allowed to invest their own money alongside the bank’s in proprietary deals and buy shares in Goldman at a discount to the market price.

When times are good, most new partners can expect to reap at least $3m from the bonus pool, while partners with seniority and higher levels of responsibility could receive $10m or $20m.

However, during difficult times, partners are expected to take the biggest hit to reward and retain bankers who rank below them.

Lloyd Blankfein, chief executive, and six deputies have agreed to forgo their bonuses this year after the firm converted to a bank-holding company and accepted $10bn from the US government to help survive the credit crisis.

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