We've been meaning to comment on the compensation decisions by Goldman Sachs.  This is typically the poster child for excess.  Once the Goldman numbers come in, every other company can pay excessive rates, blaming it on the need to keep people from bailing and going to Goldman.

Towards the end of 2009, it looked like Goldman would continue to pay amounts that, in a time of 10% unemployment, looked excessive.  The investment banking firm was on a path to set a record.  Push back from shareholders and a generally pillorying in the press apparently had some impact.  The firm announced that it would not pay a record amount of compensation, setting it at a percentage in the 30's, well below the typical percentage (between 45% and 50%) over the last ten years. 

The other shoe was the bonus paid to top management.  The CEO (and chairman), as well as four additional officers, received a bonus of $9 million on top of the $600,000 in salary.  The bonus was also in stock and couldn't be sold for 5 years.  The pay was even less than the amounts authorized by the Pay Czar with the companies subject to his oversight.  He allowed a couple of compensation packages to weigh in at $10 million plus. 

The approach used by Goldman was responsible and, as a result, the public criticism was muted.  There is no room to complain.  It was highly responsible and, on this one, the board and CEO did the right thing.  It was an impressive display of proper corporate governance.

The problem is that it is likely to have been a one time event.  Already the firm's Chief Financial Officer, David Viniar, is warning investors and the public not to read too much into the action.  As the WSJ reports, Viniar had this to say about compensation:

• "People ask me if this is the new normal," Mr. Viniar said at a Credit Suisse conference in Miami. "There is no formula. We tried to strike the balance right, and we'll try to strike the balance right this year."

In other words, the days of $65 million plus bonuses may not be over.  Moreover, its even possible that Goldman will pay interim bonuses and increase compensation during 2010 to attempt to compensate for some of the shortfall. 

In the end, the process of determining executive compensation lacks integrity.  For more on this, take a look at Returning Fairness to Executive Compensation.  It remains broken and, despite this act of professionalism by Goldman, it is still not fixed.  Directors need to be truly independent so that they can say no to proposed compensation packages that are unreasonable.  While the debate has calmed a bit because of Goldman's actions, the problem remains unaddressed.