Goldman Envy Comes to the Legal Profession
Over the weekend, the New York Times had an interesting article about compensation for Wall Street bankers. The article explained how, due to criticism from the public and from Congress, banks shifted employee comp away from cash and towards stocks and options. This shift was supposed to align pay with performance, averting an AIG situation of rewarding failure.
Now, thanks to the recovery in bank shares — fueled in part by generous government bailouts, and not necessarily the brilliant performance of bank employees — these stock and option grants are turning out to be super-lucrative. Here’s an interesting excerpt:
Goldman Sachs, for instance, sharply cut nearly all bonuses it paid last year but gave some executives more options than usual.The company gave its general counsel, for example, 104,868 stock options and 14,117 shares in December, when the bank’s stock was around $78.
Now the bank’s shares have more than doubled in value, making that stock and option award worth nearly $12 million, according to Equilar, an executive compensation research firm in Redwood Shores, Calif.
Sullivan & Cromwell partners, eat your hearts out. Not only does Goldman GC Gregory Palm get to boss you around, he also makes more money than you do.
Way more. Get a hint of how much, after the jump.
We haven’t dug up Greg Palm’s cash compensation (which we are sure is considerable). But SEC filings show that, between December 2003 and January 2008, Palm sold over $48 million worth of Goldman Sachs stock (almost $49 million, actually — $48,785,016, to be exact).
Here’s a table of his sales (click to enlarge):
The $48 million in Goldman stock sold by Gregory Palm doesn’t include the $12 million stock and option award for 2009 mentioned in the Times article. If you throw that in, you’re looking at a total of $60 million over seven years (2003 to 2009, inclusive). [FN1]
Biglaw partners do very well for themselves. But how many of them earn over $8 million a year?
Feeling envy for a Goldman guy? Congratulations! Now you know what it feels like to be an investment banker. [FN2]
[FN1] It should be noted, however, that some of these stock sales may have been connected to stock or options awarded prior to 2003. According to his bio, Palm has been general counsel and head of the legal department since May 1992.
[FN2] Yes, we know — GS is now a commercial bank rather than an investment bank. But you know what we mean.
UPDATE: A commenter suggests that we are UNDERSTATING Palm’s compensation, since even after all his sales he still owns over 800,000 shares of Goldman, worth in excess of $136 million.
If you add $136 million to the $49 million Palm has already cashed in, you get $185 million. Divide that by the 17 or so years Palm has served as general counsel, and you get an average of almost $11 million a year.
Does anyone know of a general counsel who is doing better than Gregory Palm?
UPDATE: Another commenter makes the important point that we haven’t included the exercise price of the options that Palm used to acquire his Goldman shares. So the cost of exercising his options should be backed out of the calculation, thereby reducing his compensation.
The overarching point, though, is that being the general counsel of Goldman Sachs is a very, very lucrative job.
UPDATE: Here is an interesting comment:
GS was a partnership when Greg Palm joined and he therefore was one of the owners of the company when it went public. The stock he has been selling periodically for years came in large part from the conversion of his equity partner stake into sharesof the GS Group when that entity went public in 1999. As often happens, the owners of private companies become fabulously wealthy when a public market to acquire that ownership interest comes into existence.
We have not independently verified its accuracy, but it makes sense to us.
Windfall Seen as Bank Bonuses Are Paid in Stock [New York Times]
Gregory K. Palm: Insider Trading and Stock Options [U.S. Securities and Exchange Commission]
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Third?
1 here (not third)... dang it, too risk averse. Otherwise I'd be at Goldman instead of biglaw, I guess...
Kash earns more income per year from tax-free muni bonds than any associate in biglaw does from salary and bonus combined. And she is not bad looking.
2
That might have made sense pre-ITE, but now that first year associate gig at Latham is not a job for the risk averse. Just ask 60% of the first years from Latham NY who've had their careers ruined by Latham mgmt's ruthless incompetence.
http://joblesslawyer.com/twas-the-night-before-layoffs-and-all-through-the-firm/
inhouse
SECURE
Solid article Lat. Really enjoyed reading it.
If he could just share .2% of that with me, he could eradicate my 120k in student loans, and my fear of this economy...
Goldman Sachs is the Evil Empire in finance. There is nothing that they do not touch and consequently manipulate for their benefit.
I'm not saying I wouldn't take the bonus if I worked there, but when you dig into how Goldman makes their money you realize how sketchy it is (check out all of the ex Goldman people in the government).
PS if I don't post again before noon, you know they came to get me and I am being held in an undisclosed location for "re-education."
7 here, quick correction. I didn't mean any of what just got typed through my computer. Some kind of communist must have gotten into my computer and posted.
Goldman is pure and represents all that is good in the world. Because Goldman is so pure, the US government is filled with Goldman people - in an attempt to make everything as pure as Goldman. Money is just a side benefit, but it's really about being a good community player at Goldman.
