Pay is the most emotive topic in this whole debate. It must reflect the company¡¯s activities and the risk they present to the overall financial system. While Goldman Sachs has this year reported three strong consecutive quarters, the firm has reported an average return on shareholders¡¯ equity of approximately 21 per cent since going public in pearl jewelry 1999. More than anything else, the firm¡¯s consistent returns for the past ten years have been part and parcel of broad economic growth.
There is a view that Goldman Sachs has set aside too much for pay and benefits despite the rebound in financial conditions. Here, it is worth noting that, consistent with the firm¡¯s remuneration principles, which are available on its website, deferred income for its senior people will include a significant portion of shares which they must hold for at least three years. Senior executives are required to retain 75 per cent of the pearl jewelry wholesale shares they have received until they retire. If conditions deteriorate, the value of those shares may fall.
Our job, as stewards of wholesale pearl jewelry our company, is to provide a good return for our shareholders. We need to maintain a long-term remuneration structure, consistent with G20 guidelines, that encourages appropriate behaviour just as much as it disincentivises bad behaviour.
This is not the time to throw out the whole market-based capitalist system. In my 23 years at Goldman Sachs, all but two of them in London, I have seen how markets have a remarkable ability to heal themselves. They are still the most effective mechanism yet invented to allocate capital where it is most needed, to promote long-term prosperity for the vast majority of the population. Markets are not perfect, however, which is why we fully support Government and regulatory efforts to raise capital, liquidity and risk-management standards.
Michael Sherwood is vice-chairman, Goldman Sachs group and co-chief executive officer, Goldman Sachs International
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