2009 Goldman Sachs bonus: $700,000/employee

[Stefan Zota]

Exactly, and my point is that Goldman's 31,000 employees include security guards, janitors, car service employees, food service, mail room employees and more. That leaves plenty of money for the average analyst, let alone MD.

Not true. Most items you are refering are corporate services. Only a very small piece is handled by GS employees, most of them are contracted to other companies.
GS will focus resources where they are best. There are no bank-tellers, no branch personnel like other commercial banks.

I can guarantee that for any number x<31,000, the following statement is true:

"The x highest paid employees at Goldman Sachs earned more than the x highest paid employees at Pfizer."

(Pfizer has a much higher headcount.)

Depends on the value of x. If x is 20,000, you cannot make that statement.

Also, you are missing one important point: how do you know the money is not deserved?
Perhaps a developer at GS works much more than one at Pfizer. In fact, GS is known to be a pretty intense place in core areas including Technology, so you won't find many 9-5 people. There is no overtime income except possible end-of-year bonus.

It's not a fallacy. You're correct in saying that the media may not have a stake in these companies, but it was ultimately decisions that they made ten years ago that is now making this public information. Had they remained a private partnership, the media would not be able to report this compensation, and in fact, likely have no idea what bonuses actually were. If GS had remained a partnership, they'd be able to hand out ten times as much and nobody in media would be the wiser.

100 years ago, the media wouldn't have cared because GS would have been a partnership.

There is no problem to make overall numbers public, but who decides what is outrageous? As far as I am aware, legally, only stakeholders have the right to approve/disapprove the budget. Is the media suddenly owning GS?
From a public economical perspective, would it make sense to ave more focus on high losses companies receiving TARP?
Morally it is an endless debate.

Well, again, I think the real question is whether Goldman's move, in this economic and regulatory environment, is good for anyone who receives a bonus- including their employees in the long run.

If it is not good for GS, they will suffer first. If possibility of high bonus leads to bad decisions, then company will lose huge capital within days. However, by some "coincidence" it hasn't happened so far for GS, but it did for most other competitors.

Some combination of them and the smarty-pants off in Washington is creating negative externalities for everyone on this forum. I ultimately can't blame the politicians because they're predictably foolish. But GS should know better. Up until this point, I've been annoyed about the compensation hearings in Washington, but I now believe Blankenfein deserves to get called before the House Financial Services Committee and be grilled about his bonus. He's just as short-sighted as the bozos who will be doing the grilling.

If the Dems remain in power, the economy remains weak, and the public remains stricken by class envy and anger over egregious bonuses, everyone will look back on this moment in a few years and wonder, "What the heck was GS thinking"?

A hearing by definition requires some decision power. If the group of people (e.g. Financial Services Committee) can change a specific CEO or they can impose a policy, then it makes sense to "interrogate".
However there isn't such right with GS/JP Morgan etc. They can invite high execs to give an opinion to ask for some information.

What you are saying is: I am annoyed by some people receiving bonus, so let me call my representative to teach those guys a lesson.
Welcome to a socialist state

 

[bigbadwolf]

However, what Standard Oil and Mr. Rockefeller didn't have to contend with was the mainstream media. Imagine if this was happening today.

It was muck-raking journalism that was instrumental in anti-trust legislation at the time (which included the fracturing of the Standard Oil empire). Furthermore, anti-rich sentiment -- probably fueled by critical journalism -- is probably what galvanised J.D. Rockefeller to part with hundreds of millions of dollars. Today's media -- owned by a handful of corporate giants -- is far tamer.

The absence of the MSM was the reason that Britain was able to torch Dresden and Hamburg in WW2, and why the U.S. was able to nuke Japan--twice.

