Goldman's charity talk is just PR

The company might mandate charitable giving to cool the furor over bonuses, but the real problem is its excessively high compensation.

By InvestorPlace Jan 11, 2010 5:31PM

InvestorPlaceDoes Wall Street have a heart? Goldman Sachs' putting billions of dollars in bonus money to good work would certainly seem so.


Not to be cynical, but I suspect anything Goldman does at this point is all public-relations oriented. If the company could go back to operating profitably in anonymity, it would in a heartbeat. Who needs the spotlight?


The problem is that the spotlight is not going away anytime soon. What I find interesting is that shareholders are staying relatively quiet on the subject.


The fear, of course, is that cutting bonuses or compensation would only hurt profits in the long run. But what if the opposite were true?


I think at this point in the game, cutting compensation could be a winning decision in the long term. I know doing so would be controversial and defies many basic economic tenets, but I think things really have got out of hand on Wall Street.


What many people forget is that Wall Street has experienced a maelstrom on compensation. On the debt side of the street, especially among those dealing in banking, underwriting and trading government debt, had the spotlight back in the 1980s.


For years, Wall Street made huge fees at the expense of state governments. Making fees transparent while requiring reporting of perks received by government officials changed the way Wall Street did business.


The arguments for keeping the status quo back then sound very similar to what we hear today. The biggest argument is the brain drain that would occur if compensation were lost.


In the bond world, there was no brain drain as a result of cutting fees and making the process more transparent. In other words, all that brain power was not really needed.


The same is true with respect to today's Wall Street. Requiring employees to give to charity will not fix the problem. The problem is compensation has become too high.


The first company to figure this out will likely be rewarded in more ways than one.


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