Shareholder sues Goldman Sachs over excessive pay

WILMINGTON, Del. Thu Jan 21, 2010 11:28am EST

WILMINGTON, Del. Jan 21 (Reuters) - A shareholder sued Goldman Sachs Group Inc's (GS.N) board for excessive bonuses and wants bank executives to pay the $500 million in charitable donations that Goldman is making after being criticized for its compensation policy.

Goldman Sachs bonuses substantially exceed what competitors pay "even though, on a risk-adjusted basis, Goldman's officers and managers have performed over the past several years in a manner that is, at best, only average," the lawsuit says.

The Southeastern Pennsylvania Transportation Authority (SEPTA), which runs public transit in the Philadelphia area, filed the lawsuit on Wednesday in Delaware's Chancery Court.

SEPTA said Goldman has been allocating nearly half of its revenues to staff bonuses even though the company's performance has been less a benefit of management skill than risks it has taken with investors capital.

"Goldman's employees are unreasonably overpaid for the management functions that they undertake, and shareholders are vastly underpaid for the risks taken with their equity," it said.

The lawsuit is entirely without merit, a Goldman spokesman said.

Goldman Sachs released its earnings report on Thursday and dramatically changed course on pay by setting aside nothing for compensation in the fourth quarter. That helped the company report better earnings than analysts had forecast.

The company said it would give $500 million to charity, in part to improve its public image. The SEPTA suit demanded that Goldman's board make company management pay any charitable contributions that are intended to apologize for its compensation.

Large bonuses and the government's $700 billion bailout of banks have outraged many Americans who are struggling with double-digit unemployment. Several groups planned to protest against Wall Street excess outside Goldman Sachs offices.

Members of Congress have proposed taxing bonuses paid by banks that received government bailout money, which includes Goldman Sachs. SEPTA's suit demanded such a tax be paid by Goldman Sachs managers, not shareholders.

The case is Southeastern Pennsylvania Transportation Authority derivatively on behalf of the Goldman Sachs Group Inc v Lloyd C. Blankfein et al, Court of Chancery, State of Delaware, No. 5216. (Reporting by Tom Hals; additional reporting by Steve Eder in New York. Editing by Robert MacMillan)