As Goldman Sachs (GS) prepares to make the biggest employee payout in the firm’s 140-year history, a number of its largest shareholders would like to see the firm’s substantial profits end in their pockets and not in the bank accounts. They are asking the New York-based firm, whose EPS will be down this year (22% lower than in ’07) even though the investment bank will post record sales, to cut down bonuses and pass more profits to investors, the WSJ reported on Friday, citing people familiar with the matter.
Although investors — whose complaints over the co.’s big-pay packages is increasing — are not pushing for a huge cut, they feel Goldman, which set aside $16.7 billion for year-end bonuses after receiving a $10 billion taxpayer bailout during the financial crisis (GS has paid back the gov’t money), should better reward them for this year’s rebound.
Goldman Sachs spokesman Lucas van Praag dismissed the criticism, saying the bonus-shrinking argument misses the point.
“Our investors have consistently told us that they expect the firm to set compensation at a level which produces attractive returns to shareholders while maintaining the strength of our franchise, which is the basis for generating returns for the long term,” van Praag said. “They know that compensation at Goldman Sachs is directly linked to the firm’s performance and that our compensation ratio has consistently been at or among the lowest in the industry.”
The shareholders have also expressed concern about an unnoticed change in the company’s financial statements which impacted its overall headcount by adding temporary employees and consultants. Due to the change, Goldman’s staff is on pace to rake in $717,000 per person in 2009.
Goldman says it wasn’t fiddling with the numbers when it added a footnote to its financial statements in July to reflect the change. The firm said its reports on comps always included temporary employees and consultants, but they weren’t counted in employee totals.
Remains to be seen whether Goldman’s shareholder activism will win the fight with management over pay packages. The bank’s stock is currently off roughly 27% since its highs of $235 in October ’07. Yet, and truth be told, relative to other financial institutions, Goldman’s shareholders may have much to be happy about.
GS shares are currently down $2.20, or (-1.25%) at $170.65 in NYSE trading.