Let’s see ,Goldman allocated $11 billion for bonuses this year while taking $10 billion of TARP funds and showing record losses for the fourth quarter. They did make $2 billion trading oil futures the first six months of 2008 while touting $200 a barrel oil by year’s end.
I, on the other hand, as a manager of an investment LLC, will get zero bonus for 2008. My bonus is based on performance above a 3% gain, which assumes a monkey could get 3% investing in bonds, CD’s, and money market funds. Last year I got a nice bonus, with the LLC performing well above that 3% and above most investment performance indexes. This year, I will get zero bonus because I did not perform above the 3% bogey.
However, this year will probably be the best performance year the LLC will ever get from me. I started divesting of equities in March, again in May, and all out in early October. Due to this, the loss for the year for the LLC is slightly more than 10%. Loss avoidance is slightly above 20%. This was calculated by assuming the equities divested during the year were still held and calculating what the asset level would be vs. what it is.
The investment advisers did not advocate the actions taken. However, they acknowledge that with 200 clients in their group, only 4 took these kinds of actions. Two did it too late to get any benefit. One did it slightly ahead of me, but didn’t do the earlier actions. He and I probably pushed on the results.
Of course all of this just means the LLC has a bigger pool to work with than the pools that watched their asset bases go down 30-40%. If we don’t leverage that into a benefit, it means nothing.
I understand my bonus and how it works, signed on to do it with that compensation package, and have no regrets. My only hope of having a better performance year as the manager of the LLC is to catch the opportunity to use this leverage and make the LLC a ton of money.
So, back to Goldman Sachs, is this how they justify all this bonus money, loss avoidance? If it is, I can buy why that makes sense. If they, like our LLC, lost only 10% while everyone else they compare themselves against lost 30-40%, they should be rewarded. If they lost 31% and the benchmarks lost 38%, then that’s a bad compensation design system.
Some of their top people have opted out of the bonus pool this year. When the taxpayers are funding the bonus pool, it seems all Goldman employees should suck it up and opt out. Are they paying a bonus for not going bankrupt? Since we taxpayers are paying the bonus, we deserve to see the formula. As Warren Buffet says, “until the tide goes out, we can’t see who’s swimming naked.” With Goldman, the tide went out, the taxpayers manned the lifeboats, and we still can’t see who’s naked.
I did, and it felt pretty good to do such a good job in such a bad year and make my investors happy. I go to the mirror and live with myself nicely. If I went back and tried to mess with the compensation formula I agreed to when I took the job, I would have to back up to the mirror. Guess I could never work for Goldman.
