Bloomberg News

Goldman Sachs Compensation Expense Drops 21% Amid Job Reductions

January 25, 2012

Jan. 18 (Bloomberg) -- Goldman Sachs Group Inc., the New York-based bank that eliminated 2,400 jobs last year, reduced its compensation and benefits expense 21 percent to $12.2 billion in 2011 as revenue slid 26 percent.

The expense for salary, bonuses and benefits, the company’s biggest cost, was enough to provide $367,057 to each of its 33,300 employees. That’s down from $430,700 for each of the 35,700 workers at the end of 2010, according to data provided today in the firm’s fourth-quarter earnings statement.

Goldman Sachs, which set a record for securities-firm pay in 2007, reduced compensation for the third year in a row after earnings skidded and protesters denounced Wall Street bonuses. JPMorgan Chase & Co., the biggest and most profitable U.S. bank, reported last week that it lowered pay at its investment bank 9 percent in 2011, enough to pay each worker an average $341,552.

“Unless conditions really improve dramatically -- which I think is unlikely -- you’re going to see a long period of restrained wages, which we view favorably as shareholders,” William Fitzpatrick, a Milwaukee-based financial-services analyst at Manulife Asset Management, said before the results were released.

“The flip side is the risk that you start losing some personnel, particularly to the hedge-fund industry,” said Fitzpatrick, whose team oversees $800 million, including stock in Goldman Sachs.

About 50 partners, the most senior rank at Goldman Sachs, left in the past year, including trading co-heads Edward K. Eisler, 42, and David B. Heller, 44, according to internal memos, company filings and news reports. Eisler and Heller will be senior directors, non-employees who advise the firm.

Compensation, Revenue

Goldman Sachs compensation rose to 42.4 percent of revenue in 2011 from 40.5 percent in 2010, which included a U.K. tax on bonuses. The fourth-quarter compensation expense declined 2 percent to $2.21 billion from $2.25 billion a year earlier, excluding an adjustment related to the U.K. tax. Pay accounted for 36.5 percent of revenue in the quarter.

Morgan Stanley, scheduled to report fourth-quarter earnings tomorrow, is capping immediate cash bonuses at $125,000 and won’t pay cash bonuses to members of the operating committee, a person briefed on the plans said this week. That will increase the average amount of pay deferred into future years to 75 percent from 60 percent in 2010, said the person, who declined to be identified because the plan isn’t public.

Equity Compensation

“They are using equity to compensate their employees and that’s a good thing, so if the companies do well, the employees will do well, and we have no problem with that,” Charles Bobrinskoy, the Chicago-based vice chairman and director of research at Ariel Investments LLC, said before the earnings release.

Bobrinskoy, whose company manages $5 billion including stock in both Goldman Sachs and Morgan Stanley, said the pay reductions were needed.

“This industry has probably been overcompensated for a long period of time and so we’re getting some appropriate adjustment in compensation, particularly given the new levels of profitability,” he said.

The average compensation figures, which don’t represent individual workers’ actual pay, are derived by dividing the compensation pool by the number of employees.

--Editors: Dan Reichl, Rick Green

To contact the reporters on this story: Christine Harper in New York at charper@bloomberg.net; Michael J. Moore in New York at mmoore55@bloomberg.net

To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net; David Scheer at dscheer@bloomberg.net


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