Financial Services

Goldman wrestles with itself over higher pay for junior bankers

Investment banks have historically avoided significant inflation in fixed salaries

Employees enter the Manhattan headquarters of Goldman Sachs.

Stephen Morris and Joshua Franklin
Mon Jul 12 2021 - 16:22

Goldman Sachs executives are wrestling with the question of whether they need to bump up salaries for junior investment bankers this year to match rivals on Wall Street after younger staff complained they were burnt out.

Some senior executives have argued that boosting salaries mid-year would set a “dangerous precedent” and mark a break with the bank’s “pay for performance” mantra, according to sources..

Investment banks have historically avoided significant inflation in fixed salaries, which are harder to reduce in fallow periods. Instead, they tend to reward staff with bonuses that can vary dramatically from year to year depending on the performance of individuals and banks overall.

Nevertheless, several US banks have recently boosted guaranteed base pay for first-year investment banking analysts, including Citigroup, which last week offered an increase of much as $25,000 (€21,000) to take fixed salaries to $100,000 a year.

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JPMorgan Chase and Barclays also lifted comparable salaries to $100,000 from $85,000 at the end of June, while Bank of America and Wells Fargo both gave their first-year intake a $10,000 raise earlier in the year.

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That has left Goldman Sachs as one of the last remaining holdouts on Wall Street, setting off an internal debate about the right course of action.

“We should not participate in this game of moving salaries up and down every few months,” said one person involved in the discussions. “If you behave like that you simply end up with mercenaries. We pay at the end of the year for performance.”

Goldman’s first-year analysts and associates already earn less than is typical in the industry, according to Wall Street Oasis. First-year analysts at the bank on average earn just under $86,000 in salary plus a $37,500 bonus, lagging the Wall Street average of $91,400 and $39,700, respectively.

Some executives are concerned that Goldman risks losing some of its most promising juniors if it cannot match the likes of JPMorgan Chase, let alone tech companies including Apple and Google.

Goldman declined to comment.

Investment banking co-heads James Esposito and Dan Dees have recently discussed the issue on a series of divisional conference calls. They have told staff they are monitoring salary moves by rivals and are aware of the long hours that employees worked during the pandemic, when financial markets were exceptionally busy.

The pay year for Goldman’s first-year analysts and associates runs until the end of July and they are set to find out what their pay packets are in August.

Mr Esposito and Mr Dees promised that younger staff would be generously rewarded to reflect the bank’s surging earnings. However, they have not yet addressed the salary issue, making the bank one of the last lenders to arrive at a decision along with Morgan Stanley.

The bank is keen to ensure that its emphasis on performance-linked compensation is maintained with any pay increase.

“We are still thinking through the split of the base and bonus,” said another soutce.

“We are looking at what peers have done, not just in investment banking but in other industries. The war for talent is more fierce than ever before.”

Salaries

Staff have been told to look at what the bank describes as their overall “per annum total compensation” or “PATC” instead of simply comparing base salaries to those paid to peers.

The issue of burnout among younger employees has become a particular focus at Goldman, after a group of first-year investment banking analysts spoke out about the effect of punishing hours on their mental health.

David Solomon, Goldman chief executive, has also set the lender apart by taking a strong stance against flexible arrangements when offices fully reopen. He has called working from home "an aberration that we're going to correct as soon as possible".

Citigroup and UBS have said they would adopt hybrid back to work models while Goldman executives, along with their counterparts at Morgan Stanley and JPMorgan, have been more vocal about the importance of employees being in the office.

“Goldman does not want to hire people for whom the most important thing is how many days they have to spend in the office,” one senior manager said. “The others can have them.” – Copyright The Financial Times Limited 2021

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