Friday, November 20, 2009

Goldman's Shareholders Finally Speak Up About Bonuses

So far, Goldman bonus anger has spewed forth mainly from the lips of legislators, angry mobs, and pregnant women who can't get access to the swine flu vaccine. Lloyd Blankfein has been making the media rounds, which everyone knows he hates to do, defending the firm's aggressive pay practices by pointing out that the firm paid back the TARP, never needed the money anyway, and would've made a mint even without an AIG bailout, FDIC guaranteed funding, zero interest rates blah blah blah. Mr. Blankfein probably never thought any of the hot air would lead to anything. After all, Goldman is pretty used to getting what it wants. But lo and behold, folks that actually matter, who aren't just spouting rage to get reelected, might take action to limit Goldman's plans to shell out record bonuses to its employees: shareholders. The problem is that shareholders fund Goldman's annual pay extravaganzas. The more Goldman pays out in bonuses, the less it retains for shareholders in the form of earnings. Somehow shareholders of Goldman and other investment banks have put up with this reality, until now that is.

According to the WSJ, some of Goldman's largest shareholders are miffed. They want more of the pie. Apparently, despite record net income and compensation, earnings per share will be 22% lower than 2007 and roughly equal to 2006 earnings due to dilution from the 100 million share issued in the past year to bolster its financial position. So if you're going to dilute them, then at least ratchet back on the record payouts to employees. Fair point. An even more interesting tidbit is that a little-noticed change in the company's financial statement increased the firm's total head count by adding temps and consultants, thus making comp per-employee appear to look less than it actually is. In response to shareholder's ire the company's spokesman said that shareholders "have historically been more focused on the absolute return on equity and on book value per share growth." Looks like times are changing.

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