Goldman Sachs disclosed in a recent regulatory filing that it had adopted a proposal that would grant bonuses that are dependent on future earnings as well as stock performance.  The awards would go to “key employees” and be tied to a variety of financial measures including revenue, net income and return on equity, a gauge of profitability.  Awards may consist of cash, securities or other equity-linked components, and carry provisions allowing their cancellation or return.

The arrangement is in line with recommendations by Kenneth Feinberg, President Obama’s former pay czar, that Wall Street firms adopt a so-called brake provision that would allow employee compensation agreements at big banks to be broken if the government were forced to step and bail them out.  Goldman's filing says that, if the government is forced to bail Goldman out, most of the firm’s outstanding compensation awards “shall immediately terminate.”  It also states that payouts may be halted or reclaimed if the firm determines, for example, that an employee engaged in “materially improper risk analysis or failed sufficiently to raise concerns about risks.”

While the move was applauded by some pay experts as a good corporate governance practice, it should be noted that there's no danger that Goldman’s adoption of the provision will derail its bonuses for 2010.   Goldman has generated tremendous profits, earning $5.97 billion during the first 9 months of the year;  it put aside $13.1 billion in pay for its 35,400 employees. 

Goldman employees are expected to find out in the third week of January what their bonuses will be and will most likely receive them in early February.   [NYTimes, 12/23;