Goldman Sachs warns traders of shrinking bonus pool as Wall Street hunkers down

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David Solomon, chief executive officer of Goldman Sachs, speaks during the Milken Institute Global Conference in Beverly Hills, April 29, 2019.
Patrick T. Fallon | Bloomberg | Getty Images

Goldman Sachs traders and salespeople will have to contend with a bonus pool that’s at least 10% smaller than last year, despite producing more revenue this year, according to people with knowledge of the situation.

That’s because the New York-based bank is dealing with a slowdown across most of its other businesses, especially investment banking and asset management, areas that have been hit by surging interest rates and falling valuations this year.

Goldman began informing executives in its markets division this week to expect a smaller bonus pool for 2022, according to the people, who declined to be identified speaking about compensation matters. The figure will be cut by a “low double-digit percentage,” Bloomberg reported, although pay discussions will be ongoing through early next year and could change, the people said.

Wall Street is grappling with sharp declines in investment banking revenue after parts of the industry involved in taking companies public, raising funds and issuing stocks and bonds seized up this year. Goldman was first to announce companywide layoffs in September, and since then Citigroup, Barclays and others have laid off staff deemed to be underperformers. JPMorgan Chase will use selective end-of-year cuts, attrition and smaller bonuses, and this week Morgan Stanley CEO James Gorman told Reuters that he planned to make “modest” cuts in operations around the world.

Despite the tough environment, trading has been a bright spot for Goldman. Geopolitical turmoil and central banks’ moves to fight inflation led to higher activity in currencies, sovereign bonds and commodities, and the bank’s fixed-income personnel took advantage of those opportunities.

Revenue in the markets division rose 14% in the first nine months of the year compared with the same period in 2021, while the company’s overall revenue fell 21%, thanks to large declines in investment banking and asset management results. Accordingly, the amount of money the bank set aside for compensation and benefits also fell by 21%, to $11.48 billion through Sept 30.

“We always tell people their bonus is based on how they did, how their group did, and finally how the company did,” said a person with knowledge of the company’s processes. “This year, some of the good money traders made will have to go fund the other parts of the bonus pool.”

Employees should know that big banks including Goldman try to smooth out compensation volatility, meaning that valued workers contending with a slow environment may get better bonuses than the revenue figures would suggest, and vice versa, according to this person.

A Goldman spokeswoman declined to comment on the bank’s compensation plans.

While the overall size of bonus pools will be shrinking everywhere, individual performers may see more or less than they earned in 2021 as managers seek to reward employees they want to retain while signaling to others that they should pack their bags.

The decrease in the bonus pool comes off a strong year for both trading and investment banking in 2021. In retrospect, that was probably the last gasp of a low interest rate era that encouraged companies to go public, issue securities and borrow money.

The need for job cuts and smaller bonuses on Wall Street became clear by mid-year, when a hoped-for revival in capital markets failed to materialize.

Investment bankers are likely to face the deepest pay cuts, with those involved in underwriting securities facing drops of up to 45%, according to industry consultants.

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