Goldman Sachs, the world's most successful investment bank - the highest form of life in the liberal-financial-market jungle - has this afternoon announced changes to its 2009 comp programme.

"Comp" or "compensation" is bankese for pay. Which always seems to me an example of doublespeak that only a banker could construct - because some would argue that it's the rest of us who should be compensated for the mess the bankers have made of the economy, not the bankers who need compensating for dreaming up schemes to disguise the riskiness of their practices from regulators and investors.

Anyway Goldman's board has decided that the firm's "entire 30-person management committee" will "receive 100% of their discretionary compensation in the form of 'shares at risk'" which can't be sold for five years.

Arguably this will better align the interests of Goldman's bosses with the 80% of stockholders who don't work for the firm.

But it's not obvious that it conspicuously aligns Goldman's senior partners pay with the preferences of the rest of the world's citizens.

Goldman's banking aristocracy will still be pocketing bonuses worth up to $50m or $60m each on the back of profits earned from the exceptionally buoyant trading conditions created by governments' and central banks' exceptional measures to resuscitate economies.

Naturally their inability to turn that into hard cash right now will spark some sympathy in a few of us.

But others might well say the principle that a partner should hold stock till he or she leaves the firm is a pretty sound one, for all seasons.

In fact, keeping shares till exit has been the norm at Goldman since time immemorial anyway.

And as for the absence of any cash bonus, well for Goldman's top bods cash was already only about 20% of typical payouts.

So it looks to me as though this isn't much of a revolution and the ancient regime looks undisturbed.

• Bookmark with:
• del.icio.us |
• Digg |
• Newsvine |
• NowPublic |
• Reddit
• - What's this?

If I were running a big international bank with substantial operations in London (no need to cheer that I'm not, thank you very much) I'd be a little bit depressed that the government's super-tax on bonuses has not been attacked on principle by either of the main opposition parties.

It's true that Vince Cable, the Lib Dem's economics force-of-nature, grumped yesterday about the levy, but only that he felt it had more holes for bankers to slip through than vintage Emmental.

Having read the HMRC's technical note [128KB PDF] on it this morning, I'm not sure he's quite right. That said, the low yield expected by the Treasury from the tax - some £550m - is something of a puzzle.

As I mentioned in a note last week (RBS board to quit if chancellor vetoes £1.5bn in bonuses), Royal Bank of Scotland was expecting to pay bonuses just to its investment bankers of £1.5bn for their performance in 2009.

On the reasonable assumption that the bulk of the £1.5bn would consist of bonuses greater than the tax threshold of £25,000, RBS's bonuses would deliver more than £550m in tax just on their own.

What's more, RBS was by no means planning to be a particularly generous bonus-payer.

Inevitably RBS will now suspend its bonus plans, till it can evaluate what its competitors will do.

But the Treasury's forecast of what it expects to receive from the tax implies either that it expects banks to massively reduce their bonus payments or to find ways of avoiding the new tax on them.

Actually there is a further possible explanation - which is that a truly astonishing number of those earning the big bucks in the City are not resident here for tax purposes.

Certainly many international banks have a policy of rotating their top staff around the world so that they are never in one place long enough to become liable for local taxes.

Even so, the point of greater interest for those who run big banks is surely that no politician with clout - except for the Mayor of London, Boris "the bank lover" Johnson - felt able to stand up yesterday to defend the banks and their bonuses. And even Johnson's defence was feeble by his standards.

So some bankers may rage at what they see as an infringement of their Magna Carta right to pay themselves what they like, but it should give them pause for thought that they have become so marginalised in our society that even the most ardent supporters of liberal capitalism will not rally to their cause.

To put it mildly, this is not healthy. It can't be a recipe for either economic success or social stability that the guardians of our savings and the providers of finance for households and businesses are untouchable outcasts.

We would all benefit from a rapprochement.

The question is how it can be achieved.

Banks and bankers could retaliate by taking themselves to financial centres where they'll be more welcome.

And, of course, there are such places.

But Britain is not the only country mulling a one-off tax on bonuses and may not be the last to impose one.

