Goldman Case Worth Watching

Goldman Sachs “is being run for the benefit of employees rather than shareholders,” according to attorney John Harnes on behalf of Southeastern Pennsylvania Transportation Authority, a shareowner. The company has lost $50 billion in market value since 1999 but set aside $8.44 billion for the company’s compensation pool in the first six months of this year. CEO Lloyd Blankfein’s $19 million compensation for 2010, which included a $5.4 million cash bonus, was almost double the prior year’s award even as Goldman Sach’s profits fell. (Goldman Sachs’s Compensation Plan Hurts Shareholders, Lawyer Tells Judge, Bloomberg, 9/7/2011)

The derivative suit against the Goldman directors seeks to hold them “responsible for the firm’s flawed pay plan and for not properly overseeing the company’s employees.” The author reports that Goldman’s counsel argued in response that it is not the role of the courts to decide how much risk a firm should take or how much compensation its employees should be paid. Cydney Posner, of Cooley, asks Can an Excessive Compensation Case Survive a Business Judgment Rule Challenge?

As a Goldman shareowner, I’m in full agreement; the company appears to be run solely to benefit employees, to the exclusion of shareowners. This one is worth watching.

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