Inside Goldman Sachs there is serious consideration being given to a proposal that the firm donate billions of dollars to charity when it awards bonuses this year. The details of the plan are still being worked out and it is not clear how much support it has within the firm.
We spoke with a former senior Goldman executive and a current partner managing director who have been urging the plan and helping development. The plan is part publicity stunt, of course. Goldman fears a public and political backlash when it awards what may be record bonuses this year. It is searching for ways to mute the outcry from those who believe it is inappropriate for a firm that received billions in taxpayer support to pay its employees tens of billions in bonuses.
Goldman is expected to spend somewhere around $22 billion on compensation this year. That’s more than twice what it paid out last year. And the take of individuals at Goldman is likely to be even higher as its workforce in now 12% smaller.
The current partner managing director said he views the plan as more than a publicity stunt. He says it is an opportunity for the firm to give back to society while also serving its own interests. “This is the perfect Goldman move,” he said.
One of the ideas under consideration is a huge charitable donation, perhaps as high as 10% to 15% of the bonus pool. That would mean Goldman donating something like $1 billion to charity. At that level, it would be one of the largest ever one-shot corporate charitable donations in history.
The architects of the plan say they are working through several stumbling blocks. Most importantly, there is a fear of shareholder backlash against the donation. Shareholders may object that money that is not going to actually retain talent should be shareholder equity, and not spent on charity. Goldman has already faced at least one shareholder suit based on what it considered “good corporate citizenship” activities in the past.
Another problem is that executives at the firm fear that they could set a permanent precedent that would be hard to exit from in later years. As the memory of the financial crisis fades, Goldman would hope to be able to step back from this high level of charitable giving.
Finally, there is concern over how to do this in a tax advantaged way. Goldman has a very low tax rate, thanks to its brilliant accountants. It is unlikely to be able to achieve much value by making a tax-deductible charitable donation, particularly if the donation goes to a charitable foundation Goldman controls. When asked if they realised that this sounded a bit silly, the former Goldman executive said that not giving away value was a point of pride for Goldman.
A possible answer to these problems may be to create a semi-voluntary employee giving program. The Goldman employees would be given the option to donating 15% of their bonus to a Goldman Sachs charitable foundation. This donation would be tax deductible for the employees, and would avoid the shareholder objection since the donations would be coming from individual employees.
Both executives emphasise that the plan has a long way to go before it is adopted by Goldman. It is just one of several under consideration within the firm to avoid a backlash against bonuses.