Goldman Sachs has been considering “a menu” of options to distribute what could be a piggy bank of more than $11 billion in bonuses at years end, Charlie Gasparino reports in the Daily Beast today.
One possibility is to pay the vast majority of the bonus in stock and might then engage in a gigantic stock buyback that would drive up the stock shares, possibly enriching its employees even more than cash bonuses would.
“On Wall Street, executives receive a combination of stock and cash, with the cash portion comprising 65 per cent of the total bonus,” Gasparino writes.
Gasparino presents the stock bonus and buyback plan as separate options. But it seems more than possible that these two things could work together. Employees could be paid in stock, and then the company could use part of its excess revenues to buy back its stock.
“Because most of its executives have large pieces of their net worth tied up in shares of Goldman, the wealth effect would be bigger and less sensational than paying all those huge bonus packages at the end of the year,” Gasparino explains.
Goldman spokesman Lucas Van Praag insisted that any stock-buyback program won’t be tied to bonuses. It’s easy to see why he says this: he has to. A stock buyback plan would have to be made in the interests of general shareholders, not self-dealing executives. It would be legally treacherous for Goldman to mount a buyback with the explicit purpose of enriching its executives.
What was interesting about Van Praag’s “denial” was that he won’t deny Goldman is weighing some large stock buyback. “I can’t comment on that,” he said before adding that analysts had been calling on the firm to do a stock buyback for some time.
Of course, all this talk of buybacks may well drive up the stock price well-before any actual buyback. Which, if you really want to get conspiratorial, could be the point of it all: enriching Goldman executives who hold Goldman shares without doing anything.
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