-End Transmission-
Interesting note about AIG Financial Products--those who brought down the company actually had almost all of their bonuses tied to the stock of AIG. So, their incentives were in line with the performance of AIG, they were just stupid and didn't realize they would have to pay out so much on their CDS.
9 - How did the AIG people make out like bandits? Didn't AIG stock go into the shitter?
Lat, come on man. You can do better than this. I thought there might have been a story here, but you answered the question in your own footnote (FN1). Not only did this guy clearly receive the bulk of his stock before 2003, but also we have no way of knowing how much of that was granted outright to him or just made available at a favorable option price (hence not netting him the full amount as compensation).
I repeat, if someone sells a bunch of stock in his company a given year, that DOES NOT MEAN he received all that stock that year. If someone is given a cushy retirement package, that DOES NOT MEAN it is all compensation for his final year with the company alone. The mainstream media seems recently enamored with making some finance guys out to the ignorant public as if they're receiving truly outlandish sums just for the past year of work, and here you're basically parroting the same kind of unthinking line.
It's not great journalism to stoke outrage or envy while glossing over an obvious logical omission like this. Especially when you, trained as a lawyer, see the obvious logical inconsistency in the argument and point it out as a "footnote" later. It would be like my publishing a blog story that headlined "Large Percentage of Above the Law Editorial Staff Never Attended Law School" and then pointed out in a footnote that I was only talking about one person.
I'm in Biglaw, not i-banking, and I never expect to make this kind of money, but I don't like to see people disparaged when blame isn't due. It's just inflammatory and yellow journalism.
I repeat, Lat, you're too smart for this.
@10: I didn't say they made out like bandits, just that their bonuses were tied to AIG stock, which, yes, means that they lost all of it. I was essentially responding to this line from Lat's post--"This shift was supposed to align pay with performance, averting an AIG situation of rewarding failure"--to make the point that, while most think that we can avert an AIG situation by aligning pay with performance, AIG did, in fact, align pay with performance.
11: please, this is exactly Lat's modus operandi. He cares about page hits and little else.
11 - Actually Lat is UNDERSTATING Palm's compensation.
Check out the Form 4 data. Look at how much in Goldman stock he STILL OWNS. He has liquidated only a small portion of his holdings.
Palm has been GC of Goldman for about 17 years.
He has sold about $49 million worth of GS. He still has, according to SEC filings, 800,000+ shares. At the current price of around $170, those shares are worth $136 million.
$49 million + $136 million = $185 million
Divide that by 17 years and you get $10.9 million a year.
Lat should have made this article MORE sensationalist.
NYC is a great big rat fart filled with rat fart quality personalities.
11 and 13 - Please see 14 and 15.
And don't forget that these figures probably exclude Palm's CASH compensation.
14,
I'm well aware that he's liquidated relatively little of his stock. My point still stands though that this guy isn't being paid as much per year as he's being made out to.
Just look at the non-cash comp highlighted for this past year. It's mostly options, not outright stock grants. (And this is pointed out as being more options than usual.) It's just a one-time fluke that the stock price happened to rise so much from when the options were granted. This is sort of the point of the NYT article, admittedly, but my point is that the Times (and Lat) are glossing over an obvious hole (of many) in their argument in an effort to get press.
- 11
11, you were pwned, just be gracious and admit it.
Hey 15, Lat just gave you a shout-out:
"UPDATE: A commenter suggests that we are UNDERSTATING Palm’s compensation, since even after all his sales he still owns over 800,000 shares of Goldman, worth in excess of $136 million.
If you add $136 million to the $49 million Palm has already cashed in, you get $185 million. Divide that by the 17 or so years Palm has served as general counsel, and you get an average of almost $11 million a year.
Does anyone know of a general counsel who is more well-compensated than Gregory Palm?"
11 / 18 - Nothing you have said changes two facts:
(a) Palm has cashed in almost $50 million in Goldman stock.
(b) Palm is sitting on another $140 million or so of Goldman stock.
Almost $200 million, even divided by 20 - Palm has been GC of GS for only 17 years - is a lot of money.
And I'll respond to 15 as well.
First, as I said in my initial post, you have no idea how much of that stock he received through outright grants and how much through options.
A hypothetical for you. Say Bob receives from his company an option to purchase a share of his company's stock at $100 when the market price is $110. He hasn't received $110 in compensation, but rather effectively just $10, the difference between the strike price and the market price. This is just basic stuff, but I thought it might help you out, as you clearly seemed to ignore the possibility of this happening.
And furthermore, even were he to have received all of this stock outright (which simply isn't the case), it's more accurate to value his annual compensation as of the stock price of the company in the year he received the stock. Any further increases in stock price once he holds onto it are just his dumb luck.
