Following the footsteps of Goldman’s Lloyd Blankfein, Blackstone co-founder Peter Peterson is taking aim at Wall Street comp. He says the current system rewards short-term gains, a process that encourages risk taking gambling.
The New York Times reports the Peterson plan:
I would say, ‘you’ve got to put in your own money, the money needs to be paid out based on long-term performance, you’ve got to set aside some of your winnings, have a clawback.’ This way, the public can see their interest and management’s interest as coherent and unified.
Last week, Blankfein (whose firm Goldman set aside a record $11.4 billion for bonuses in the first half of 2009) said that multiyear guaranteed contracts for bankers should be banned and the clawback of pay should be permitted to discourage excessive risk-taking.
“Compensation continues to generate controversy and anger,” Blankfein said. “And, in many respects, much of it is understandable and appropriate. There is little justification for the payment of outsized discretionary compensation when a financial institution lost money for the year,” he said according to the Wall Street Journal.
No doubt Blankfein and Peterson will be applauded as critics of their own business. But this talk of pay restrictions is also self-serving. By clamping down on pay, these kind of restrictions would make competition for talent less focused on money and more focused on the reputation and long-term health of a firm. So Blackstone and Goldman would be huge winners!
(Hard to argue that that’s not a better alternative).