Goldman’s Blankfein Calls for Pay Rules to Stem Anger, Risk

By Aaron Kirchfeld

Sept. 9 (Bloomberg) — Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein said multi-year guaranteed contracts for bankers should be banned and the “clawback” of pay should be permitted to discourage excessive risk-taking.

The portion of pay in stock should rise “significantly” as compensation increases, senior bankers should get most of their pay in deferred equity and top executives should be required to retain the bulk of the equity until they retire, Blankfein also said in remarks prepared for delivery at a banking conference in Frankfurt today.

“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.”

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Blankfein said Goldman supports the move to central clearinghouses and exchange trading of standardized derivatives, saying it would reduce “bilateral credit risk, increase liquidity and enhance the level of transparency.”

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Blankfein said calls for a wholesale reform of the regulatory regime are appropriate after the financial crisis, though he warned against completely outlawing risk because it would hurt innovation and economic growth.

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“The public policy goal is to retain the economically valuable attributes of these markets, while mitigating the systemic risk they pose through the right infrastructure and incentives to manage it,” Blankfein said. He recommended more “rigorous” capital requirements for customized derivatives.

The most effective ways to avoid risks in the future include requiring financial companies to reflect all their investments in their profit and loss accounts, and the implementation of fair-value accounting, Blankfein said.

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http://www.bloomberg.com/apps/news?pid=20601087&sid=aeob.WGdm6_o

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