Capital wins over labor at Goldman

January 25, 2010

2009 was the year when stocks and unemployment both rose substantially: the ultra-loose monetary policies being followed by central banks around the world seemed to help capital more than they did labor. That’s good for banks in general, and for Goldman Sachs in particular, which makes its money from markets rather than from lending.

But Goldman’s executives seem to have realized the implication here: that the banks own employees would be foolish to leave right now, even if they’re paid much less than they might have had reason to expect. Last week we learned that their compensation would be just 36% of total revenues; today, we’re told that partners (but not necessarily top traders) in London are having their bonuses capped at £1 million.

I’m sure they’re unhappy about this: after all, Deutsche Bank made an early decision that any pain from the UK bonus tax would be shared across the organization, rather than being concentrated on senior executives in London. It was probably reasonable to assume that the one-for-all-and-all-for-one culture of Goldman Sachs would take the same path, but no: you can be sure that partners everywhere else in the world are going to make significantly more than their London counterparts.

There might be an element of nod-and-a-wink here, with the top brass at Goldman telling the London partners privately that they can expect an outsize bonus for 2010, once the tax is out of the way. But what’s obvious is that Goldman doesn’t particularly feel that it’s competing for talent with other banks this year — at least not at the partner level. If you’ve got a good career at Goldman Sachs, you’re better of eating one year’s reduced bonus than you are jumping shop to somewhere with a much less certain future.

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