When journalists, pundits and Main Street complain about the ever expanding size of Goldman Sachs' bonuses, the criticisms roll like water off the squid's back. But the Wall Street Journal is reporting that some Goldman shareholders are latest to cry foul. And unlike pretty much everybody else, their opinion actually matters. I think this is kind of fascinating.

Why are shareholders mad? Because if less money went to Goldman's bankers, more could go to investors. The Journal explains:

One frustration: Despite record net income and compensation at Goldman as markets rebound and the firm outmuscles weakened rivals for business, analysts expect its 2009 earnings per share to be 22% lower than in 2007 and roughly equal to its 2006 earnings, according to Thomson Financial.



If I were an investor that would likely annoy me too. After all, Goldman Sachs is a corporation, so it should be rewarding its investors in proportion to its success.

The WSJ says that Goldman's somewhat sneaky use of temporary employees and consultants to make their per employee bonuses appear smaller than they actually are also has shareholders fuming:

The figure is a lightning rod for criticism of Goldman because its staff is on pace to earn about $717,000 apiece for 2009. Excluding temporary employees and consultants would increase compensation per employee to about $775,000.



For decades Goldman and its Wall Street brethren have been arguing that enormous bonus pools are necessary to retain the best talent. I don't think shareholders are necessarily disagreeing with that maxim here. Instead, they're more concerned with getting those bonus sizes out of the stratosphere, even if only a little closer to earth, so that shareholders can be rewarded in better proportion. Besides, if Goldman's per employee bonus number was reduced a bit, the rest of the Street still wouldn't be able to compete with it's comp numbers, so I highly doubt its talent would have any greener pastures to flee to anyway.

This development is also notable because it marks the first time I've heard of that it isn't the angry masses with pitchforks complaining about Goldman's bonuses -- it's their own shareholders, many of whom are a lot closer to the Wall Street crowd than the Main Street crowd.

There would be a couple nice consequences for Goldman listening to its shareholders on this one. First, it would boost their share value, making their equity more attractive. And don't forget: Goldman pays a fair chunk of its bonuses in shares, so that would actually benefit its employees too. Second, obviously its shareholders would be happier, which is an end most corporations strive for. Finally, it might help to calm the angry mobs.

I think this issue is particularly interesting in the case of Goldman, because it was one of the last major investment banks to convert from a partnership to a corporation. While that should mark a major change in corporate culture, this incident makes it appear that its management still isn't used to putting shareholders first. If its bankers really have no intention of appeasing shareholders, then one option might be to convert back to a partnership -- then its employees would be entitled to every cent of its earnings. Of course, getting there wouldn't be easy, but it's really their only way out of ignoring the shareholders' voice.

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