Last month, acting on behalf of institutional investors of some note, Grant & Eisenhofer filed suit challenging Goldman's bonus policy asserting:
...that the impending record-setting 2009 compensation payouts, estimated to be in excess of $22 billion, are not based on the hard work of the executives. Instead, the plaintiffs contend, the payouts are based on a trillion dollar investment made by the American taxpayers that was meant to stabilize the financial industry.
One assumes that G&E's clients would prefer the $22 billion be paid to, say, investors (like the plaintiffs in this suit, the Security Police and Fire Professionals of America Retirement Fund- who might actually be even less hard working than Goldman executives, we aren't sure) via dividends rather than, say, the taxpayers. Really, it probably isn't that the pension fund here wants to run up a lot of fees (or perhaps just time if G&E is on contingency fees) to effectuate social justice by repatriating funds to U.S. taxpayers- or perhaps we at Zero Hedge are unduly cynical? But this is neither here nor there. What is interesting is the more recent chess moves in this particular match. To wit:
Two U.S. pension funds that have filed lawsuits against Goldman Sachs Group, Inc.'s board of directors have asked the court to schedule an expedited hearing on their request to block the payments. The suits allege that the firm's impending record-setting 2009 compensation payouts, estimated to be in excess of $22 billion, are a breach of the board's fiduciary duty. The motions were filed today as Goldman is expected to announce its final 2009 compensation and issue payments to its employees in the coming weeks.
Goldman's board defends its policy by touting it is guided by a "pay for performance" philosophy. However, the majority of Goldman's reported earnings for 2009 was not built on the successes and achievements of the company's employees. Instead, no less than 67% of Goldman's 2009 revenues were directly attributable to federal government intervention, including a $13 billion payment from AIG to Goldman which was a direct result of TARP funds.
Nothing hurts bankers more than delayed bonuses, after all. And this may be the point. Consider G&E's self-identified top-bragging rights at the end of their press release:
The firm has recovered more than $12 billion for investors in the last five years, including a $3.2 billion settlement from Tyco International, a $448 million settlement from Global Crossing and a $400 million settlement from Marsh & McLennan.
We are guessing this isn't about taxpayer justice. Despite the fact that victory at trial would seem to require a major restructuring of contemporary notions of the roles of shareholders and management in determining executive compensation in the United States (even getting shareholders a "say on pay" much less actual authority is a stretch) we are guessing this suit is really about the absolutely improbable possibility that Goldman will actually fight this. Can you imagine the discovery process and the many "accidental" leaks that would accompany it? So can we. So can Goldman.
There is some predictive value here, we think. If this is how vulnerable Goldman has become on the bonus issue, can we reasonably expect either:
- Several multi-million dollar settlements as other members of the esteemed plaintiff's bar pile on? (And related declines in Goldman's stock price)? Or,
- A brain drain as senior members of the Goldman team grow weary of the constant delays and scrutiny attached to their large (and poltiical dangerous) paychecks?