Where are the shareholders' bonuses?

While your mind still reverberates with the tens of millions of dollars paid to some of Wall Street's top guns for 2006, consider some contrasting numbers: the paltry dividends the five biggest New York-based securities firms pay their shareholders.

Goldman Sachs Group Inc, which gave Chief Executive Officer Lloyd Blankfein a bonus of $53.4 million for the past year, pays its shareholders an annual dividend amounting to a yield of just 0.7 percent on Goldman's stock price.

In the year ended November 24, the company earned an industry record $9.5 billion, or $19.69 a share. Of that per-share figure, the company's owners are getting just $1.40 a share in annual dividends.

Morgan Stanley, whose CEO, John Mack, got a $40 million bonus for 2006, allows its stockholders a dividend yield of 1.3 percent princely compared with what Goldman Sachs pays, miserly compared with payouts elsewhere.

The average yield on 87 stocks in Standard & Poor's 500 Financials Index, which includes shares of banks and insurers along with those of investment firms, is 2.4 percent.

The yield on shares in the S&P 500 Index, a benchmark for the whole stock market, is 1.8 percent. Yields on other Wall Street stocks: Merrill Lynch & Co, 1.1 percent; Bear Stearns Cos 0.8 percent; Lehman Brothers Holdings Inc 0.6 percent.

This isn't another jeremiad against excessive executive pay.

Bleating by journalists seems only to lead to more abuses.

The point is that shareholders are being treated shabbily as CEOs get paid extravagantly.

The owners may not complain about low dividend yields because booming profit from trading and takeover fees boosted their share prices last year.

For the big firms in the past 12 months, total return stock appreciation plus dividends ranged from 23 percent for Lehman Brothers to 57 percent for Goldman Sachs.

Shareholders could benefit from their market gains by selling some of their stock. Still, why make them sell and reduce their call on future profit? Why not simply put more money in their pockets by paying higher dividends?

Wall Street firms could easily double their payouts. Goldman Sachs now pays about $650 million in annual dividends.

A doubled payment of $1.3 billion would be just 14 percent of fiscal 2006 profit.

Fairly divided

The companies would still have plenty of cash to invest in their businesses and pay their employees. There's even a case to be made that the stockholders should get some of the money that executives and other employees have been getting. The firms still pay as if they were the partnerships they once were, rather than shareholder-owned enterprises.

Goldman, Morgan Stanley and the others will argue that higher dividend rates might not be sustainable if, say, blown trading strategies in 2007 send profits tumbling.

They can avoid this by keeping quarterly dividends low and paying healthy extra dividends at the end of good years.

This is the same policy the companies use for paying executives.

Wouldn't it be nice if the shareholders could fatten up, too?

David Pauly is a Bloomberg News columnist. The opinions expressed are his own.

(China Daily 01/04/2007 page16)