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A union sued Goldman Sachs, "alleging the firm's notorious pay structure is grossly unfair to its shareholders". http://www.law360.com/articles/154407/ibew-fun

• netcan 13y ago
  Thanks for that. Great example. Delaware Chancery Court on Monday, alleging the firm's practice of allocating nearly 50 percent of revenue to management's compensation constitutes corporate waste. Note first that this complaint/case is about financial asset managers, who have more specific duties to deal with specific conflicts of interest. IE, the managers can manipulate the risk the company is taking in a way that benefits them personally. In very simple terms, the boss giving himself a very fat bonus. This isn't even close to the boss paying ground floor employees a better wage. The Plaintiffs’ problems with the compensation plan structure can be summarized as follows: Goldman’s compensation plan is a positive feedback loop where employees reap the benefits but the stockholders bear the losses. Goldman’s plan incentivizes employees to leverage Goldman’s assets and engage in risky behavior in order to maximize yearly net revenue and their yearly bonuses. At the end of the year, the remaining revenue that is not paid as compensation, with the exception of small dividend payments to stockholders, is funneled back into the company. This increases the quantity of assets Goldman employees have available to leverage and invest. Goldman employees then start the process over with a greater asset base, increase net revenue again, receive even larger paychecks the next year, and the cycle continues. At the same time, stockholders are only receiving a small percentage of net revenue as dividends; therefore, the majority of the stockholders’ assets are simply being cycled back into Goldman for the Goldman employees to use* Even in this case, the shareholders were not able to prove that this was anything other than poor business decisions which are not something the court can make decisions about. The facts pled in support of these allegations, however, if true, support only a conclusion that the directors made poor business decisions. Through the business judgment rule, Delaware law encourages corporate fiduciaries to attempt to increase stockholder wealth by engaging in those risks that, in their business judgment, are in the best interest of the corporation “without the debilitating fear that they will be held personally liable if the company experiences losses.” Saying that companies can't raise wages because of fiduciary duty is bollocks. It's just an untruth, from a practical perspective.