The divisive issue of bonus payments to investment bankers reared its head again as it was announced that Goldman Sachs (NYSE:GS) is being sued by two pension funds over planned bonuses paid to employees. The plaintiffs in the lawsuit, released on Tuesday, maintain that the company shouldn’t use its normal methods for calculating bonuses in light of the current extraordinary economic circumstances.
The two pension funds – the Security and Fire Professionals of America Retirement Fund and the Central Laborers’ Pension Fund, filed the lawsuit through Grant & Eisenhofer, the legal firm representing the two entities. It’s their assertion that Goldman should not rely on their traditional method of calculating bonus payments, which would pay out approximately half its revenue for the year, an estimated $22 billion in bonus payments, and instead come up with a more conservative method.
Grant & Eisenhofer released a statement regarding Goldman and their current bonus plan stating that “The majority of Goldman’s reported earnings for 2009 was not built on the successes and achievements of the company’s employees. Instead, no less than 67% of Goldman’s 2009 revenues were directly attributable to federal government intervention” – see The Street.com article here. Goldman replied to the lawsuit filing by stating that the lawsuits are “without merit”.
The lawsuit happens at an important juncture for Goldman Sachs, with fourth quarter earnings results scheduled out next week and on the heels of a formal information request from the state of New York. The Attorney General of New York, Andrew Cuomo, sent a formal letter to eight different high profile banks in the US, including Goldman Sachs, requesting additional information about their internal policies and procedures surrounding employee compensation. It’s speculated that this inquiry could lead to further legal or regulatory action down the road.
Regardless of the outcome of the lawsuit, its filing represents yet another stroke of backlash against the banking and investment giant, and against big bank bonuses in general. The lawsuit, even if without merit, will still occupy Goldman’s time and resources and provide ammunition for those bent on reforming the current financial regulatory environment. Executive and investment banker compensation will likely continue to be lively topic for much of the year, and combined with the mounting lawsuits and the Federal Crisis Inquiry Commission meeting starting in Washington this week (see article here), the fact that Goldman Sachs is often held up (right or wrong) as the prime example of excessive compensation abuses means a lot more discourse will be devoted to this topic in the future.