Goldman Sachs set aside $4.7 billion for salaries and bonuses last quarter, after taking in a profit of $1.7 billion. That means Goldman’s employees stand to profit far more than its shareholders from this quarter’s outperformance.
The $4.7 billion in compensation is 50% of Goldman’s total revenues for the quarter. The first quarter of last year, compensation ate up just 48% of Goldman’s revenues. As Heidi Moore at the Wall Street Journal reports, Goldman’s rising compensation comes despite the fact that the firms has cut its headcount by 7% since the end of last year. That means that the remaining employees are each taking an even bigger slice of the pie.
The size of that compensation set aside will likely annoy current shareholders. After all, it is almost as large as the public offering Goldman is proposing to help it pay back TARP. If Goldman hadn’t been so eager to set aside so much revenue to pay its employees, the current shareholders would not need to be diluted as much to pay off the TARP.
To put it slightly differently, the executives at Goldman are basically using the planned offering as a way of paying a special dividend directly into their own pockets.
At the same time, Goldman’s surprisingly robust earnings seem to have come in part because Goldman has been putting more money at risk. The Value at Risk estimate—a measurement of the amount Goldman thinks it could lose on most trading days—jumped to $240 million from $157 million for the period in 2008. Of course, that additional risk was basically costless to Goldman’s employees since their firm was propped up by government support.
It’s hard not to conclude that Goldman wants to pay back the TARP as quickly as possible in order to ramp up risk and pay. But since taxpayers will continue to implicitly back Goldman even after the TARP is repaid, this raises serious concerns about moral hazard. Do we really want Goldman making another “Heads We Win, Tails The Taxpayer Loses” bet?