Prior to the financial crisis, the major investment banks allocated up to 50 percent of revenue for internal compensation, with the majority of the money allocated to the highest ranked employees. But on Oct. 31 Goldman Sachs Group (GS) began taking steps to transfer that revenue to investors, announcing they were lowering employee compensation by some 20 percent from the amount prior to the housing crash.
Goldman is now paying 39 percent of its revenue to its own employees, a marked decrease from the 50 percent of 2007. The drop comes amidst increased scrutiny into the astronomical pay allocated to investment bankers, often at the expense of dividend payouts.
For instance, although CEO Lloyd Blankfein only received $600,000 in direct salary in 2007, bonuses and other compensation totaled some $70.3 million. His four direct underlings received compensation totaling over $250 million that year, bringing the compensation for the five top executives at Goldman to over $320 million. The dividend paid to shareholders in 2007 was only 35 cents a share.
A twenty percent reduction in revenues allocated to compensation is expected to free up hundreds of millions in capital. Goldman has already raised dividends to 55 cents a share.
Goldman has been joined by Bank of America (BAC) , Morgan Stanley (MS) and Citigroup (C) in reigning in employee compensation and increasing dividend payouts and share buybacks. All thos ecompaneis have been enjoying banner years not seen since the Great Recession, on strong revenues and controlled expenses.
Since the financial crisis, the major investment banks have been under immense pressure, form the public and the government, to slash employee compensation. On Sept 18 the SEC proposed a new rule called the Pay Ratio Disclosure, which would force companies to reveal the median pay of all workers, and the ratio of that pay to CEO compensation.
Goldman was flat on the news, up a scant .07 percent to hit $162.16 a share.
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