Why are you wasting bandwidth to make such silly statements? If today's media had been present (sorry, "embedded") with Allied forces, they'd have been cheerleaders with regard to Dresden and Nagasaki (the same way they've been in Iraq). The mass media of today is just another branch of the government. You seem to be laboring under the delusion that mass media acts as critical oversight over government policy. It does not. Its primary function is obfuscation and disinformation. Furthermore, even if the occasional morsel does get out (usually through channels like Al-Jazeera), do you think that changes policy an iota? Unarmed US drones are killing civilians in Pakistan every day -- this is common knowledge. Do you think this is changing US policy?

 

[GoIllini]

Depends on the value of x. If x is 20,000, you cannot make that statement.

Of course I can, because the average compensation of the top 20K Pfizer employees is below $700K, but we know the average compensation of the top 20K GS employees is above $700K.

Also, you are missing one important point: how do you know the money is not deserved?
Perhaps a developer at GS works much more than one at Pfizer. In fact, GS is known to be a pretty intense place in core areas including Technology, so you won't find many 9-5 people. There is no overtime income except possible end-of-year bonus.

The question isn't whether it's deserved- the question is whether the public thinks they deserve it. Goldman's decision not only lowers the public's perception of them, but also of me and everyone else in the financial industry.

If it is not good for GS, they will suffer first. If possibility of high bonus leads to bad decisions, then company will lose huge capital within days. However, by some "coincidence" it hasn't happened so far for GS, but it did for most other competitors.

Not necessarily true. CC: Negative externalities.

Some combination of GS and the DC politicians present a negative externality for everyone else on the street.

A hearing by definition requires some decision power. If the group of people (e.g. Financial Services Committee) can change a specific CEO or they can impose a policy, then it makes sense to "interrogate".
However there isn't such right with GS/JP Morgan etc. They can invite high execs to give an opinion to ask for some information.

Again, Congress has the power of subpoena in any investigation. Congress can decide to investigate Major League Baseball and "invite" (AKA require) players suspected of being on steroids to testify.

What you are saying is: I am annoyed by some people receiving bonus, so let me call my representative to teach those guys a lesson.
Welcome to a socialist state

I'm not doing that, but other people are. And GS is accelerating the process of our country turning socialist.

Best thing to do is act like the capitalists of the 1910s-1970s; realize that capitalism doesn't exist for capitalism's sake but because it creates value for everyone in society. The day that the majority of the country's capital stops getting why we're still capitalist and what they need to make sure capitalism does for society is the day that we start becoming socialist.

Maybe that day has already come- maybe as much as 25-30 years ago. Oh well.

 

[IlyaKEightSix]

Well, so long as we have Silicon Valley, and the budding green energy fields essentially recycling all of the laid-off auto employees, there'll still be capitalism. It'll just be in California.

That said, for those who are IEORs, there's not much for us there.

As for people voting to get bonuses taxed or whatnot, that'd be shooting our own financial system in the foot. No matter what the little people want, there are always unintended consequences. If you make life hard for bankers in the US, then they'll go overseas and that's tax revenue that the US will not receive, and that'll be that.

 

[Stefan Zota]

Of course I can, because the average compensation of the top 20K Pfizer employees is below $700K, but we know the average compensation of the top 20K GS employees is above $700K.

Perhaps I wasn't clear. If you take all employees from both companies, add bonus and base salary, sort them, you cannot say that gs[20000] >> pf[20000]
This is all that matters for many employees.

The question isn't whether it's deserved- the question is whether the public thinks they deserve it. Goldman's decision not only lowers the public's perception of them, but also of me and everyone else in the financial industry.

The public can be easily manipulated. In times of stress, easiest thing is to point fingers. We are rational individuals here, so I have given you a rational argument.
Other than that, anyone can have a personal preference for a company or another.

Not necessarily true. CC: Negative externalities.

Some combination of GS and the DC politicians present a negative externality for everyone else on the street.

Statement is valid considering rest of the market. If you make significant part of capital by trading, other companies have large losses, I would say that risk management is not bad. If you just toss a coin and bet 200 million a day, do you think you will always win?