Seriously guys, I hate having to defend Goldman dudes like this, but they don't deserve such sensationalist treatment via faulty logic.
- 11
11 / 18 / 22 - See 21.
It doesn't matter whether he receives via grants or via options. There are two points here:
(a) He has cashed in almost $50 million.
(b) He owns OUTRIGHT, free and clear, shares - not options, SHARES - currently worth over $130 million.
They are VESTED. They are not options, but SHARES. He could sell them tomorrow - today, even - for $130 million.
(If he holds them and Goldman stock plunges to zero, that is his own stupidity.)
I think the main point of this post is that the general counsel of Goldman is FILTHY RICH.
Please 11 / 22, can you at least agree to that? Or are you going to find a way to argue that $100 million+ is not a lot of money?
24 - Sorry, $100 million is not a lot of money. Compare it to what Warren Buffett or the Google guys have.
I'm not denying the fact that this guy is loaded. I'm just arguing that he wasn't paid as much every year as is being suggested.
I have to reiterate (yet again) the option point, because I don't think some people (see 23) really get it. Goldman is trading right now at about 175. Even if he owns a number of shares outright, if he had to pay--say--150 to get some of them, then his compensation was really the difference between those two prices, not the current market price.
If you can't understand both that he received a bunch of these shares in all likelihood through options and that his cash comp probably pales in comparison to bonuses in stock and option grants, regarding which he was supremely lucky to see the stock price rise so much after he received them, then I give up.
It's been fun bantering with you guys this morning!
- 11
Can't say I'm overly envious of this guy. I have not killed more economic lives than if the Zodiac Killer existed in every American city; I have not contributed to the bankrupting of America through the securities equivalent of a chain letter; I have not sold out customers to whom I owe a fiduciary duty; I have not aggrandized money at the expense of people who actually work for a living; I have not directly caused tens of thousands of people to resort to drugs, alcohol, or suicide; I have not caused other tens of thousands of families to break up, which I can only imagine will scar many of those innocent children for life; I have not pinched reliable small businesses by refusing to offer loans on any terms; I have not caused the foreclosure of millions of homes through my own reckless dealing; and I have not pawned off responsibility to the U.S. government and American people for my own mistakes.
Oh, and I don't look emaciated either.
True, I make far less money each year than this insidious hack, but I can sleep at night and look in the mirror each morning. And, when I'm eventually on my deathbed, I will be able to quietly pass with the comfort that I left the world a better place in every way that actually matters.
8 (alter ego)
I have excaped and am now running from some scary looking guys with black suits and large guns. Is there any way to fix this I want to go back to the bliss of not knowing.
-7 (the real one)
26 - Looks like you got a shout-out too:
"UPDATE: Another commenter points out that we haven’t included the exercise price of the options that Palm used to acquire his Goldman shares. So the cost of exercising his options should be backed out of the calculation, thereby reducing his compensation."
"The overarching point, though, is that being the general counsel of Goldman Sachs is a very, very lucrative job."
I think the "overarching point" is something we can all agree on.
This is f'*ing disgusting. Thank you 27. I hope this a**hole reads this blog.
26 - Based on the stock option table on the Form 4, it looks like most of Gregory Palm's stock awards were made outright.
Look at the "Conversion Price." Only 4 out of the 25 listed transactions have a conversion price other than "$0."
26 - Is 31 responsive to your point?
Can you at least agree that this man is making more than the average S&C partner?
Wow. Who the fuck cares? Lat is like a 13 year-old boy transfixed by the sight of scrambled porn when it comes to "prestigious" NYC firms and their partners. Some plaintiffs' lawyers make far more than $10 million a year, but of course Lat wouldn't waste ink on them because they're not the upper crust of NYC. Get your sycophantic head out of your ass, Lat.
33 - I'm sure Lat et al. would be interested in learning about rich plaintiffs' lawyers too. ATL covered the death of John O'Quinn, for example.
Email ATL: tips@abovethelaw.com
33, this isn't a Biglaw firm, it's an in-house job.
18 - While it's true that this year's meteoric rise in GS stock was a one-time fluke, it wasn't an unexpected fluke from the standpoint of GS management. Financial stocks were undervalued across the board in December because of the opacity of these institutions and the resultant fear of the investing public. You can't tell me the guys at GS didn't know they were going to come out of this mess alright and that the stock price wouldn't rebound after valuations recovered and confidence returned to the market.
The people who were at Goldman are geniuses. They deserve every penny they are paid.
I'm with 11, it's unfair to state his compensation was the market price of the stock. That's like buying a house for 400k, selling for 500k and then stating that you made 500k on the deal. You didn't; you made 100k. Lat should probably take into consideration the price of the stock at the time he acquired it, as well as the amount he actually paid to accurately state his compensation.
-Not 11
"GS envy comes to the Legal Profession"? Really? You think this is new? Biglaw has always envied the money made by bankers, GC or otherwise.
