investing

Forced philanthropy

Monday, Jan. 11
Posted: 4 p.m. EDT

Goldman Sachs is considering forcing its executives and top managers, who are expected to clear an average of $595,000 each in pay and bonuses, to give a portion of their earnings to charity, according to an article in The New York Times. Forgive me, but that sounds like a tax.

Worse -- the reason for this command is that the investment bank fears public backlash over its allocation of $16.7 billion for compensation in the first nine months of 2009. According to the article, Goldman Sachs dedicates about three-fourths of its compensation to year-end bonuses in good years. This year, the bank is expected to announce a record profit of about $12 billion.

There is a lot of public anger about Wall Street bankers' compensation, but the size of the payout is beside the point when it comes to anyone's paycheck. Our tax system already rewards charity, and that has proved as much of an incentive to be generous as a sense of justice, and perhaps a little hubris too. Whatever the reasons for giving, they are personal on the part of the benefactor.

Much as I'm in favor of philanthropy -- on a scale both large and small -- it should be voluntary. Otherwise, it's not charity. As a firm, Goldman Sachs has said it would donate $200 million to its own charitable foundation, and has created a $500 million fund to lend to small businesses. These are laudable efforts, but for a company to make such decisions regarding its employees' compensation, especially as a bid to temper any hard feelings about its pay structure, is flawed reasoning that would likely backfire. Let employees make their own decisions about how to spend their after-tax money.

Watch a video on how to check out a charity before you give.

Read about the nuts and bolts of charitable trusts.

Questions? Comments? E-mail jmartel@bankrate.com

Read more Your Wealth blogs.

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