This comes to mind in evaluating the complaints of Goldman Sachs Group's (GS) biggest shareholders who want it to pay out more in dividends and less in bonuses. The Wall Street Journal reports that these whiners include AllianceBernstein, a division of State Street (STT); Wellington Management; and Vanguard Group. These shareholders are concerned that Goldman shouldn't be paying 47% of its revenues to its people.
Perhaps more interestingly, they point out that Goldman artificially inflated the number of employees so it would appear that its 2009 compensation per employee was lower than it actually is. The Journal reports that they think Goldman added 3,000 part-time workers to its total of 31,700. In so doing, they claim that this turns a record $775,000 per employee into what Goldman hopes will be a more publicly palatable $717,000.
To be fair, Goldman stock hasn't done that badly. The Journal reports Goldman's spokesperson claims that since going public in 1999, the stock has generated a total return of 159%, compared with negative 2.1% for the S&P 500. And Goldman shares have more than doubled so far in 2009 -- up 105% since Jan. 2.
But what these big shareholders are forgetting is that they don't matter to Goldman. How so? As Goldman well knows, common shareholders are at the bottom of the liquidation hierarchy. At the top of Goldman are the partners who continue to operate the firm in their best interests, which means paying out nearly half its revenue as annual bonuses.
The public shareholders are there just to boost liquidity when Goldman partners sell their shares at their leisure.
Peter Cohan is a management consultant, Babson professor and author of nine books, including Capital Rising (due in June 2010). Follow him on Twitter. He has no financial interest in the securities mentioned.
