Goldman boosts returns to shareholders through layoffs

Wed Jan 16, 2013 12:38pm EST
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By Lauren Tara LaCapra

(Reuters) - Goldman Sachs Group Inc paid a smaller portion of its revenue to employees in 2012 as it laid off staff, signaling that management at the top Wall Street bank may be listening to shareholders demanding higher returns.

The investment bank and asset manager said fourth-quarter earnings nearly tripled as it set aside less of its revenue for pay and earned more from trading. For the full year, employees were paid just 37.9 percent of the bank's revenue, the second-lowest proportion since Goldman went public in 1999.

"Quite simply, we don't look to overpay anybody," said Harvey Schwartz, a Goldman Sachs trading executive who will become the bank's chief financial officer at the end of this month.

Even if a smaller share of revenue went to employees, Goldman Sachs managed to increase average employee pay last year because it laid off staff and took in more revenue. In other words, the bank's employees were more productive, but much of the benefit went to shareholders.

Analysts said other banks are likely to feel pressure to keep their compensation expenses in check after Goldman's results. But for Morgan Stanley, the second-biggest stand-alone U.S. investment bank, cutting costs aggressively could be tough because analysts believe its revenue fell last year.

Goldman missed the worst pitfalls of the financial crisis but has suffered public relations embarrassments from trades it executed during the crisis and comments from executives afterward. The bank is struggling to figure out how to navigate the post-crisis world, in which clients trade less and regulations crimp profits in many businesses.

With many banks facing the same problems, analysts expect layoffs across Wall Street. Morgan Stanley plans 1,600 job cuts in 2013, while Goldman cut 900 jobs in 2012, equal to about 3 percent of its work force.

Goldman posted fourth-quarter earnings of $2.8 billion, or $5.60 per share, up from $978 million, or $1.84 per share, in the same period a year ago.   Continued...

Traders work on the floor of the New York Stock Exchange near the Goldman Sachs stall July 16, 2010. REUTERS/Brendan McDermid