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Why does Goldman pay so much?

Despite allegations that we talk too much about Goldman Sachs (and following a request from a reader), here’s why Goldman is so generous.

1. It makes more money. Net revenues per head in 2006 were $1.4m (725k). This compared to $678k at Lehman Brothers, for example. At 43.7% as a proportion of revenues, compensation costs were lower than at most other banks on the Street (shareholders are not being fleeced).

2. It works on bigger deals. According to Dealogic, the average M&A deal involving Goldman in 2006 was worth $2.9bn. This compared to $2.6bn at Morgan Stanley, $2.5bn at Merrill Lynch and $2.1bn at Credit Suisse. Bigger deals mean bigger fees: last year, Goldman earned 35% more in M&A fees than Morgan Stanley, its nearest rival.

3. It does more trading and risks more of its own capital. Trading and principal investments accounted for a massive 74% of total first-quarter revenues at Goldman Sachs this year. Profitable traders are expensive beasts, but they can generate plenty of profits for their employers.

And if you don’t believe us, here’s what the experts say:

“They are smart, well-connected risk takers,” affirms Dave Hendler, an analyst at independent research firm Creditsights. “They pay more, simply because they make more. And as a trading house, they get results quicker than houses that focus on M&A deals, which are a slower process and can take months to close.”

“Goldman pay more because they’re involved in more profitable activities,” says Dick Bove, an analyst at Punk Ziegel & Co. “At Goldman there are a lot of traders on some pretty big packages. At Merrill Lynch there are 15,000 people involved in selling stocks and a whole bunch of support people working for them earning $50k to $60k a year.

“Goldman works on bigger deals, does more deals, and has a bigger fee base,” he adds.

Comments (33)

  1. I want to work for Goldman Sachs!!

  2. The lack of comments reflects the lack of interest in Goldman Sachs for most eFinancialCareers readers. Everyone knows they are the premier investment bank to work for – in terms of prestige and pay, as you outline. So, those that can, are already working there or trying to move there (they don’t need to be told again unless you feel their egos need further inflation). Those that can’t or did before and have left/been asked to leave are trying to move up the ladder elsewhere. Less articles on Goldman Sachs and more career articles would be useful. Its almost like someone regularly talking about and asking why Harvard is the ‘best’ university in the world or Coca-Cola the ‘best’ Coke in the world. The point has been made and its now best to move on eFinancialCareers!

  3. He has a point, too much talk on Goldmans. I work there it’s nothing special unless you’re in the front office, back office is like anywhere else- dull and relatively poorly paid. if you would like further advice email me guys but I can’t get you internships.

    Mike Harding (chief officer of Goldman Sachs) Reply
  4. I would like to work in G&S to trade FX markets and fixed income.

  5. Goldman Sachs, even though it proves to be the leader at main financial centers, at the emerging markets is considered a really slow-moving bulky organization which cannot react to the market risks in emerging markets.

    It is often more preferred to work for the local competitor (like Troika-Dialog, Renaissance Capital in Russia) which is fast-moving goal-oriented organization providing real interesting challenges for its employees rather that such companies as Goldman Sachs or Merrill Lynch, who look like they came just to take the cream off the market.

    Maybe they are paying you more and maybe they look much nicer on your CV, but at the end of the day you get more satisfaction from interesting, challenging workday rather from a few extra bucks in your pocket.

    The annual bonus is russian investment houses reaches 75-100K , which is pretty ok from my point of view :)

    Vladimir Skliar Reply
  6. IMO, its even simpler: less people do the same job, just compare the staff figures vs. others and their revenues.

    Chief Executive Intern Reply
  7. What these articles neglect to mention is that back office staff get paid below market rates. The logic being that they should be grateful for working at GS. If they look elsewhere at say a 2nd tier bank they will see others doing the same job but paid more.

  8. It’s a good article as it allows one to ascertain the sustainibility of GS pay packages, given pressures on other I-Banks to lower cost.

    Personally I like the workculture of the IB I work for and hate long hours and highly political culture at GS. But then also I want GS brand name in my CV (but for no longer than 2 years).

  9. Anon: This is very true. GS pays far below industry standards in terms of back office and actually pays less than its peers except for at partner level.

  10. The problem is not wether you want to work for GS but whether GS wants you as a worker. I guess they have managed to gather the best practitioners in the industry. It’s gearing good employees with a strong franchise and an effective structure.

  11. Goldman has proven to be the leader and market maker in many financial environments in the last few years of economic expansion. I would be very curious to see what will happen in a recession…

  12. Why is Tiger Woods ranked no 1 in the world?
    – because he wins more tournaments.
    – because he plays the tournaments with the highest purses and the most points.
    – because he gets the ball in the hole with the fewest strokes.

    All true, just like the above article on Goldman, but it is missing the whole point, and that is – What do they do to become so good and dominant? Training, culture, reward structure, recruiting, market approach, branding, etc – that is what makes a difference. Please do not break down the result and present the fact pieces of the outcome as insightful analysis.

    Yes, Goldman is good, they pay their stars well and they do big deals. If you have some insight about what they do to become so good, write it, if not, please don’t repeat the same story again.

