Goldman Sachs: Getting a Piece of the Action

Reuters has calculated that the average salary for nearly 30,000 employees of Goldman Sachs (GS) this year will be $1 million.

NEW YORK, July 14 (Reuters) - The average Goldman Sachs Group Inc (GS) employee is within striking distance of $1 million in compensation and benefits this year, just nine months after the bank received a $10 billion U.S. government bailout.

The figure will likely fuel criticism of the politically connected bank, especially amind the widening recession and rising unemployment. In addition to the bailout, Wall Street's biggest surviving securities firm also benefited from several other government schemes during the depths of last year's financial crisis.

Goldman on Tuesday said money set aside for pay surged 75 percent in the second quarter. Compensation and benefits costs were $6.65 billion, up 47 percent from the equivalent quarter in 2008.

Given a 16 percent reduction in staff from last year, to 29,400, the bank set aside an average $226,156 per employee in the second quarter, up from $129,200 in a year ago.

If the quarterly figure is annualized, it comes to $904,624 per employee.

Just a few other pertinent factors to consider:

1. The stock has tripled since late last year.
2. Bullish forecasters are calling for it to surpass its historic high above $250 per share within a year or so.
3. Goldman's access and influence within the US Administration is without equal.
4. Goldman envy is rife amongst finance professionals, no matter how much they protest about its privileged position.
5. Hatred of Government Sachs is rife in the blogosphere.
6. Goldman can make more in a nano-second than most people would earn in several lifetimes.
7. All asset classes are traded by the firm and they can flip from being long to short (or both) and back faster than it took the folks at Bear and Lehman to clean out their desks.
8. It is hard to imagine a scenario in which Goldman wouldn't survive a financial Armageddon but where its principal client, the US Treasury, would.
9. If you believe in buy and hold, and like to buy dips, this seems like the right place to be looking when the baby's being thrown out with the bathwater.
10. Warren Buffett is extraordinarily enthusiastic about the company.

It's hard to resist the conclusion that if you can't beat them then you simply have to join them. Not literally of course, you wouldn't be invited to unless you're exceedingly smart, because, as the alumni will attest, they only hire the very brightest people on the planet.
But one can of course get a piece of the action by hitching a ride with the stock.
So, even if the thought of making a million dollars this year seems like a remote fantasy a program of gradual and judicious accumulation seems like a no-brainer.

It is reassuring that there still is some wisdom behind that old fashioned idea which encourages the public to participate in equity markets. Who knows, one day the smart folks at Goldman will probably figure out how to do a reverse takeover of the global financial system, and for those who bought the stock while it was still cheap, that could really add sizzle to their retirement plans.

Disclosure: No position

Comments

[Pax Americana]

I have just read the 2nd qtr Transcript, and your Article amongst 3 others and still feel i am merely scratching the surface of this
Bzyantine Mastodon, apparently thier politically connected, and Meredith has given her stamp of Approval ," for now at least" but for the next couple of Qtrs consistency of earning will be the order of the day.

2009 Jul 15 06:04 AM

[Living4Dividends]

Great article - thanks for bringing this to our attention.

hmm, let's do the math.
Average quarterly bonus is up 226K-129K=97K. Average yearly bonus is up 388,000 per employee.

$10 billion U.S. government bailout.
30,000 employees
= $333,000 per employee.

Now I know where the bailout money is going !!

2009 Jul 15 06:05 AM

[cynewulf]

the government gave Goldman Sachs 13 billion dollars as part of the bailout of A.I.G., (if you choose to call it a bailout) . Instead they could have used all the money to buy pieces of the companies that benetited from over a hundred billion pumped into A.I.G. The taxpayers would rather own a piece of Goldman ,Deutche bank, U.B.S., U,S.B. BAC,etc. then A.I.G. which is worthless and hence not "bailed out". This is simply the largest theft in the history of the world. It is of no interest to our politicians, who will do it to us again. Even Bush might not have been stupid enough to give the money to A.I.G. RATHER THEN BUY INTO THE COUNTERPARTIES WITH IT. Well as Obama said "It's time for a change". I just wish the change hadn't involved massive theft from the taxpayers.

