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Goldman bonuses and why not to own GS common

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August 10, 2009 – Comments (10) | RELATED TICKERS: GS

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. 

10 Comments – Post Your Own

#1) On August 10, 2009 at 11:51 AM, devoish (98.38) wrote:

One rec for you, more if I could.

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#2) On August 10, 2009 at 11:57 AM, stocki711 (98.81) wrote:

there are other companies yielding 13.5% now. This is the best risk management company in the world. They deserve their money.

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#3) On August 10, 2009 at 12:17 PM, russiangambit (29.30) wrote:

Goldman - the corporation entity's purpose seems to be the pretection from the downside risk. As you know, corporation provides limited liability while a partnership doesn't. That is why GS leverages 30:1, and takes enourmous risks. They get high rewards due to high risk and there is a downside protection.

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#4) On August 10, 2009 at 12:20 PM, chk999 (99.97) wrote:

I think the problem is that GS started as a partnership, where the partners rightfully take the profit as theirs each year. But when they converted to a publically traded company, they never changed that mindset. So they still distribute the profits to the employees, rather than giving them to the rightful owners, the stockholders.

For me, GS is "don't own" until they change this. I ain't holding my breath.

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#5) On August 10, 2009 at 1:47 PM, lquadland10 (< 20) wrote:

oh my dear. GS is part owner of the IMF.IMHO and others.  The bankers always get paid off first. Just boycott the stock.

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#6) On August 10, 2009 at 2:27 PM, ocsurf (< 20) wrote:

The new $100 Bill.

 

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#7) On August 10, 2009 at 4:50 PM, mustbepatient (29.49) wrote:

Could it be that their compensation allows GS to hire the best talent in the industry, thus ensuring their continued outperformance?

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#8) On August 10, 2009 at 5:59 PM, starbucks4ever (98.28) wrote:

"Could it be that their compensation allows GS to hire the best talent in the industry, thus ensuring their continued outperformance?" 

Their genius is really elsewhere: in controlling the Department of the Treasury and in deploying this administrative resource to remove competition (Bear Stearns and Lehman), create stock market crashes (666) and subsequent rallies, and finally, to eliminate any counterparty risk to themselves (the taxpayer bailout of AIG engineered by GS alumni Hank Paulson).

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#9) On August 11, 2009 at 12:02 AM, ikkyu2 (99.31) wrote:

Nowhere in my post did I suggest that Goldman as an entity does not deserve their money, or that any individuals at Goldman do not deserve the compensation that they're receiving.

My point was that they could structure it differently.  They could structure their compensation as common stock options and cash dividends on that common, and then common shareholders, who nominally own the company, would share in the large profits that Goldman has earned, alongside the employees who also would share in the large profits that Goldman has earned.

The fact that they don't do it that way, but instead do it the way they do it, just means that they're not shareholder friendly.  That's all this post says.

There is probably a lot to be said about whether or not Goldman or its employees deserves to make the level of profits and compensation that they do in fact make, but I am not going to be in that discussion, because it's sort of outside my parvenu - have no control over it, wasn't asked, don't really care.  The control I do have is simply over whether or not I'm going to own GS common.  Not gonna do it.  Wouldn't be prudent.

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#10) On August 11, 2009 at 12:30 AM, huddaman (98.10) wrote:

my 2 cents here

 

http://caps.fool.com/Blogs/ViewPost.aspx?bpid=241337&t=01009352774628357492

 

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