All morning long, the lead story on the Wall Street Journal's home page has been "Goldman Holders Miffed at Bonuses." According to reporter Susanne Craig, some of Goldman's largest shareholders have been privately expressing to Goldman management that a record-large bonus pool might not be in the best interest of the real owners of the investment bank, i.e., the institutions and investors who own Goldman's stock.
In an opinion piece, also in the Journal, Michael Corkery approves of the basic principle:
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.
Ever since Goldman Sachs' 1999 IPO, I've been wondering how the investment bank's big-money culture would square with the trope that a public company's first responsibility is to its shareholders. Up until now, Goldman's shareholders have accepted the basic bargain -- Goldman's stock returns far outpace the market. This success is supposedly attributable to Goldman having the smartest employees. And so the argument goes: If you don't pay the smartest employees an average of over $700,000 per person per year, they will skedaddle.
But it seems as if what looks to be "the biggest employee payout in the firm's 140-year history" is inciting some grumbling even among those who typically could not care less about outsize Wall Street compensation levels.
Corkery is skeptical that the big institutional investors will make good on the only threat they realistically have, which is to sell their stock. But there's an interesting subtext to the whole question of shareholder rights that is ironically highlighted by the Goldman dilemma.
Oftentimes, when we hear that a public company's first responsibility is to its shareholders, this is used as an excuse to shaft workers. What's the easiest way to cut costs and get a quick stock price boost? Lay off employees! It's one of the harshest truths of capitalism -- the people who do the actual work generally get the smallest piece of the pie and are most vulnerable to economic downshifts. The principle that shareholders should come first has propelled countless mergers and acquisitions with disastrous results for the employees of the companies that get sliced and diced in Wall Street's endless parlor games.
For Goldman critics, it might be satisfying to see big shareholders muttering grimly about the impropriety of massive bonuses. It also could be rewarding to see shareholders exert more force in restricting the runaway compensation of top executives, although I'm not going to hold my breath waiting for such "say-on-pay" ideals to ever become common practice. But I'd caution against seeing this episode of dissatisfaction as some great triumph of shareholder democracy over the lords of Wall Street. What the investors really want is more money for themselves -- a fat dividend payout, or higher earnings per share that would be reflected in a higher stock price.
And what that usually means is: Screw the worker. In this case, we're all OK with it, because these are Goldman employees, and everybody is mad at Goldman. But as a general rule, keeping stock prices high by keeping the clamps tightly down on workers is not ideal, from an egalitarian point of view.