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Deals of the Day: GE Goes Back to Its Pre-Jack Roots
November 20, 2009, 9:58 AM ET Shareholders Hate Goldman Pay: But What Are They Going to Do About It?
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By Michael Corkery
This is how it is supposed to work. Rather than the federal government dictating what a company should pay its employees, shareholders are having their say.
The Journal’s Susanne Craig reports this morning that some of Goldman Sachs Group’s largest shareholders are urging the New York investment bank to reduce the size of its bonus pool in order to bolster per-share earnings. In short, the shareholders want a bigger slice of Goldman’s stellar earnings than the firm’s traders and bankers, who are on target for a record bonus season.
Regulators who have cracked down heavily on banker pay, both in the U.S. and Europe, have suggested that letting shareholders determine compensation policies is ideal. Speaking last week in Amsterdam, Nellie Kroes, the head of the European Commission urged investors to push for changes in bankers’ compensation. “Too often bankers think they are better, smarter people who deserve different rules and different pay to everyone else,” she said. “They can only think that if others let them.”
But how far are the largest institutional shareholders, which include AllianceBernstein, Vanguard Group, and Wellington Management, willing to push for change. After all, as Goldman points out in the Journal article, the company has had a total return of 159% since it went public in 1999. That compares with a total return of negative 2.1% for the Standard & Poor’s 500 stock index, during that same time period.
Would these large investors, which are managing pensions, college funds and investment accounts for millions of Americans, really be willing to pull out their money and risk losing that performance for their customers over bonuses?
Investors could agitate for a change in Goldman leadership at the company’s next annual meeting. But just as sitting presidents are almost always re-elected if the U.S. economy is strong, it would be difficult to see Goldman CEO Lloyd Blankfein or the company’s board members losing their jobs when the company is cranking out big profits.
One large shareholder, Warren Buffett, who took a big stake in Goldman at the height of the financial crisis, has taken a different approach. When asked about Wall Street compensation in a recent Charlie Rose interview, he talked about how the folks in his hometown of Omaha, Neb., are suffering economically while Wall Street collects its big checks. He said compensation limits at banks that acted recklessly leading up to and during the financial crisis should be “painful.” He was silent on the Goldman compensation conundrum.
Interestingly, this week, we learn that Buffett is helping Goldman set up a program to give away $500 million to small businesses, in a move widely seen as an effort to assuage public anger over bonuses. But Buffett hasn’t told Goldman to reduce its compensation, at least not publicly.
A lot of people are unhappy about Goldman bonuses. But the question remains for both the government, which can’t regulate the firm’s compensation policies because Goldman has paid back its bail out funds, and now for large Goldman investors: What are they prepared to do about it?
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