Goldman bonuses and why not to own GS common
There's been much made of the high bonuses at Goldman. If you've ever dined in the right circles in Manhattan, you know that a simple front-desk receptionist at Goldman can count on making money annually than the average doctor or lawyer, because of the firm's generous bonus package. The real money men - traders, analysts, VPs, senior execs - well, sky's pretty much the limit on their compensation. If there is a limit. I think it's safe to say that working at Goldman is probably the most lucrative full-time occupation that isn't blatantly illegal.
Goldman has set aside $11 billion for bonuses in the last 2 quarters, while credit markets have been imploding and the stock market has been going to Hades in a Hermes hand-bag. It's all over the news.
Meanwhile, Goldman common is paying out a dividend - 140 cents a share TTM - with a share price of 162. That means their dividend is nominally 0.9% at the moment.
Goldman buys back shares sometimes. They have repurchased 20 million shares in the past twelve months. I wonder, why don't they arrange their bonuses in the form of common options, and use the bonus kitty to boost their dividend to common? There are about 500 million shares outstanding. If GS would use their $11 billion to pay out a one-time cash dividend to common, they would pay out $22 per share. At today's stock price that would be a 13.5% yield.
If Goldman were structured like a shareholder friendly outfit, senior management, the board, and all those VPs, traders and secretaries would share in the wealth by owning GS common as it paid this dividend. "Paying all those people in stock would be dilutive," you say? Right, well, siphoning $11 billion off earnings to pay bonuses doesn't benefit common at all. I'd be willing to take a good hefty whack of dilution in order to participate in a 13.5% annual yield.
The moral of this story, as far as I can see it, is not going to be particularly surprising: Goldman management doesn't care about the Goldman common shareholder. That's wrong and un-American, but then again, Goldman more or less owns America now, so I guess they get to say what's American and what isn't. All I know is that I wouldn't touch GS common with a ten-foot pole.