Goldman sued over multi-billion pay pool

Goldman Sachs has been sued over its multi-billion compensation pool in a case that pits America’s security guards against Wall Street’s best-paid bankers.

The pension fund of the Security Police and Fire Professionals of America (SPFPA), the country’s biggest union of security staff, filed a suit in the New York Supreme Court, claiming that Goldman’s pay plans overestimated its employees’ contribution to the bank’s success.

Grant & Eisenhofer (G&E), the SPFPA’s class action lawyers, said: “Instead, the plaintiffs contend, the payouts are based on a trillion dollar investment made by American taxpayers that was meant to stabilise the financial industry.”

Lloyd Blankfein, the bank’s chief executive, Gary Cohn, the chief operating officer, and the bank’s board were named in the suit.

“Goldman’s board of directors [breached] their fiduciary duties by failing to administer the company’s compensation plans in the best interests of the company and its shareholders,” the law firm said.

The SPFPA accused the bank, which took a $10 billion taxpayer loan, of routinely paying out half of annual net revenue as compensation, and complained that the bank had become increasingly dependent on trading to generate revenue.

Jay Eisenhofer, managing director of G&E, said that he had spoken to other institutional investors who were angry over the size of Goldman’s compensation pool, which had earlier this year been expected to top $22 billion. By the end of the third quarter, the pool held $16.7 billion.

Mr Eisenhofer was unable to sat how many Goldman shares the union held or the size of the pension fund. The suit does not specify by how much the SPFPA wanted the bank to reduce its compensation.

A spokesman for Goldman dismissed the suit as “without merit”.

Goldman attributes its record-breaking compensation to the superiority of its workers.

In November Mr Blankfein irritated the rest of Wall Street by claiming that Goldman bankers produced $196,004 in average annual earnings for the company between 2000 and 2008, compared with $79,962 produced by their peers.

The bank distributed a lower percentage of net revenue – 46.7 per cent compared to 52.1 per cent – than its peers over that eight-year period. In the third quarter of this year, Goldman put aside 43 per cent of revenue as compensation, compared with 52 per cent at Morgan Stanley, its closest rival.

Less than 10 per cent of Goldman’s revenue comes from proprietary trading, according to a bank spokesman. Banks are striving to increase the amount of trading they do on behalf of clients as markets continue to rise.

Last week the bank said that its top 30 executives would receive their bonuses in long-term stock rather than cash. Shareholders will have a non-binding vote in April on the bank’s compensation practices.

(Published by Times Online - December 16, 2009)