Goldman risks rap and wrath for big bonuses

Flags fly outside of the Goldman Sachs headquarters building in the financial district of New York May 8, 2009.

NEW YORK (Reuters) - Goldman Sachs Group Inc (GS.N) knows it may be losing the battle of public opinion.

It hears the outrage over lavish bonuses and does not like being excoriated on late-night comedy shows or in pop culture magazines.

Still, come December, Goldman Sachs is expected to pay its traders and bankers out-sized bonuses for a year that looks like it will bring blockbuster profit.

Wall Street recruiters and headhunters have said some of Goldman's star traders, especially those in high growth areas like currency, commodities and fixed income, are in for the biggest payouts.

Among them are David Heller, Harvey Schwartz, Edward Eisler, and Pablo Salame, all of whom lead units that oversee bond, stock, currency and commodity sales and trading.

"For the foreseeable future, until investment banking really comes back, we are going to see the traders really ruling the roost on Wall Street and Goldman is the cream of the crop," said Richard Lipstein, a recruiter with Boyden Global Executive Search in New York City.

Last week, Goldman reported second-quarter net revenue of $3.4 billion, far surpassing analysts' expectations, largely because of strong trading results. The company set aside $6.65 billion in the quarter for compensation and benefits, or $226,156 per employee.

Projected over a full year, that is $904,624 per employee.

HAIR-RAISING BONUSES

A likely return to record bonuses has raised the hackles of some commentators and politicians, even though the bank has paid back $10 billion it received from the U.S. government at the height of the banking crisis.

U.S. Sen. Sherrod Brown, an Ohio Democrat and member of the influential Senate banking committee, called Goldman "tone deaf" on the issue of compensation.

"They get all this public money, so it is a thumb in the eye when they pay these kinds of bonuses in a banking community that helped bring down our economy," Brown said in an interview. "I just would hope that they would be a little bit embarrassed and maybe pull back a little."

"They think differently from the rest of us," Brown said.

Goldman's second-quarter profits and bonus cache have also drawn derision from New York Times columnist Paul Krugman, who called it "good news for Goldman and the people who work there" and "bad news for almost everyone else."

The Daily Show's Jon Stewart mockingly celebrated Goldman as "the eye of the U.S. economic pyramid, thanks to the government-funded scaffolding."

On the day Goldman reported its earnings, its chief financial officer, David Viniar, said the company understood the public's concerns.

STICKS AND STONES

"We know it. We see it. We don't like it," Viniar said. "We believe we are doing good things. We are helping the economy recover. I don't like reading bad things about Goldman Sachs."

Goldman, known for having a "pay-for-performance" culture, is likely to take great pains to make sure bonuses stay below the record levels of 2007, when it paid out $20.2 billion, said Alan Johnson, a compensation consultant with Johnson Associates in New York City.

"They are very smart people," Johnson said. "I'm sure they don't want the story to be that 'We are back to the madness of before'."

But that does not necessarily mean Goldman will shy away from rewarding people like Heller, Schwartz, Eisler and Salame. Heller and Schwartz are based in New York, and Eisler and Salame work in London. All four were promoted last year and serve on Goldman's top management committee.

Goldman's trading division has generated about $18 billion from fixed income and equities trading so far this year, compared with $12 billion in all of 2008 and $27 billion in 2007.

Johnson expects the pay of Chief Executive Lloyd Blankfein, who in 2007 reaped about $100 million in compensation and the vesting of stock, to remain in check.

But, he said he still thinks Goldman's bonus pool will be among the biggest percentage gainers compared to its peers and enough to draw the ire of some politicians.

"The level of anger of the American people and the politicians is real and large, so hopefully we will avoid a train wreck at the end of the year," Johnson said. "But unfortunately the two trains are heading for each other on the track at this time."

(Reporting by Steve Eder; Editing by Toni Reinhold)