Whitehead, Former Goldman Chief, `Appalled' by Wall Street Pay By Christine Harper http://www.bloomberg.com/apps/news?pid=20601109&sid=aHJOOEm2E_Oc&refer=home May 16 (Bloomberg) -- Nothing in John Whitehead's 37-year career at Goldman Sachs Group Inc. prepared him for the excesses of today's Wall Street. ``I'm appalled at the salaries,'' the retired co-chairman of the securities industry's most profitable firm said in an interview this week. At Goldman, which paid Chairman and Chief Executive Officer Lloyd Blankfein $54 million last year, compensation levels are ``shocking,'' Whitehead said. ``They're the leaders in this outrageous increase.'' Pay packages for traders and investment bankers are soaring as Goldman and its rivals fight the lure of hedge funds, private pools of capital that offer managers a cut of profits on the money they invest. Last year, the five biggest Wall Street firms paid a record $36 billion of bonuses, more than $200,000 per employee. New York-based Goldman set the pace. Blankfein out-earned all of his counterparts and Co-Presidents Gary Cohn and Jon Winkelried each received $53 million, including cash bonuses of $26.7 million. Goldman employees shared $16.5 billion of compensation and benefits, an average of $621,800 apiece. That's up 20 percent from a year earlier and almost $300,000 more than the firm's closest rival. Whitehead, who left the firm in 1984 and now chairs its charitable foundation, said Goldman should be courageous enough to curb bonuses, even if the effort to return a sense of restraint to Wall Street costs it some valued employees. No securities firm can match the pay available in a good year at the top hedge funds. Take a Chance ``I would take the chance of losing a lot of them and let them see what happens when the hedge fund bubble, as I see it, ends,'' Whitehead, 85, said in the May 14 interview in New York. Hedge funds charge investors a fixed fee to manage assets, usually 1 percent to 2 percent, and keep as much as 50 percent of the profits, enabling them to pay managers unprecedented sums. Renaissance Technologies Corp.'s James Simons, Citadel Investment Group's Kenneth Griffin and ESL Investments Inc.'s Edward Lampert all received more than $1 billion in compensation last year, Institutional Investor's Alpha magazine reported. Lampert, 44, left Goldman in 1988. ``That is very tempting to a Goldman Sachs partner who's in that part of the business, to go off on his own, as many have, and they've all done very well, much better than they would have done even at Goldman Sachs,'' Whitehead said. ``I don't see how it's going to stop.'' Goldman spokesman Lucas van Praag declined to comment. Government, Philanthropy Whitehead joined the firm in 1947. A career investment banker, he and the late John Weinberg became co-chairmen in 1976 upon the death of Gustave Levy. Whitehead led Goldman's expansion abroad, establishing offices in London and Tokyo after losing business to competitors such as Morgan Stanley that had arrived there earlier. Whitehead left Goldman to become deputy secretary of state under President Ronald Reagan. From 2001 until last year he served as chairman of the Lower Manhattan Development Corp., the agency set up to rebuild the site of the World Trade Center. As a philanthropist, Whitehead has supported causes such as the International Rescue Committee, the Metropolitan Museum of Art and Haverford College, his alma mater. In 1993, he gave Harvard Business School $10 million to establish the Social Enterprise Initiative, a program that teaches management for nonprofit organizations. Goldman partners in Whitehead's day made salaries of $120,000, compared with $600,000 today. Their cut of the firm's profit was plowed back into Goldman's capital and remained mostly unavailable until retirement. When Goldman sold shares in an initial public offering in 1999, partners with a claim on the firm's book value received five times as much in stock. Inherited From Goldman ``All of that extra value that was inherited from Goldman Sachs went to the executives,'' Whitehead said. ``Having been treated so well one would think they would say, `We really don't need these salaries. We have this stock and our incentive should be to make the stock go up instead of take the cash out.''' For a firm that insists on paying so much, Goldman should be more charitable, said Whitehead. While ``you'll find the partners as a group are very generous,'' he wishes Goldman would make bigger contributions. ``Their priorities are awarding those who make the money and not spreading goodwill,'' said Trent Stamp, president of Charity Navigator, a Mahwah, New Jersey-based firm that evaluates nonprofit organizations. ``They have left it up to the benevolence of their employees.'' Goldman Said No The Goldman Sachs Foundation, established with a $200 million grant at the time of the IPO, gave $15.5 million in 2005, a year in which the firm earned $5.6 billion. The organization is dedicated to improving education for young people around the world and has awarded $94 million since its inception. According to Goldman's Web site, the firm and its affiliates donated about $90 million last year, including $20 million to the Goldman Sachs Foundation. Whitehead said he tried unsuccessfully to persuade Goldman to donate $1 billion to charity, after net income soared 70 percent to an industry record $9.5 billion, even offering the firm philanthropic advice he had solicited from the Bill & Melinda Gates Foundation. Goldman executives turned down the proposal over concerns shareholders would object, he said. ``It would be a dramatic thing that would benefit society,'' Whitehead said. ``They had the opportunity with the sudden surge in income to do better than they did.''