Goldman Sachs has accelerated nearly $100 million in stock awards to top executives before the end of the year in order to avoid unfavorable changes in the new tax code, according to public filings posted Friday.
The most sweeping overhaul of U.S. tax code in 30 years includes a provision which caps a corporate deduction for executive pay; under current law, corporations can deduct up to $1 million per executive's base salary, however there's no cap on deductions for performance-based pay, such as bonuses.
Under the new provisions, both base salary and performance bonuses count towards to $1 million cap - which is why Goldman accelerated $94.8 million in bonuses originally scheduled for January, 2018. By paying the bonuses early, the bank will save money on its own tax bill.
Most of Goldman's executives received early payouts - including of course, CEO Lloyd Blankfein.
In a similar move, Netflix also announced it would change its executive compensation plan for 2018 in response to the new Tax Law. The company said in a public filing posted Thursday that it's going to start paying some of its top executives higher salaries, and tie less of their compensation to performance, citing the law change.
Accelerated bonuses aren't the only thing at least temporarily grinding Goldman's gears about the new tax code. As we discussed yesterday, in a Friday 8-K filing with the SEC, Trump's "repatriation tax" is going to knock approximately $5 billion off the company's profits in Q4 2017 in the form of a one-time repatriation charge.
[T]he enactment of the Tax Legislation will result in a reduction of approximately $5 billion in the firms earnings for the fourth quarter and year ending December 31, 2017, approximately two-thirds of which is due to the repatriation tax.
The remaining 1/3 of Goldman's $5 billion hit "includes the effects of the implementation of the territorial tax system and the remeasurement of U.S. deferred tax assets at lower enacted corporate tax rates," making it more difficult for them to deduct past losses from future tax bills.
Goldman, which is due to report fourth-quarter results on January 17, said: “The impact of the tax legislation may differ from this estimate, possibly materially, due to, among other things, changes in interpretations and assumptions the firm has made, guidance that may be issued and actions the firm may take as a result of the tax legislation.”
Previously, Barclays estimated this change would cost the bank around GBP1BN ($1.35BN).
Barclays said the change had reduced the value of its deferred tax assets and would result in an associated one-off charge of about GBP1bn after tax.
It is expected to drag Barclays full-year earnings further into the red. The bank lost #628m in the first nine months of the year due to write-offs related to pulling out of African ventures.
On the bright side, the US corporate tax rate has been cut from 35% to 21% with the new law, which supposedly will "trickle down" to ordinary Americans. In reality, all it will achieve is fund even more stock buybacks, and benefit, drumroll - Goldman Sachs. After all, the tax changes were overseen by treasury secretary, Steve Mnuchin - a 17 year Goldman vet who declared the bill to be "great for hardworking workers."