Again, Congress has the power of subpoena in any investigation. Congress can decide to investigate Major League Baseball and "invite" (AKA require) players suspected of being on steroids to testify.

If somebody would sue GS for high bonuses with a solid legal foundation, then I agree with you. However I am not aware of any such event. Total compensation is public, it is chosen by board validated by shareholders. What is law broken?

I'm not doing that, but other people are. And GS is accelerating the process of our country turning socialist.

Let's follow the logic. Statement: A successful company in a capitalist system is leading everybody to socialism. So rest of the companies don't want to earn more capital and enter in a competition. They just want to get the profit distributed equally.
What am I missing here? In other words, perhaps Exxon or PetroChina are encouraging communism too. They have large profits every year, they can give any bonuses they want.

Best thing to do is act like the capitalists of the 1910s-1970s; realize that capitalism doesn't exist for capitalism's sake but because it creates value for everyone in society. The day that the majority of the country's capital stops getting why we're still capitalist and what they need to make sure capitalism does for society is the day that we start becoming socialist.
Maybe that day has already come- maybe as much as 25-30 years ago. Oh well

So the next step is that US capitalism doesn't generate any value for society. It allows these companies to make any profit and give out any compensations. Then, by all means, you can move to another country, preferrably a communist/socialist one.
Choose any of them and take an average person level of life. If you see people live better on the average in that country, then by all means, use the same system.
At the moment, people live on the average much worse in socialist system.

So you can be starving and happy that everyone else is starving or you can have have something to eat, a car but be angry that others are being compensated. Your choice ...

 

[GoIllini]

Well, so long as we have Silicon Valley, and the budding green energy fields essentially recycling all of the laid-off auto employees, there'll still be capitalism. It'll just be in California.

That said, for those who are IEORs, there's not much for us there.

As for people voting to get bonuses taxed or whatnot, that'd be shooting our own financial system in the foot. No matter what the little people want, there are always unintended consequences. If you make life hard for bankers in the US, then they'll go overseas and that's tax revenue that the US will not receive, and that'll be that.

If the last year has shown us anything, the only difference between the financial workers and "the little people" is luck and maybe a little preparation. Let's not be so disparaging.

It's absolutely true that too much regulation will scare hedge funds overseas, but would you feel comfortable letting a firm based in the Cayman Islands or Iceland be a major counterparty to you? What happens if they default, like half the banks were getting ready to do last year? A US bank now has the implicit help from the federal government for the next few years- something the Caymans can't offer (even if the USD is weak, the Cayman Islands certainly can't bail out a megabank.)

 

[bigbadwolf]

I'm not doing that, but other people are. And GS is accelerating the process of our country turning socialist.

If I got a cent for every time someone misuses the word "socialist," I would be a billionaire. What you are referring to is "oligopoly," or in the words of American theorists Baran and Sweezy, "monopoly capital." There has been a fusion of state power and oligopolistic financial power so that profits remain private while costs get socialised. Heads the bankers win (at the public's expense), and tails, the public coughs up. This isn't "socialism." But so bankrupt and uninformed is the common disucssion in the USA, it's a waste of time even trying to explain what socialism is or is not.

Best thing to do is act like the capitalists of the 1910s-1970s; realize that capitalism doesn't exist for capitalism's sake but because it creates value for everyone in society. The day that the majority of the country's capital stops getting why we're still capitalist and what they need to make sure capitalism does for society is the day that we start becoming socialist.

