Goldman Sachs' announcement that it will now bestow coveted managing director titles upon its rising vice presidents every two years, instead of annually, may have shaken the foundation at its New York headquarters. For the rest of the world, even the rest of Wall Street, nothing much will be different.
Bloomberg contributor William D. Cohan says that if Chief Executive Officer Lloyd Blankfein really wants to shake up the industry, Goldman Sachs should break further from what remains of the Wall Street pack, and act like the leader it is. It needs a revamped compensation system that rewards people for taking prudent risks and penalizes those who take foolish ones.
Cohan first suggested such a system more than two years ago. Ideally, it would apply the best of the incentives and risk-management practices of the old Wall Street partnerships - where partners had their own capital on the line and were rewarded only if there was pretax income in a given year - to the current incentive system that, incredibly, continues to reward bankers, traders and executives for taking huge risks with other people’s money in expectation of a big bonus.
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William D. Cohan is the author of the recently released Money and Power: How Goldman Sachs Came to Rule the World and the New York Times bestsellers House of Cards and The Last Tycoons.
Cohan is a contributing editor at Vanity Fair and writes frequently for Financial Times, Fortune, The Atlantic and The Washington Post. He worked on Wall Street as a senior mergers and acquisitions banker for 15 years. He also worked for two years at G.E. Capital. Cohan is a graduate of Duke University, Columbia University School of Journalism and Columbia University Graduate School of Business. The Last Tycoons won the 2007 Financial Times/Goldman Sachs Business Book of the Year Award.
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