At a time when exorbitant executive compensation has ruffled many feathers worldwide, Goldman Sachs Chief Lloyd Blankfein has said public anger against such huge payouts is "understandable and appropriate".
Interestingly, Goldman Sachs is among the many Wall Street banking majors which have come under severe criticism for shelling out big bonuses, amid the raging financial turmoil.
Blankfein, who is the Chairman and Chief Executive of American banking giant Goldman Sachs, noted that "outsized" pay cannot be justified when a company is losing money.
"...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," he said at a banking conference in Germany on Wednesday.
Stressing on the need to ensure that compensation is aligned with performance, Blankfein said multi-year guaranteed employment contracts should be banned entirely.
"We should all recognise that they (multi-year guaranteed employment contracts) are bad for the long term interests of our industry and the financial system," he added.
In the wake of the unprecedented economic crisis, excessive executive payouts has come into the spotlight and the finance ministers of G-20 nations agreed on the need for stricter rules on bank bonuses.
Even though incentives help in attracting and retaining good people, Blankfein said the same could even encourage excess risk taking.
"As an industry, we need to do a better job of understanding when incentives begin to work against the public interest rather than for it and take action to redress the balance," he noted.
Pointing out that an individual's performance should be evaluated over a period of time which would avoid excessive risk taking, he said the percentage of compensation awarded in equity should be significantly increased as part of compensation.
About customised derivative instruments such as credit-default swaps, Goldman Sachs Chief noted that if a ban is imposed on them, that could adversely impact economic growth.
Blankfein also called for improved co-ordination among regulatory agencies and robust sharing of information.
"There is every reason for different regulators right now to be establishing comprehensive and detailed information on exposures, sources of funding and a host of other key data," he added.