36,
If GS knew they were going to come out alright, they wouldn't have given Buffett the sweetheart deal with their preferred stock, and they wouldn't have converted to a bank holding company.
This is nothing new. How do you pay big law fees? By having lots of money.
Serious question: Do you think the envy is due to (a) the sheer amount of money at issue (greed), or (b) what such money represents--a ticket out of practicing law, at least at a firm? Seems to me knowing I could lie on a beach for the rest of my career is FAR more attractive than staying in the game but having every home, vacation, car, gaget, meal, etc. I wanted along the way.
Let me see if I've got this right:
Executives have an influence over the health of a company, so their compensation should be tied more directly to the stock price of the company.
But when executives get paid lots of money in stock option bonuses when the stock price goes up, they don't deserve those bonuses because they didn't have much influence over the stock going up.
So we're arguing both that executives have influence over the direction of a company's stock price and that they don't have that influence. Right...
Damn, I should have been a banker. Oh Noes!
So, Gregory, I'm still looking for a job this summer.
Hook a brother up!
Let's stop obsessing over how much GSGC made, and re-direct the focus on how shitty attorney compensation is by comparison.
Time to allow publicly traded equity in law firms. The arguments against are idiotic.
Why would anyone ever think that S&C partners make more than the F50 execs and GCs they billed? This has nothing to do with GS. I'm sure there are other GCs out there who make even more... XOM?
$185 million? That would almost pay my student loans.
Unemployed Northeastern motherfucking '07
Update: This article's myriad half-witted fixes is proof that the authors aren't qualified to work at Goldman.
This is embarassing journalism. GS was a partnership when Greg Palm joined and he therefore was one of the owners of the company when it went public. The stock he has been selling periodically for years came in large part from the conversion of his equity partner stake into sharesof the GS Group when that entity went public in 1999. As often happens, the owners of private companies become fabulously wealthy when a public market to acquire that ownership interest comes into existence. This post is a good example of why people who don't understand things shouldn't try to explain those things to others.
Query: was Palm still at S&C when Lat was dinged by S&C?
The difference is that partners at S&C don't have to worry about avoiding the guillotine as the unemployment rate continues to increase.
Pretty sure that customer service reps at Comcast with degrees from the U. of Phoenix have a better understanding of stock options and compensation than the author of this article.
Talk about groundbreaking news.....
"The overarching point, though, is that being the general counsel of Goldman Sachs is a very, very lucrative job."
I thought GC of Goldman Sachs was usually the lowest paying job in the legal market, next to NY public defender....thanks for the clarification.
Goldman actually has 2 GCs, Palm and Esta Stecher, who is also quite well paid.
46 is an idiot.
@6 - Go back to DailyKos you greedy communist hippie. Do you also think that a random person in a third world country with nothing "deserves" every penny that you have?
50 - Good comment. You are mentioned in an "UPDATE."
Breaking news: finance is more lucrative than law!!!
You cannot put a price on the enjoyment Greggie derives from observing otherwise elitist biglaw partners fall over themselves to catch a scrap of GS business. He is richer than you can ever imagine in this regard.
he's not rich at all...he lost all his money in the crisis...look here:
The financial giant Goldman Sachs spent tens of millions of dollars to bail out two senior executives last fall who were short on cash, according to the bank's proxy statement filed on Friday.
In an unusual move, Goldman bought back stakes in some internal investment funds from Jon Winkelried, the bank's co-chief operating officer, and Gregory K. Palm, its general counsel.
11/22,
I take your point with respect to the shares he has already sold, but at least with respect to his shares worth some $140 million now, those are likely pure compensation.
Taking your example, although it is theoretically possible that Palm paid real money for those shares, that is highly unlikly. No rational man would dish out $100 of his own money to exercise his stock option and not immediately cash out the difference. The very purpose of exercising stock options is to cash out on the difference. Otherwise, you'd just let your options sit there until they are about to expire. This way, you get the upside tick, while avoiding all downside risks.
Also, as another poster pointed out, those shares are likely equity conversions issued upon GS's IPO.
The reason why bankers make more than lawyers is because they can actually calculate compensation (unlike the writer here, who obviously went to law school)
Something I read in City AM today which really drives me nuts. Headline “Goldman: Our Staff Deserve Every Penny”.
A colleague of mine summarised the situation very well. He basically likened the banks to a bunch of gamblers, gambling with each other. Some were winners and some were losers. The losers got bailed out and are labelled ‘bad banks’. The winners are labelled ‘good banks’. The curious thing is that the winners are only winners because the losers were bailed out!
However, regardless of their final status, all the banks are needlessly sapping finance out of the economy and depriving good businesses of investment cash and therefore slowing down global development. Bank activities might not be socially useless but they are certainly charging way too much for their services.
This is of course how any cartel operates.