Goldman Sachs Group, Inc. (NYSE: GS) revealed Tuesday that it would not delay the bonus payments to its Britain staff. This latest announcement is a clear retreat from its earlier decision, which was expected to help investment bankers and other highly paid employees take advantage of the country's lower income tax rate.
U.K. lawmakers criticized the bank's earlier decision to delay the bonuses later than usual. On April 6, the top tax rate is expected to come down to 45 percent, from 50 percent. Goldman Sachs' compensation committee decided, in a meeting on Tuesday, to scrap the plan of delaying the bonuses. The investment banker generally announces the annual bonuses to its staff shortly after reporting fourth-quarter earnings (due this Wednesday).
"The delay had been under consideration and the decision was made today not to do it," a person familiar with the situation said.
The delay also threatened another public relations problem for the banking industry, which is already reeling from the tarnished reputation by the financial crisis. Goldman Sachs Group, Inc. (NYSE: GS) was already under scrutiny after distributing $65 million in stock to 10 senior executives in December instead of January, the usual month for such awards. The move from the bank is believed to have helped the executive save on taxes.
Mervyn King, the governor of the Bank of England told a parliamentary committee on Tuesday morning that a delayed bonus, though not unlawful, was: “a bit depressing that people who earn so much seem to think that it’s even more exciting to adjust the timing of it.” A person familiar with the matter said that Sajid Javid, Treasury minister in Britain urged the bank this week not to delay the bonus payments.
"And in the long run, financial institutions, like all large institutions, do depend on goodwill and the rest of society. They can't just exist on their own," King said.
The British government announced last year to undo a move by the Labour government to bridge the budget deficit, and to scrap the 50 percent top tax rate for income above £150,000, or $181,000. George Osborne, the chancellor of the Exchequer, defined the tax rate "cripplingly uncompetitive” because it cost jobs and failed to raise any money.
"Political pressure in this area is likely to grow. Already the Labour opposition has attacked the government for giving Goldman Sachs Group, Inc. (NYSE: GS) an opportunity to reduce taxes on bonuses," UK shareholder advisory firm PIRC said in a note on Tuesday.