The decision follows a worldwide public outcry about the company's massive bonus pool, which is predicted to hit $20 billion by the end of 2009.
In an attempt to improve the bank's public image, the Goldman Sachs board of directors have decided that its highest-paid staff will instead receive shares at risk as an additional reward on top of their annual salaries.
The planned changes apply to the company's management committee, including chief executive officer Lloyd Blankfein and the heads of sales and trading operations, as well as senior risk managers.
Mr Blankfein said the decision had been taken with the interests of investors, as well as the wider American public, in mind.
"We believe our compensation policies are the strongest in our industry and ensure that compensation accurately reflects the firm's performance and incentivizes behavior that is in the public's and our shareholders' best interests," he stated.
Under the terms of the new bonus structure at Goldman Sachs, the shares paid as bonuses to the management committee can not be sold on for five years.
The amount of shares each executive receives will be directly linked to the firm's overall performance, while a clause has been included which will allow Goldman Sachs to recall the shares if an employee "is found to have engaged in materially improper risk analysis or failed sufficiently to have raised concerns about risks".
Since October, executives have met with investors for talks about bonus pay levels.
The Wall Street Journal reported that the meetings were frequently attended by Goldman Sachs president and chief operating officer Gary Cohn, as well as chief financial officer David Viniar.
It is believed the meetings were used by the executives as an attempt to explain why its proposed bonus levels were reasonable in light of a financially successful year for the company.
But this week's announcement signals a change in strategy for the top earners at Goldman Sachs in the ongoing public debate surrounding bankers' bonuses.
By Tony Aynsley