Today’s Goldman Sachs earning reports provides a valuable lesson on how things really work inside Wall Street’s largest investment houses. Goldman Sachs had an awful three months, losing $428 million in the third quarter of 2011, and yet it continued to shovel billions into the bonus pool it will share with its employees at year’s end.
Through the first nine months of 2011, Goldman set aside $10 billion in its compensation fund. If Goldman’s 30,000 employees split that bounty evenly, that would work out to $333,000 per person—plus the billions more Goldman will no doubt set aside in the last few months of the year.
Of course, the receptionist inside Goldman Sachs doesn't receive the same pay as all those analysts and other midlevel suits making salaries of $400,000 a year or more. Moreover, chieftains like Goldman CEO Lloyd Blankfein, who received $13 million in compensation last year, won’t have to share their year-end bonuses with as many people as last year. The bank laid off 1,300 employees in the third quarter of the year and plans on jettisoning another 1,000-plus jobs in the coming months.
Still, there are no doubt plenty of frowns inside Goldman today. For one thing, this was only the second time the investment bank has reported a quarterly loss since going public in 1999. For another, though this year promises to be a fat one, it won’t be as rich as 2010.
That $10 billion lags last year’s bonus pool—by 24 percent. But then the company’s profits per share through the first nine months of the year were down more than 70 percent compared with 2010—and Goldman's stock since the start of the year has fallen by 43 percent.
But that’s the beauty of working at a major investment bank. Performance doesn’t matter nearly as much as just showing up. Goldman booked $13 billion in pre-tax profits in 2010—a steep drop from the $20 billion the bank booked in 2009. Despite a precipitous drop in profits between 2009 and 2010 and a stock stuck in neutral throughout the year, the Goldman board of directors raised Blankfein’s base salary to $2 million, up from $600,000, and showered an extra $13 million in stock grants on Blankfein and his executive team.
Not bad for the executives of a bank forced to pay a $550 million fine after being accused by the SEC of duping its clients by selling them shares of a mortgage-backed security they allowed a hedge firm to secretly hand-pick. Still, this is hardly like the fat and happy subprime-mortgage days, when Goldman was buying toxic subprime mortgages and selling them to unsuspecting clients. In 2007, the year before the economic collapse, Blankfein made $68 million in stock and bonus money.
Is it any wonder the Occupy Wall Street crowd might think there’s something rotten about the system?