Goldman’s analysts, now more like everyone else
The WSJ’s Liz Rappaport and Julie Steinberg have the news that Goldman Sachs is dramatically changing its analyst program. The move is the result of a longstanding trend: fewer and fewer analysts in the investment banking and asset management divisions are staying at the firm past their initial two-year committment, and analysts are making exit plans earlier and earlier.
Since the 1980’s, Goldman has hired undergraduates on two-year contracts, with analysts paid a base salary plus bonuses for those two years. Analysts get fairly continuous feedback from colleagues and participate in Goldman’s fabled 360-degree review program throughout that time, so they have a good understanding of what their career trajectory (at least in the short term) looks like at Goldman. It’s only with six months to go into their two-year commitment that analysts are allowed to begin looking for jobs outside GS or apply to grad school. At the same time, they can also look for other roles internally. Alternatively, if they want to stay in their role, they can make it clear that they want to stay and, if their manager approves, stay on as a third-year analyst.
The expectation from Goldman is that analysts will spend one and a half years with their heads down, working extremely hard, and then, with six months to go, start thinking about what to do next, while continuing to work extremely hard. Every so often, during the first 18 months, Goldman can start dropping strong hints that it would be better for all concerned if the analyst started looking for opportunities elsewhere. But generally, that takes major misbehavior or serious lack of fit.
The problem is that in the investment banking and asset management divisions, recruiters from private equity firms and hedge funds have been contacting analysts earlier and earlier into their time at Goldman. This is less of an issue in the securities (sales and trading) and research divisions. The skills learned by analysts in the banking and investing divisions are extremely valuable, and are directly applicable to entry-level roles at PE firms and hedge funds. That’s less the case for analysts in the securities (where full, disclosure, I spent my first two of five years at Goldman) and research divisions .
So the analyst program is staying largely unchanged in securities and research. Over in investment banking and asset management, however, analysts will now look much more like the rest of their colleagues — employment is year to year. Or month to month and week to week, depending on how you want to look at it. Goldman was clearly fed up with analysts spending less than a year at the firm, using that experience as a launching pad to a job somewhere else, all while collecting the luxury of another year’s comp.