With just over three weeks to go until the end of the year, some Goldman Sachs employees are becoming fretful. This year's bonus pool has the potential to be one of the worst in years.
Goldman doesn't comment on the size of its bonus pool and won't make a final decision about it until a few weeks' time. However, the external signs are not good. In the first nine months of 2019, the compensation bill at the firm fell 11% even as headcount increased 4%. It doesn't have the makings of a bumper year.
This hasn't gone unnoticed by Goldman insiders who are already receiving 'cautious guidance' on 2019's payouts. Some are nervous that even top performers will be paid down, particularly - it seems - in the mid-ranks.
Goldman announces its bonuses in early January, just before its full year and fourth quarter results, and (this year at least) before its coming investor day on January 29 when it's due to reiterate its intention of becoming a 'platform'-based business able to generate increased revenues at minimal additional marginal cost.
While the platform plan might be a good idea in the long term, however, in the short term it means heavy upfront investment for little immediate return. In the first nine months of this year, Goldman spent $450m on organic 'platform' projects like Marcus, Apple Card and transaction banking, resulting in a 60 basis point drag on its return on equity. As a result, Goldman's prized RoE was down to single digits at 9% in the third quarter. The return on equity at JPMorgan's corporate and investment bank was 13% in the same period.
In public, Goldman has been putting a brave face on the coming pay round. In October, CFO Stephen Scherr said the firm's philosophy remains that it pays for performance. This might sound reassuring - except that revenues for every division but M&A advisory fell year-on-year in the first nine months of 2019.
At least one Goldman insider says the concerns about 2019 pay are overdone. "It's like this every year," he says. "This is just the normal sentiment at this time." Another says the message in fixed income is that it will be very differentiated: "They're going to look after the performers."
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