Money for nothing at Goldman by Colin Barr @FortuneMagazine January 30, 2011, 1:10 PM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons America’s favorite bankers have outdone themselves yet again. How might you compensate management for a year in which profits plunged, you spent $550 million of shareholder money to settle a fraud investigation and your stock ended up more or less exactly where it started (see chart, right)? Pay? Sure. Performance? Not so much You might be tempted to nix raises or withhold bonuses to send a responsible message about linking pay to performance. But if so, you wouldn’t be Goldman Sachs GS . It just had the year described above – and responded by tripling everyone’s base salary while boosting bonuses by 40%. Is this a great country or what? Goldman said in a filing Friday afternoon that CEO Lloyd Blankfein will make $2 million this year, and his top lieutenants will each make $1.85 million. Top Goldman brass had been making $600,000 annually in salary since the firm’s 1999 initial public offering. All 470 of Goldman’s partners will get higher salaries. The top five officers will also get $12.6 million each in bonuses, paid in restricted shares that can’t be sold for five years. That’s up from $9 million each last year. That may seem like a high price to pay for a pretty lousy year – and one that ended with a Fed-inspired reminder that Goldman, just in case anyone forgot, took billions upon billions of dollars in bailout loans in 2008 and 2009. But conveniently for the bankers at Goldman and many other firms, Wall Street’s compensation goalposts have been moved in just as they were getting harder to reach. Goldman and many of its rivals were hit in the second half of last year by weak trading numbers and rising costs, as they hired more people to gear up for tougher markets in 2011. Those trends naturally penalized profits. At Goldman, profit tumbled 38% from a year ago in 2010, on a 13% revenue decline. But lucky for hot shot banking types, the big issue with banker pay nowadays is not linking pay with performance. It’s keeping the bankers from blowing the economy up again. Regulators led by the Federal Reserve are now pushing for higher salaries and lower, stretched-out bonuses in a bid to discourage the banks from gambling for huge short-term rewards, as they did so disastrously during the housing bubble that ended with the meltdown of 2008. The idea is to limit the payment of giant, one-time bonuses that later turn out to have been based on fictitious profits, as was seen at places like Merrill Lynch during the bubble. Federal regulators issued 47 pages of guidance last June laying out the rules banks must follow in setting bonuses. They didn’t issue any guidance on salaries. “Banking organizations are responsible for ensuring that their incentive compensation arrangements do not encourage imprudent risk-taking behavior and are consistent with the safety and soundness of the organization,” the document said. After the bailouts of 2008, the focus on holding down risk-taking is understandable. But the history of executive pay is that every supposed reform leads to a new, unexpected abuse. It is early yet to say that will be the case here. Even with the raises, Goldman’s 2011 payouts stand to be just a fraction of the go-go days, when Blankfein, president Gary Cohn and finance chief David Viniar each regularly racked up $40 million or more in bonuses and stock awards in a given year. But even if the top bankers’ pay is down, their sense of entitlement is back at bubbly levels. Cohn launched into a diatribe last week about the dangers of, get this, bailing out institutions less worthy than the banks. “What I most worry about,” said Cohn, “is that in the next cycle, as the regulatory pendulum swings, we are going to have to use taxpayer money to bail out unregulated businesses that, unlike the banks in the last crisis, may not be able to repay them.” Yes, the banks have repaid us. It can’t be long till they find a way to, ahem, repay themselves too.