Goldman Sachs, the Wall Street bank, today bowed to public pressure and slashed pay and bonuses for its staff after reporting a $13.4 billion (£8.2 billion) annual net profit in one of the most difficult years ever for the financial sector.
The bank put aside almost $16.2 billion to pay its 32,500 workers for 2009 - equal to average pay per person of $498,246.
It is a far cry from the $661,490 that Goldman Sachs employees earned on average in 2007, a bumper year that saw the bank put aside a record $20.2 billion in compensation.
The bank’s 2009 allocation was equivalent to 35.8 per cent of net revenue, which is a measure used by investors to decide whether pay levels are appropriate. This year’s level is the lowest-ever proportion of revenue set aside by Goldman Sachs.
Banks usually put aside about 50 per cent of net revenue as compensation. Yesterday Morgan Stanley, Goldman Sach’s closest rival, revealed that it was using 62 per cent of its net revenues for 2009 to pay its workers.
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Morgan Stanley, which will inform workers of their individual bonuses this week, made a $907 million net loss last year. Its compensation pool rose from $11 billion in 2008 to $14.4 billion last year but a 36 per cent staff increase meant that average payouts for the bank’s 61,388 workers dropped about $9,000 to $235,000.
On Monday, Citigroup hived off $24.9 billion to pay its 265,000 workers, equivalent to $94,290 each.
Goldman Sachs’ allocation is the lowest in the bank’s history as a public company, far below than the 48 per cent it allocated last year – an indication that the bank has been influenced by outcry from lawmakers and taxpayers who resented bankers being paid bumper pay so soon after Wall Street received handouts from the Government to survive.
At $45.1 billion, annual net revenues were just 2 per cent lower than 2007, the bank’s record earning year and up from $22 billion in the last financial year. In mid-2008 Goldman Sachs had appeared on track to top 2007’s chart-topping compensation pool.
The bank is not expected to tell staff the size of their individual bonuses until next week.
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Early in 2009, Goldman Sachs had taken a defiant tone on compensation, citing the bank’s outstanding results as a justification for outsize pay. But later in the year, as attacks on the bank grew, Goldman Sachs was more conciliatory.
David Viniar, the finance director of Goldman Sachs, said today that the decision to cut compensation had been influenced by public sentiment. “We’re not blind to the pain and suffering still going on around the world and we’re not deaf to the calls for restraint,” he said. “We heard them.”
The bank put aside no money for compensation in the fourth quarter and took $519 million out of its compensation pool in the final three months of the year, which it put into Goldman Sachs Gives, its charitable fund.
Mr Viniar said that $500 million of the $519 million was money that would otherwise have gone to the bank’s partners as compensation.
Mr Viniar declined to comment in detail on the bank’s response to Britain’s bonus tax, other than to say that the company had showed “restraint” when allocating money to the compensation pool. He appeared to imply that the bank had spread the cost of the tax across workers around the world rather than specifically reducing UK workers’ pay.
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“What we attempted to do is be fair to our people and fair to shareholders,” he said. “We tried to treat people fairly across the board.” Mr Viniar added that he was unable to predict whether the bank would keep its pay-to-net-revenue ratio lower than historical levels. He said that there was a risk the bank would lose employees to rivals because it had cut pay.
Mr Viniar declined to comment on President Obama’s move to curb proprietary trading for large US banks such as Goldman Sachs. He said, however, that the bank was not thinking about giving up the bank holding company status - effectively reverting to its previous existence as an investment bank - that it took on in 2008 in order to access discount funds from the Federal Reserve.
Goldman Sachs repaid its $10 billion bailout last year and paid the US Government $1.1 billion, above the market rate, to repurchase warrants issued at the time of the bailout.
Today the bank reported profits for the year had risen from $2.3 billion to $13.3 billion, before the cost of paying almost $1.2 billion in preferred stock dividends to shareholders that included the US Government.