2009 Jul 15 09:18 AM

[john s. gordon]

it sure does pay to be a politically well-connected bank.
> jack

2009 Jul 15 09:27 AM

[bricki]

Goldy has paid back the TARP money. It's the stuff coming in from AIG they are getting fat on.


On Jul 15 06:05 AM Living4Dividends wrote:

> Great article - thanks for bringing this to our attention.
>
> hmm, let's do the math.
> Average quarterly bonus is up 226K-129K=97K. Average yearly bonus
> is up 388,000 per employee.
>
> $10 billion U.S. government bailout.
> 30,000 employees
> = $333,000 per employee.
>
> Now I know where the bailout money is going !!

2009 Jul 15 09:35 AM

[bricki]

One of the things it would be nice to know is how this money is being distributed.

I am sure the receptionists, IT guys in the server rooms, carpenters remodeling offices and travel agents engaged in critical stuff like arranging gold/spa junkets and other peons er I mean people who actually do work aren't getting a million per.

The bulk of it has to be going to the cream skimmers at the top and into the bribe er I mean political contribution funds to kick back some of the action to the Congress and various political appointees with leverage.

2009 Jul 15 09:43 AM

[John Lounsbury]

If Goldman was profiting in parallel with the rest of the economy, it could be justifiable profit. That does not appear to be the case. Similar to Ross Perot's great sucking sound of the 1990s (referring to jobs leaving the U.S. and going to Mexico), we have a new sucking sound, the sound of money going out of the real economy and going into the financial sector. This has been going on for over a decade and the biggest syphon has been (and continues to be) Goldman Sachs.

Actually, Ross Perot was wrong. Mexico didn't benefit (it would have been better for the U.S. if it had), but the jobs went mostly to Asia. But he was right about the sucking sound. And the new sucking sound is just as real. You might say, this situation sucks.

2009 Jul 15 11:21 AM

[dcb]

You Da man John!!!!!
Lets keep the pressue up. it look slike the public is starting to catch on, and it is easy to see the organized troops running out over the airways to tell us what great and good wonderful things goldman does. That means if we are lucky we are starting to have an effect.
Maybe One day before I die I'll actually see an amecian goverment work for the people instead of against it!!


On Jul 15 11:21 AM John Lounsbury wrote:

> If Goldman was profiting in parallel with the rest of the economy,
> it could be justifiable profit. That does not appear to be the case.
> Similar to Ross Perot's great sucking sound of the 1990s (referring
> to jobs leaving the U.S. and going to Mexico), we have a new sucking
> sound, the sound of money going out of the real economy and going
> into the financial sector. This has been going on for over a decade
> and the biggest syphon has been (and continues to be) Goldman Sachs.
>
>
> Actually, Ross Perot was wrong. Mexico didn't benefit (it would have
> been better for the U.S. if it had), but the jobs went mostly to
> Asia. But he was right about the sucking sound. And the new sucking
> sound is just as real. You might say, this situation sucks.

2009 Jul 15 06:00 PM

[Clive Corcoran]

Just for follow up David Viniar, Goldman's CFO is quoted, as follows after criticisms made about the bonanza bonuses to be paid out:
“We know it. We see it. We don’t like it. We believe we are doing good things. We have a pay-for-performance culture. As you saw in 08, if we don’t perform well, compensation goes down, and if we do, we reward people appropriately.”

This is the same man who in the near meltdown of 08, attributed the poor performance to the fact that they were seeing "25 sigma events, several days in a row."

As another commentator has observed the remark shows "such manifest ignorance as to be laughable" To paraphrase (from Naked Capitalism) a single 25 sigma event would require the universe to be a lot older than it actually is..."To say it happened not once, but repeatedly, it tantamount to an admission that the models were rubbish. But Viniar said it with a straight face, apparently unaware of what he was really conveying."

Re JohnL - it is the application of VaR and extreme risk models that are grounded in probabilities based on this kind of sigma approach that really sucks. While they continue to be used by quant wizards we will have learned nothing from it all.

2009 Jul 16 04:54 AM