Goldman Sachs is slashing pay as it pursues an automation agenda

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Goldman Sachs is slashing pay as it pursues an automation agenda

It's not just JPMorgan. Goldman Sachs is also trimming pay. Today's first quarter results for the bank suggest that pay per head for Goldman's 35,900 employees was down nearly 24% in the first three months of 2019.

Goldman spent $91k per employee in compensation costs in the first quarter of this year. This compared to $119k per head in the first quarter of 2018.

Goldman added employees whilst cutting compensation spending in Q1. Total compensation spending at the firm declined from $4.1bn in the first quarter of 2018 to $3.3bn in the first quarter of 2019, while headcount rose from 34,000 to 35,900 people.

The decline in pay per head at Goldman came during a difficult three months for the bank. As the chart below shows, Goldman's revenues fell significantly in percentage terms across equity capital markets (ECM), debt capital markets (DCM), equities sales and trading, and fixed income currencies and commodities (FICC) sales and trading.  M&A was the clear bright spot. CEO David Solomon said there was a "muted start to the year" with low levels of client activity and volatility, which were not helped by the U.S. government shutdown, U.S.-China trade disputes, and Brexit issues. 

With revenues under pressure, Goldman is finishing its front to back performance review. However, the firm said today that it doesn't intend to unveil its 'comprehensive strategic update' until the first quarter of 2020. When it does, it's promising a reappraisal of its fixed income currencies and commodities trading business to reflect a new focus on, "low touch client engagement around systematic market makers."

In the meantime, Goldman plans to spend this year shifting a huge 7,500 people from operations and engineering into 'the business.' CEO David Solomon says this reflects the increasing importance of technology and operations professionals to the "value chain."  Goldman also plans to spend 2019 pursuing its previously articulated strategy of growing its Marcus retail banking business, chasing corporate customers, investing in its low touch electronic trading platforms, growing its prime services business with hedge funds, and 'optimizing resource consumption.'

With engineers becoming ever more important at Goldman, it's likely that big hiring of technolgists, particularly at Goldman's low cost Indian technology hub in Bengalore - was one reason for the increase in staff and concomitant fall in pay in the past three months. After all, technologists still earn less than salespeople and traders. 

Alternatively, Goldman might argue that first quarter compensation at the firm is simply reverting to the norm after an abnormally generous start to 2018. - In 2017, Goldman also spent $3.3bn on compensation in Q1, but back then the firm had 1,800 fewer staff...

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