December 18, 2006
Wall Street is buzzing about the Goldman Sachs year-end bonuses. The total is $16.5 billion, yes billion, worth an average of $623,500 per employee (although the payments will not be evenly distributed -- rumor has it that some traders are receiving $100 million apiece). The payments raise several questions: First, this money is coming out of the pockets of shareholders allocation of firm profits. Why not issue a special dividend to shareholders with the cash. The answer has to be in a need to keep good employees. Are Goldman's employees that good? Second, the money is coming out of revenue that seems excessive. Does Goldman's investment bank make super-competitive returns in, say, underwriting fees. I have long wondered by Wall Street can charge a 7 percent underwriting fee on all major stock offerings. Customary underwriting syndication, with the blessing of the SEC, may retard fee competition.
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