Someone is going to get paid at Goldman Sachs this year. The firm announced its fourth quarter results today, and they reveal a 33% increase in compensation spending during 2021. Headcount rose 8% to 43,900, and the average Goldman Sachs employee saw his/her pay rise from $329k to $404k for the year. The only trouble is there's no such thing as average.
Goldman announces its bonuses tomorrow. Staff at the bank now have 24 hours to second guess how 2021's record spending on compensation and big bonus pool will be distributed. The fear is that people in the investment banking division (IBD), working in M&A, equity capital markets, and debt capital markets, will get the lion's share.
As the charts below show, Goldman's fixed income and equities traders ended the year on a bum note. In fixed income sales and trading, revenues were down both year-on-year and quarter-on-quarter in the final three months, thanks to the poor performance of rates and credit traders. In equities trading, revenues were down by 32% in Q4 compared to Q3, even though they were up for the year as a whole.
By comparison, Goldman's investment bankers had an exceptional 2021 and are beginning 2022 with an unusually robust pipeline of new deals driven by pandemic-inspired restructuring, which will make the firm disinclined to do anything to upset them. This is particularly the case in debt capital markets (DCM) and M&A.
The upshot is that as Goldman looks to distribute its bumper compensation spending - some of which has already been depleted by the addition of 3,400 extra people, its salespeople and traders are likely to find themselves at the back of the queue. - All the more so because Goldman's fixed income traders were very paid well for 2020.
The risk of disappointment is starting to hit home. "We're expecting to get trounced," says one trader at Goldman Sachs in New York. "Most of it is going to IBD. I guess we'll know tomorrow."
Goldman CEO David Solomon said today that the firm is committed to paying for performance and that he wants to thank everyone for their hard work. CFO Denis Coleman said compensation fell by 200 basis points as a proportion of revenues in 2021 to the lowest amount in history as the firm looked to keep a lid on costs while paying well compared to its competitors. Separately, Solomon predicted that COVID will soon become endemic, and that Goldman staff will soon be able to return to the office as a result.
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