You are uninformed of the processes that shaped American society during the period you refer to. "Enlightened" capitalism does not exist. In the period you refer to there were powerful countervailing forces. The name of the game is simply to accumulate as much capital as fast as possible. There are no social or other considerations. There is no imaginary social metric that businessmen employ to see what social or other "value" they are creating. They would be just as happy to have their profits by contributing nothing to society. There's only one objective: profit. Indeed, if one looks at tobacco manufacturers, weapons manufacturers, etc. it becomes clear nothing positive is coming out. And on a side note, many of these sectors are happy to get state subsidies, state contracts, to keep their profits high. Or if takes keeping plant idle or throwing men off work or shifting work to places with no health and safety standards, they will do it happily. If it takes circumventing pollution controls, no problem (who needs the biosphere anyway?). If it means planned obsolescence (as was the case for Detroit's cars before foreign competition), fine. In none of this is there any social metric. Best leave such discussion to the fictional world of Ayn Rand.

 

[GoIllini]

If I got a cent for every time someone misuses the word "socialist," I would be a billionaire. What you are referring to is "oligopoly," or in the words of American theorists Baran and Sweezy, "monopoly capital." There has been a fusion of state power and oligopolistic financial power so that profits remain private while costs get socialised. Heads the bankers win (at the public's expense), and tails, the public coughs up. This isn't "socialism." But so bankrupt and uninformed is the common disucssion in the USA, it's a waste of time even trying to explain what socialism is or is not.

Not really. GS doesn't want the country to be socialist, but they are making the process go faster. GS is increasing class envy and making the rest of the country want to take us socialist. IMHO, if a country goes socialist, it's not the fault of the stupid politicians or middle class; it's the fault of the capitalists who should have known better. Capitalism is a system that's supposed to be good for society. If it's not, that's our fault and we deserve to have socialism foisted on us.

You are uninformed of the processes that shaped American society during the period you refer to. "Enlightened" capitalism does not exist. In the period you refer to there were powerful countervailing forces. The name of the game is simply to accumulate as much capital as fast as possible. There are no social or other considerations. There is no imaginary social metric that businessmen employ to see what social or other "value" they are creating. They would be just as happy to have their profits by contributing nothing to society. There's only one objective: profit. Indeed, if one looks at tobacco manufacturers, weapons manufacturers, etc. it becomes clear nothing positive is coming out. And on a side note, many of these sectors are happy to get state subsidies, state contracts, to keep their profits high. Or if takes keeping plant idle or throwing men off work or shifting work to places with no health and safety standards, they will do it happily. If it takes circumventing pollution controls, no problem (who needs the biosphere anyway?). If it means planned obsolescence (as was the case for Detroit's cars before foreign competition), fine. In none of this is there any social metric. Best leave such discussion to the fictional world of Ayn Rand.

Well, also Adam Smith. Do you believe "The Wealth of Nations" is a work of fiction?

 

[Adam]

Capitalism is a system that's supposed to be good for society.

Marxism is another system that's supposed to be good for society. At least, that's what Marxists will tell you. In fact, I can't think of any system ever invented that wasn't "supposed" to be good for society. But then, I'm sure we're all familiar with the desination of the road paved with good intentions.

Rather than judging capitalism (or socialism, or whatever-ism) by its intentions, judge it by its actions. Who cares what capitalism is "supposed" to do? What has it actually done? If the pain it has caused is greater than the benefit it has given us, why not let it evolve into something better, just as we did mercantilism, feudalism, and all the other late, departed -isms of the past?

 

[GoIllini]

Marxism is another system that's supposed to be good for society. At least, that's what Marxists will tell you. In fact, I can't think of any system ever invented that wasn't "supposed" to be good for society. But then, I'm sure we're all familiar with the desination of the road paved with good intentions.

And my whole point is that when society stops believing a certain system is good, they switch to a different system. CC: Russia, 1991. CC: Russia, 1917. CC: Europe and Japan, 1960s.

Rather than judging capitalism (or socialism, or whatever-ism) by its intentions, judge it by its actions. Who cares what capitalism is "supposed" to do? What has it actually done? If the pain it has caused is greater than the benefit it has given us, why not let it evolve into something better, just as we did mercantilism, feudalism, and all the other late, departed -isms of the past?

