Call it the Goldman Sachs Diet. Trim away the highest priced under-performing executives and name fewer partners.
That's right, folks. Now, it’s the higher-ups getting the pink slips. Case in point: Goldman reportedly axed 50 bankers, many of them highly paid managing directors. Around the same time, they announced they were naming fewer partners this year.
We are in an environment where some banks require executives to “annually produce $20 million in revenue” just to be promoted to managing director—and that’s become a more difficult feat, says veteran New York recruiter Richard Lipstein.
Goldman Sachs increased its compensation and reduced bonuses so that managing directors were making base salaries as large as half a million a year, says Lipstein, not to mention annual bonuses that climb into the seven figures. That can spell trouble when you’re a senior executive specializing in an area where there hasn't been much activity of late—such as equity capital markets—and you can’t make your quotas, Lipstein tells eFinancialCareers.
“Everyone was talking about how the equity IPO business was going to grow, but as with Facebook, even the hot IPOs have not been as hot as expected,” Lipstein says. Thus, even though Goldman is “one of the best managed firms on Wall Street,” he opines—one where the culture has held steady and staffers “have grown up together”—the company is looking to rightsize itself in a changing Wall Street environment.
In announcing the Goldman layoffs, Dealbook reported the cutbacks have "rattled some people in the firm, in part because a number of the employees were managing directors and on the higher end of Goldman’s pay scale.”
Bloomberg observes that Goldman is making the reported staff cuts as its earnings dwindle. Goldman is expected to earn $2.29 a share in the second quarter, according to the average estimate of 25 analysts surveyed by Bloomberg. That’s a decline of 42 percent from the preceding three-month period.
Edward Najarian, an analyst at International Strategy & Investment Group LLC, lowered his estimate for Goldman Sachs’s second quarter earnings per share to $1 from $2 because he expects the firm’s revenue to drop 41 percent from the first quarter to $5.8 billion, according to a June 3rd research note.
Goldman appointed 261 people to managing director last year, according to an internal memo obtained by Bloomberg. “That was a decline of 19 percent from a year earlier, when a record 321 people were promoted to that level,” the news service stated.
Goldman employed 32,400 people at the end of March, down from 35,400 a year earlier, according to the company’s most recent quarterly earnings report.
The New York Observer quipped that with Goldman Sachs managing directors earning so much in salary and bonuses—and with some losing them to layoffs, “Greg Smith’s seven-figure [book deal] advance may be looking better and better.”