Better to be a banker in New York than Europe this bonus season.
The leaders of Britain and France are embracing a one-time tax on fat bonuses paid by bailed-out banks _ a restriction that goes far beyond what's being considered in the United States.
Still, anger over lavish Wall Street pay is forcing some U.S. banks to take pre-emptive action. Goldman Sachs, the elite investment bank that repaid its $10 billion in bailout funds earlier this year, said Thursday it won't give cash bonuses to 30 top executives. Instead, they'll be paid in stock that can't be cashed in for five years.
Given Goldman's influence on Wall Street, its action will put pressure on other top U.S. banks to adopt similar measures. But it's unlikely to dampen what's shaping up as a blowout bonus season thanks to swift recovery by big banks in the U.S. and Europe.
The banking industry argues that bonus taxes and other restrictions could cause its most talented employees to defect to banks in other countries that don't limit pay.
But noting that the industry's recovery came on the back of taxpayer bailouts, British Prime Minister Gordon Brown and French President Nicholas Sarkozy both came out in favor Thursday of slapping higher taxes on performance pay.
"We agree that a one-off tax in relation to bonuses should be considered a priority," the two wrote in a Wall Street Journal editorial.
The unusual joint statement showed the extent to which Europe is going to crack down on banking pay.
Brown's government on Wednesday said it would impose a one-time 50 percent tax on 2009 bank bonuses above 25,000 pounds ($40,800). The tax applies to Britain-based subsidiaries of U.S. banks and all forms of bonuses, including deferred stock.
Seven of Goldman's top 30 executives who will receive stock bonuses are based in London, a person familiar with the list said. The person asked for anonymity because it was not publicly disclosed exactly which executives are being affected by the change in pay structure. The tax would be costly for those seven if they must pay cash to offset the value of stock they receive.
German Chancellor Angela Merkel described Britain's tax as an "attractive idea." And a French Finance Ministry official said France was already working to adopt its own one-time bonus tax.
Despite public fury in the U.S., pay restrictions have been more muted in America compared with Europe, said Sarah Anderson, a director at the Institute for Policy Studies, a Washington think tank.
"For the most part, it's business as usual here," said Anderson, who has called for tougher limits on banking compensation.
Wall Street banks are on track to pay $26 billion in bonuses for 2009 performance, according to compensation consulting firm Johnson Associates Inc. That's up from $18.4 billion in 2008.
And Goldman's restrictions on top executives' bonuses won't affect the more than 31,000 other employees at the bank, including some of its top traders who could be well-rewarded for helping Goldman turn big profits this year. Goldman has set aside $16.71 billion, or about 47 percent of net revenue, through the first nine months of the year for compensation, including bonuses.
The government's pay czar, Kenneth Feinberg, recently slashed pay for the top 25 executives at the seven companies that got the biggest bailouts: Bank of America, AIG, Citigroup, General Motors, GMAC, Chrysler and Chrysler Financial.
But those measures have created a race to repay bailout funds and get out from under Feinberg's authority. Bank of America repaid its $45 billion bailout this week, while Citigroup is scrambling to pay back a portion of its $45 billion rescue. Meanwhile, Goldman Sachs, JPMorgan Chase & Co. and Morgan Stanley have already repaid their bailouts and face no caps on employee pay.
Feinberg on Friday will announce his ruling on pay for the next 75 highest-paid employees of the six firms he still oversees, the Treasury said. Feinberg wants tougher-than-expected pay caps on those employees, according to a person familiar with the matter who spoke on condition of anonymity because the decision had not be made public. It wasn't clear how big a pay cut Feinberg will seek.
But unlike in Europe, the U.S. government so far has only imposed pay restrictions on banks that still hold funds from the Troubled Asset Relief Program. The Federal Reserve next year will begin reviewing pay practices at the 28 largest banks, regardless of whether they have bailout funds. The Fed won't actually set pay. But it could veto pay policies that it thinks could encourage too much risk-taking.
Treasury Secretary Timothy Geithner on Thursday defended the administration's pay limits on banks.
"The compensation restrictions that we put in place for firms that took exceptional assistance were very tough restrictions, and they were appropriately tough restrictions," he told a watchdog panel in charge of overseeing the bailout.
Still, some Democratic lawmakers want to go further.
On Wednesday, Rep. Dennis J. Kucinich, D-Ohio, introduced an amendment that would impose a 60 percent excise tax on bonuses paid to employees of banks that haven't repaid TARP funds.
"You don't want people to profit from their misdeeds," Kucinich told The Associated Press in a telephone interview.
"Wall Street acts as if it's in a bubble, a world of its own," he added. "How can you expect to reform the financial system if you don't make it clear there's consequences for actions that destroy big sectors of the economy?"
The U.S. banking industry argues that bonuses help prevent a brain drain of its top performers. With Britain and possibly other European countries planning to tax banker bonuses, financial employees could leave for banks in Asia or the Middle East, said Scott Talbott, chief lobbyist for the Financial Services Roundtable, which represents major banking institutions.
"The market will find a way to pay these people what they're worth," Talbott said.
So could a Wall Street bonus tax be adopted in the U.S.?
Financial experts are skeptical of that, noting Americans' general distaste for government intervention in the private sector. A similar measure aimed at firms that got at least $5 billion in bailout funds was passed in the House earlier this year. But it failed to win approval in the Senate.
"I think there will be large bonuses, there will be real anger, but I don't think a broad tax on the financial industry would be signed into law," said Douglas J. Elliott, a fellow at the Brookings Institution and a former investment banker at J.P. Morgan.
AP writer Raf Casert in Brussels and AP Business Writer Stephen Bernard in New York contributed to this report.