Think of it as an atypical example of "shareholder activism." Several of the biggest shareholders of Goldman Sachs -- which, it should be noted, has morphed into the most profitable securities firm in history -- are pushing the bank to shrink its bonus pool, according to the Wall Street Journal.
This year, Goldman Sachs has set aside $16.7 billion for employee compensation through the first nine months of the year. According the WSJ's report, Goldman's shareholders want more of that money returned to the bank's investors.
Over the last year, Goldman Sachs' earnings from investment banking and wealth management have waned, while trading revenue has exploded. As we noted: "Out of 194 trading days through the end of September, Goldman Sachs earned at least $100 million from its trading division on 116 of them. The firm lost money from its trading activities on just one day during the three-month period ending in September, federal regulatory filings show. It made at least $50 million on four out of every five trading days."
The bank's stock is currently off roughly 27 percent since it peaked at $235 in October 2007. Yet, relative to other huge financial firms, Goldman's shareholders may have much to be happy about. As we noted, Goldman Sachs is the best-performing financial stock in the S&P 500 since Obama's election.
But, if you think the bonus-shrinking push by Goldman shareholders is altruistic, think again. Here's the WSJ:
"We think the compensation debate is coming across as a populist issue, when to us it is really about how Goldman and other firms can best allocate capital and how pending changes in the regulatory framework may change all this," Tom Marsico, founder of Marsico Capital Management, a Goldman shareholder told The Journal.
Goldman's largest shareholders, including financial titans like AllianceBernstein and State Street Corp., may also be irked, the WSJ notes, about the firm's stock performance relative to its pre-crisis peaks.
"One frustration: Despite record net income and compensation at Goldman as markets rebound and the firm outmuscles weakened rivals for business, analysts expect its 2009 earnings per share to be 22% lower than in 2007 and roughly equal to its 2006 earnings, according to Thomson Financial.
The decline is caused by issuing more than 100 million shares in the past year to bolster Goldman's financial position and capital."
Yesterday, the widely-followed Wall Street analyst Meredith Whitney told Bloomberg News that, due to concern over government intrusion into compensation, Goldman Sachs has already lost tremendous talent to the hedge fund industry.
At the Atlantic, Daniel Indiviglio sees some significant upside to a reduction in Goldman's bonuses:
"First, it would boost their share value, making their equity more attractive. And don't forget: Goldman pays a fair chunk of its bonuses in shares, so that would actually benefit its employees too. Second, obviously its shareholders would be happier, which is an end most corporations strive for. Finally, it might help to calm the angry mobs."