Paul L. Caron

Monday, January 11, 2010

Can Goldman Sachs Bankers Deduct "Forced" Charitable Contributions?

New York Times, Goldman Sachs Considers Charity Requirement, by Louise Story:

As it prepares to pay out big bonuses to employees, Goldman Sachs is considering expanding a program that would require executives and top managers to give a certain percentage of their earnings to charity.

The move would be the latest in a series of initiatives by Goldman to soften criticism over the size of its bonuses, which are expected to be among the largest on Wall Street, bringing average pay to about $595,000 for each employee — with far higher amounts for top performers. ...

While the details of the latest charity initiative are still under discussion, the firm’s executives have been looking at expanding their current charitable requirements for months and trying to understand whether such gestures would damp public anger over pay, according to a person familiar with the matter who did not want to be identified because of the delicacy of the pay issue.

The charity idea would be similar to a decades-long program at the failed investment bank Bear Stearns, which required more than 1,000 of its top workers to give 4% of their pay to charity each year and then checked their tax returns to ensure compliance.

Assuming a similar percentage and level of participation, that would mean Goldman’s top employees would commit to giving hundreds of millions of dollars to charity, though the precise amount would depend on the level of contributions and the number of workers who are required to take part.

It could not be determined whether Goldman would create a new program for its mandated giving or run it through Goldman Sachs Gives, which oversees donor-directed charity funds for Goldman workers. That program was created in 2007, weeks before Goldman paid its chief executive, Lloyd C. Blankfein, $68 million for that year. It required Goldman’s 400 or so partners to give an undisclosed amount to charity each year on their own or through the program.

(Hat Tip: Anand Desai.)

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If they are "forced" to give it to charity, then is it really charity at all? One of the big reasons people give to charity is for the individual emotional benefits of doing so. If you are forcing them, would this deminish those emotional benefits and make the whole process seem like yet another compliance issue?

My guess is that many of these high paid executives already give a lot to charity - in many cases, much more than 4%.

Posted by: Charlotte CPA - Chad Bordeaux | Jan 12, 2010 5:47:04 AM

Am I the only one who is MOST bothered by this sentence: "average pay [...] for each employee — with far higher amounts for top performers?"

1. Average pay does not affect each employee. The person making $22k does not have any benefit from the average pay being $595k, nor does the average bother the person bringing in $5mil this year.

2. The far higher amounts are not paid to top performers. They are paid to the top earners. Goldman Sachs may well have a janitor who does the work of two janitors and leaves his area sparkling every day, and I would argue that he or she outperforms many of their executives. The labor market for a given position has a greater effect on pay than performance.

Posted by: Joe Carey | Jan 11, 2010 9:17:38 PM