It is striking that the French President, Nicolas Sarkozy, today put his name alongside Gordon Brown's to an article in the Wall Street Journal which says "we agree that a one-off tax in relation to bonuses should be considered a priority, due to the fact that bonuses for 2009 have arisen partly because of government support for the banking system".

What Gordon Brown and Alistair Darling would dearly love to see would be the American's imposing some kind of cap on 2009 bonuses.

Well the history of bitter rivalry between Wall Street and the City of London would suggest that's not very likely - especially with Congressional elections looming and candidates so dependent on contributions from the financial sector.

It would be wrong however to characterise the US as the home of anything-goes remuneration: the US Treasury's so-called "pay czar", Kenneth Feinberg, has imposed pretty swingeing restraints on the remuneration of employees in businesses that have received substantial amounts of government assistance.

What's to be done?

Well a number of bank chief executives and chairman have said to me in private that they accept the argument that their profits for 2009 contain a substantial windfall element, generated by the exceptional measures taken by central banks and finance ministries to limit the damage from a recession partly caused by reckless bankers.

Perhaps if a few of them said this more loudly in public, and created the conditions for a voluntary moratorium on big bonuses by the industry, they'd be allowed out of the gulag of their own construction.

What would be in it for the bankers? Well political leaders might I suppose adapt one of David Cameron's catchphrases and call on us all to hug a banker.

Just think of the catharsis, as we wept together over the economic vandalism of the past few years - for which we may all share some responsibility (although some are plainly more to blame than others).

• Bookmark with:
• del.icio.us |
• Digg |
• Newsvine |
• NowPublic |
• Reddit
• - What's this?

For financial markets, the pre-Budget report has been something of a non-event.

Sterling is a little weaker today, as are the prices of UK government bonds.

There's no great surprise there: we've known for months that Britain's public finances are a horror story, and what the chancellor said today neither added or subtracted gore to any great extent.

Or to put it another way, the UK is neither closer or further from losing its AAA credit rating, or suffering a sterling crisis, or being unable to borrow from international investors - or any of the other possible nightmarish next chapters in this epic of Western economies that have borrowed too much.

If business in general is likely to feel a bit let down it is that National Insurance is rising to support increased spending on schools and hospitals rather than to shrink the deficit.

The point is that most in the private sector would like to see the size of the state shrink as a share of GDP from the current high peace-time levels, along with public-sector borrowing, to help create the economic space for the private sector to grow.

As for the new levy on banks that pay bonuses of greater than £25,000, the Treasury estimates that it will affect 20,000 UK-based bankers.

That's a lot of bankers.

The Treasury is calling it a "bank payroll tax" - and says that the 50% tax on bonus pools will not be deductible when banks compute their profits for taxable purposes.

So they'll have to pay their mainstream corporation tax and their new payroll tax.

The tax comes into force tonight and will apply until 5 April 2010.

Interestingly, if banks were to defer bonus payments till 6 April, the exchequer would still receive a lot of extra revenue - because that's when the top rate of income tax rises from 40% to 50%.

So if banks are planning to pay out £6bn in aggregate in bonuses for their performance in 2009, which they are rumoured to be doing, and they were to defer all payment till the new tax year, individual bankers would have to shell out an extra £600m in tax (presumably the Treasury believes that bonuses will be much less than £6bn in practice given that it thinks the 50% payroll tax will raise little more than £500m).

In other words, those banks that are desperate to pay big bonuses have some discretion over whether they pay the extra tax or whether their employees do so.

As one fund manager said to me today, "the Treasury is being bloody clever".

Actually, the Treasury has also made it clear that it may extend the liability period for the temporary payroll tax from 5 April, if other curbs that it plans on banks' remuneration practices are not by then implemented.

Here's one final thought, courtesy of that money manager I mentioned earlier.

He thinks that the payroll tax could be good for the economy, because it will encourage banks to build up their capital rather than pay bonuses, which in turn will encourage them to lend and invest a great deal more, to increase their profitability.

Maybe this is wishful thinking on his part.

But he thinks the tax could encourage banks to play a bigger role in sustaining an economic recovery - because only in doing so will they be able to generate the substantial revenues that will allow them before too long to pay those fabulous bonuses again.

• Bookmark with:
• del.icio.us |
• Digg |
• Newsvine |
• NowPublic |
• Reddit
• - What's this?