Goldman staff may get a lot less than they're expecting

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As you're undoubtedly aware, the compensation accrued by Goldman Sachs for the first half of the year suggests that, all things being equal during the second half, the average employee will end 2009 rich beyond some of his/her less moderate dreams.

However, Rochdale Research analyst Dick Bove has a warning for Goldman bankers who are salivating at the prospect of this year's compensation: it may be illusory.

According to Bove, Goldman often does this. Accruing compensation in the first two quarters is simply an accounting device:

Personnel expenses are a different matter. They were up a massive 47% year over year and 41% sequentially. The increase may reflect a change in company profit performance. It may represent a new ability to pay people now that the TARP preferreds are gone. Or, it may be that Goldman uses this expense line to manage earnings.

While the company disagrees strongly with this last view, I believe just as strongly that it is true. Every year, Goldman in the seasonally strong quarters, dramatically over estimates its compensation expenses. Then in the fourth quarter, it slashes those expenses as it presumably adjusts the category for mistakes made in estimating earlier in the year. This year is no different. Fourth quarter compensation expenses could easily drop by $2 billion.

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