Goldman shareholders target bonuses
A man walks out of the Goldman Sachs headquarters building in New York City as protesters circle around the front entrance on Dec. 14, 2009. More than 1,000 protesters marched through lower Manhattan past various banking buildings and the New York Stock Exchange, denouncing home loan interest rates and bank bonuses.
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Tess Vigeland: This week we'll get more details on those giant bank bonuses coming down the pipeline. Goldman Sachs is scheduled to report its earnings and bonus pool on Thursday. Meanwhile the big banks are bracing for a possible court fight over the Obama administration's proposed bank tax. But it's not just the public bristling at the reports of giant payouts. Some of Goldman's own shareholders are raising objections. Marketplace's Amy Scott reports.
AMY SCOTT: In the 1987 movie "Wall Street," Michael Douglas's character Gordon Gekko addresses the shareholders of a paper company.
GORDON GEKKO: You own the company. That's right, you, the stockholder. And you are all being royally screwed over by these, these bureaucrats, with their steak lunches, their hunting and fishing trips, their corporate jets and golden parachutes.
It's a bit rich, coming from a Wall Street raider. But that same sentiment is fueling a handful of shareholder lawsuits against Goldman Sachs.
Jay Eisenhofer represents a union and pension fund suing the company. He says taxpayer-funded bailouts drove Goldman's profits last year -- not talent. So the predicted employee windfall is a waste of shareholder money.
JAY EISENHOFER: The money belongs to the shareholders. They're the owners of the company. That's who the board of directors is supposed to be looking out for.
LYNN STOUT: It is very common for people to refer to shareholders as the owners of the firm. And this is in some ways an extremely misleading statement.
Lynn Stout teaches corporate and securities law at UCLA. She doesn't expect Eisenhofer's lawsuit to go very far.
STOUT: Shareholders don't own corporations, they own stock. And they have pretty limited legal rights.
Stout says it's up to the board to figure out how a public company pays its people. All shareholders can do is get rid of board members if they don't like the outcome. But Stout feels for shareholders. She says Wall Street's pay system is left over from the days of partnerships when the partners divvied up the profits amongst themselves. She says now that the banks are publicly-traded corporations, they haven't adapted.
STOUT: It's almost as if all of these banks turned themselves into corporations and sold stock to public investors and don't quite understand the responsibilities that go along with that yet.
Goldman is clearly aware of its investor relations predicament. The firm wouldn't comment for this story except to say that the shareholder lawsuits are quote "completely without merit." But the firm has been meeting with shareholders to talk about its compensation practices. It reportedly may require executives to give more of their paychecks to charity.
But how shareholders feel about bonuses probably depends a bit on when they bought their stock. On Friday morning Anton Schutz checked the latest price on a Bloomberg terminal. From its low in November 2008, it's up more than 200-percent. But from its peak, the stock is still down more than 25 percent.
ANTON SCHUTZ: So it's obviously been fast and furious. But I think it'd be up higher if we didn't have all the political rhetoric and certainly all the negativity surrounding the stock.
That negativity is one reason Schutz doesn't own the stock right now, though he has in the past. He manages the Burnham Financial Services Fund. But Schutz says as long as Goldman is making money for shareholders, they don't have a lot to complain about.
SCHUTZ: The stock price over time is the important measure for a shareholder. Because shareholders always have the opportunity to say, "Hey, I don't like what they're doing, I can sell the stock." But I think at the end of the day if the profits are there, the stock price will respond.
Shareholders will learn the latest profits when Goldman Sachs reports earnings on Thursday. Analysts polled by Thomsen Reuters are guessing Goldman made just under $5 a share last quarter. That would be down slightly from the quarter before.
In New York, I'm Amy Scott for Marketplace.