The International Brotherhood of Electric Workers, a shareholder in Goldman Sachs (GS), filed a lawsuit in Delaware which accuses the investment bank of overpaying its management and bankers. The union wants Goldman to give some of that money back to shareholders. The action also attempts to get Goldman’s management to make charitable contributions instead of them coming from the firm. Goldman views the giving as way to publicly defuse the outcry over its pay practices.
Goldman has earmarked over a third of its income for compensation for many years. The practice has become a habit, so no shareholder in the company cannot express surprise at the policy. The International Brotherhood of Electric Workers wants a court to consider Goldman’s 2009 payments as an individual act and not one in a long line of actions. If the union did not like Goldman’s pay program’s why did it become a shareholder at all? Or, why didn’t it sell its shares long ago?
The reason why the union or any other enterprise or individual shareholders buy Goldman’s shares is the financial firm’s unprecedented history for making large sums of money and increasing its share price. Over the last year, Goldman’s shares are up 100% compared to a gain of little over 50% for the DJIA. Goldman’s most direct competitor, Morgan Stanley (MS), has posted a 40% rise in its stock during the last year.
The right of boards of directors at public companies to set compensation is rarely challenged and when challenges come, they are not successful. The board’s responsibility to set and monitor pay has been granted by the SEC and that is not likely to change. A challenge to Goldman’s big paydays is futile. The bank’s executives are paid well because they earn it.
Douglas A. McIntrye