Zurich: Big shareholders at Goldman Sachs have asked the US bank, on track to deliver $20 billion in bonuses, to pass more profit to investors after it quadrupled quarterly net profit, the Wall Street Journal reported.
Although investors are not pushing for a huge cut, they feel Goldman, which received $10 billion of taxpayer help during the credit crisis, should better reward them for this year’s rebound, the paper said, quoting people familiar with the situation.
A year after the implosion of former US bank giant Lehman Brothers, there is concern among regulators and politicians that bankers’ bonuses are climbing back to pre-crisis level and shareholder rights’ lobbies have called for closer scrutiny of pay.
“This is particularly of psychological importance because it is self-imposed and not government-imposed. We have to try to all move toward the same approach to maintain the talent pool,” Lutz Raettig, Morgan Stanley’s chairman in Germany, said when asked about investor action at Goldman.
Reacting to public outrage to bankers’ greed and fat-cat pay cheques in the run-up to the crisis, the Group of 20 nations agreed on guidelines for bankers’ pay that would put the focus more on long-term performance rather than short-term gains.
The US bank has repaid the government cash it received, but its robust performance this year is pushing investors to ask for higher returns. Goldman generated net income in in excess of $3 billion in the third quarter.
The shareholders are also concerned about a change in the company’s financial statements that increased the firm’s total headcount by adding temporary employees and consultants, the Wall Street Journal said.
Due to the change, it looked like Goldman employees are on pace to earn $717,000 per person in 2009, the Journal said.
The United States in June appointed “pay czar” Kenneth Feinberg to review pay at some of America’s biggest companies.
Regulators in European countries such as Britain, France and Switzerland are already taking steps to introduce new new rules on bankers’ compensation. Some banks, like Swiss lender Credit Suisse, moved fast to adapt their pay structure to fit with the new international guidelines.
But Swiss-based investment fund Ethos, which has a keen interest in corporate governance practice, says the key to changing compensation schemes is empowering shareholders.
Ethos and eight Swiss pension funds are planning to repeat this year initiatives they undertook in the aftermath of the crisis to force large companies to accept a “say on pay” by shareholders.
The Wall Street Journal quoted a Goldman spokesman saying shareholders “have historically been more focused on the absolute return on equity and on book value per share growth” than per-share earnings.
Goldman could not be immediately reached for comment outside regular US business hours.