    My opinion only.

    Reality Checker Reply
  13. Goldmans do pay well but they work their staff pretty hard. I think it would be more interesting to look at net revenue per hour per employee

    Andy M

  14. The article is not insightful at all.

    1. When comparing trading revenues one should look at Revenue per $ of VaR – Goldman is not the top bank by this measure.

    2. Big deals do not necessarily result in big fees. Big deals tend to be very competitive and involve many banks working together – not so lucrative. The sweet spot deals tend to be mid sized.

    3. Taking more risk does not mean that the bank is a superstar – Goldman’s global alpha fund has been posting poor performance over the past couple of years and recently JP Morgan surpassed Goldman in terms AUM.

    No doubt Goldman is the best i-bank on the street and is a leader in many areas. But not the least for the reasons stated by the author.

    Instead of writing articles on how good GS is it will be useful if the author writes about how to get a job with this glorious bank.

  15. Fantastic Investment bank in the world

  16. The best bank, by a mile, and the object of envy of many.

  17. They just hire the children and relatives of industry leaders and political leaders and watch the deals roll in. Not because they are good but because they are connected. It’s bribery based on nepotism… great formula really.

  18. agree with Reality Checker

  19. Goldman pay well because they are under-resourced. Each person does two jobs and works twice as many hours. Therefore – they get paid twice as much. Rather sad…

  20. This may not be important or significant to many of you, but the other thing to consider is how happy (or not) they all are. I worked there for 6 years and can tell you that much of the high performance comes from desperation to impress – high achievers who lose sight of all other aspects of their lives (e.g. families or social lives) in order to gain the approval of the GS hierarchy. Some very good people, but be careful what you wish for.

    anonymous – previous employee Reply
  21. I totally agree with Vladimir Skliar…GS, MS and all the rest are not at all dynamic organizations – yes people at the very top level are well paid….but if you are an Associate, working like a mad cow and keen on learning something, the very big names are not the right place to be.

    Small agressive investment banks in Russia or the Middle East are in my opinion an alternative.

  22. For me I have no preference for GS.I only need the necessary experience required to build a career in the financial world……..so any good investment bank will do.

  23. People, we are all looking for challenging and rewarding careers. It is more important to focus on what your career means to you, as opposed to an obsession with one name and the immense desperation to have that one name on your CV.

  24. You want to work for GS? You have good grades and 3-5 years of work experience? Work on your GMAT and get an MBA ideally at Harvard/Wharton/Columbia.

    Nepotism? That’s McKinsey!

    Great pay? Not at an associate level: work 20% more hours get 20% higher bonus.

    But remember that the bonus depends on the performance of the bank…

    So the 1M$ question becomes: is GS competitive advantage sustainable?

  25. Strangely all the comments convey the money driven aspirations that investment banking potrays….GS or other..although it can make a difference its not a quarantee of inner happiness. Being a working mum the pressures of balances young children and work takes a toll on family life and not seeing family. Its been a hard price to pay…..so all the long hours and potential bonus added with the political wrangling to gain favors are headache enough.

    I’d like to hear comments from other females out there balancing work and family.

    NK – working mum Reply
  26. The grass always looks greener on the other side. Looking at all these comments, the ones with the greatest insight are those which reflect the simple truth: there is a select group of people at the top of the tree who are being paid the mega-bucks, most are being paid about market rate, while support are being paid less. I know. I used to work there.

  27. Yes GS is a great organisation and looks fantastic on any CV, but they have you by the neck as it were. They pay well in certain areas or if you have spent some years at the bank and are quite senior.

    Otherwise it’s blood, sweat and tears for pay that’s nothing to rave about. I worked there for a few years and found the pay rather poor, the hours demanding and the appreciation rather low. People stay there because of the glamour factor of working for GS..nothing more..and GS know it.

    I’ve since moved, am on much better pay and much happier for it. Bottom line..great company but it’s not the be all and end all. Get it on your CV then go cash in elsewhere!

  28. What is the average pay for people in risk technology at GS? Heard a lot of them have Ph.Ds.

  29. That’s a pretty obvious comment that required much less of a rant than this – stay away from Ops unless that’s really what you want to do forever. I think that’s true across most banks that once you’re in Ops, sadly you stay in Ops – lots of people think it’s a leg into the main banking business but it’s not.

    front office all the way Reply
  30. Having worked there for 5 years I can honestly say it is one of the most souless places to work. Riddled by politics and a 12 hour day culture, most people working there never saw their kids except at weekends and even then it might have been for one day. Well paid but no life.

  31. I worked in the Private wealth div and experienced first hand the amount of money being paid to certain individuals. However none of it ever filtered onto our desk. I worked 12 hour days for a dept with totally inept managers, very inexperienced co workers (but who were well connected) and did so for 3 years until I realised that the status of being able to say I worked for GS no longer compared to having a life. Fantastic to have on your CV but dont believe all you read in the press

  32. My Husband works in GS

  33. i really would like to know the average pay for a GS trader. say on entry level and for a trader with two years work experience.

    Thanks. BR.

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