Goldman curbs bankers' compensation even as revenue surges

Fri Oct 17, 2014 9:10am EDT
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By Lauren Tara LaCapra

NEW YORK (Reuters) - Top Goldman Sachs Group Inc (GS.N: Quote) executives are determined to keep compensation costs under control. And that means even when the bank's revenue spikes higher, bankers' bonuses won't.

On Thursday, Goldman reported a 25 percent increase in quarterly revenue, but the money it set aside for compensation and benefits rose only 18 percent from the same period a year earlier. The amount of money it has set aside for compensation is more or less unchanged, as is the average compensation per employee, at around $320,000 for the first nine months of the year.

Sources familiar with the matter inside Goldman Sachs described the restraint as a sign of the shifting mentality about bonuses at the bank: it wants to tightly control compensation, even if it has good quarters with big revenue gains. That translates to bigger profits for the bank, and more money for shareholders.

Compensation experts say similar changes are happening across Wall Street.

Morgan Stanley (MS.N: Quote), which is Goldman's chief investment banking rival, has set a maximum target for compensation as a percentage of revenue in each of its business lines. Its progress in curbing compensation may be a key part of its third-quarter results, which are due out on Friday.

"There is a desire to share more with shareholders, and that means holding the line on compensation expense," said Rose Marie Orens, a pay consultant for financial firms at Compensation Advisory Partners. "Just because revenue is up 20 percent, that doesn't mean bonuses will necessarily be up 20 percent."

It wasn't always that way. In the third quarter of 2007, for example, when the financial crisis was in its preliminary stages, Goldman Sachs's revenue rose 63 percent from the same quarter a year earlier. But its compensation expense rose 67 percent.

The bank has taken myriad steps to cut compensation costs. It has let dozens of high-earning partners walk out the door to make room for more junior employees who earn less. It has also moved as many jobs as it can to cities like Bangalore in India, and Salt Lake City and Dallas in the U.S, where wages are lower than in places like New York or London.   Continued...

A Goldman Sachs sign is seen above the floor of the New York Stock Exchange shortly after the opening bell in the Manhattan borough of New York January 24, 2014.  REUTERS/Lucas Jackson