Goldman Sachs (NYSE:GS) Cuts Key London Workers’ Pay Down to £1 Million

In what could be a risky move, Goldman Sachs (NYSE:GS) has decided to cap the combination of salary and bonus for its key employees in London down to  £1 Million.

The details of the change in compensation hasn’t been revealed by Goldman to the London workers yet, but that is expected to be communicated sometime later in the week to its people there.

When you consider that among the top Goldman people working in the London office, that they had bonuses north of £10 million in the past, this is quite a blow, and will definitely cause some howls of protest from their top people, who are largely being penalized because of the negative economic environment they’re operating in, as well as what is perceived as bonuses being paid by taxpayers because of the bailouts the company and others have received.

For some financial companies this is a legitimate complaint, as in spite of losses, like from the Royal Bank of Scotland, they are still considering paying out as high as £1.5 billion in bonuses even though the company had a minimum of losses for the year of  £5 billion. It makes no sense to pay out big bonuses in light of that performance, although I could see some solid performers getting paid a bonus if they delivered great results for the company. But this is obviously a payout of bonuses regardless of performance, and that makes no sense at all, especially when it’s highly likely the taxpayers are paying those bonuses.

As far as Goldman Sachs goes, their challenge is to keep their top people in the London office while implementing these dramatic changes. Any other time this would probably be impossible to do, but in this particular environment there aren’t a lot of options for top earners, as there is pressure everywhere concerning this, although London and Britain is among the worst.

It’s possible that Goldman is taking this chance because it really couldn’t have that much of an impact on many of their people, as how many turn in that type of performance? Very few. So in that sense they could lose a handful of top people at worst, but retain the average revenue and profits in spite of it. They’re probably thinking the trade-off in connection to ongoing negative publicity is worth it.

The risk would be if more people quit their positions than anticipated in the London office, and they have an exodus that hurts the company more than estimated. If that were to happen, it would be a disaster, but some of this won’t be a complete surprise to many of their people, so in that sense it shouldn’t cause a mass exodus, but it will still be painful to lose the very best of their people in the London office if that is indeed the consequences of their decision.

London city regulator the Financial Services Authority (FSA) has implemented new rules which force any worker in the city making over  £1 million to take 60 percent of their bonus in deferred shares. Add to that the 50 tax on bonuses from the British government, and you see the reason many of the financial companies like Goldman Sachs are changing their compensation structures.

In their quarterly report last week, Goldman surprised some by reducing their over compensation by about $4 billion to $16 billion overall. At that rate they paid their people over £300,000 each.