Nobody here is judging anything by anything. What people fail to understand is that the average voter doesn't have 30 credit hours of econ under his belt. The members of my family who work in factories, at Wal Mart, and other places see these bonuses and get angry, rightly or wrongly. It leads them, rightly or wrongly, to believe that capitalism is a broken system.

And my question isn't whether Goldman Sachs' employees deserve those bonuses (I believe they ultimately do.) The question is whether Goldman Sachs is helping us keep our capitalist system by making the public angry.

Oh well.

 

[bigbadwolf]

Marxism is another system that's supposed to be good for society. At least, that's what Marxists will tell you. In fact, I can't think of any system ever invented that wasn't "supposed" to be good for society. But then, I'm sure we're all familiar with the destination of the road paved with good intentions.

Rather than judging capitalism (or socialism, or whatever-ism) by its intentions, judge it by its actions. Who cares what capitalism is "supposed" to do? What has it actually done? If the pain it has caused is greater than the benefit it has given us, why not let it evolve into something better, just as we did mercantilism, feudalism, and all the other late, departed -isms of the past?

Well said. An additional point is few people bother to define capitalism. If one does succeed in eliciting anything, it's some fumbling words about free markets and individual initiative and risk taking. But it's clear that capitalism as a reality and system has kept morphing over the years. The mercantile capitalism of the 17th and 18th centuries morphed into the industrial capitalism of the 19th century, which morphed into the oligopolistic (or "monopoly capital") version in the 20th century, which in turn has morphed into contemporary finance capitalism. So when people define capitalism, it's usually as a vague and fanciful notion of what they think capitalism should be, rather than the complex social and political reality that it is.

 

[IlyaKEightSix]

And my whole point is that when society stops believing a certain system is good, they switch to a different system. CC: Russia, 1991. CC: Russia, 1917. CC: Europe and Japan, 1960s.


Nobody here is judging anything by anything. What people fail to understand is that the average voter doesn't have 30 credit hours of econ under his belt. The members of my family who work in factories, at Wal Mart, and other places see these bonuses and get angry, rightly or wrongly. It leads them, rightly or wrongly, to believe that capitalism is a broken system.

And my question isn't whether Goldman Sachs' employees deserve those bonuses (I believe they ultimately do.) The question is whether Goldman Sachs is helping us keep our capitalist system by making the public angry.

Oh well.

And I believe that there is the key problem.

I don't want to bring politics into this, but in every presidential election, you will see that the democratic candidate will always win the northeast (Ivy Leagues and most of the best engineering universities are here aside from U. Austin and Georgia Tech), the great lakes (Illinois institute of technology, U. Madison Wisconsin, U. Chicago, etc...), and the west coast (CalTech, Stanford, UC Berkeley)

Also, Jon Corzine, former Co-CEO of Goldman Sachs, is unabashedly democratic. (Guess who's getting my vote come Nov. 3rd?)

Notice a pattern here?

Is it Goldman's bonuses...

Or is it the power of stupid people in large groups?

See, this is the thing...I don't think it has anything to do with the fact that it's Goldman Sachs necessarily handing out $700,000 bonuses. For instance, if Google handed out $700,000 bonuses (and odds are, their employees, when you consider all perks and benefits and stock options and all, get paid extremely well), you'd probably have the same people clamoring as well.

It isn't the bankers that these people are angry with.

It's anyone who has more than them.

They're simply jealous. It's not that they have a problem with the Goldmanites getting $700,000...it's that someone is getting $700,000, and they're not!

But of course, it'd be political suicide for anybody to tell a horde of people that this is how things work and to suck it up.

 

[iddqd]

For instance, if Google handed out $700,000 bonuses (and odds are, their employees, when you consider all perks and benefits and stock options and all, get paid extremely well), you'd probably have the same people clamoring as well.

It isn't the bankers that these people are angry with.

It's anyone who has more than them.

They're simply jealous. It's not that they have a problem with the Goldmanites getting $700,000...it's that someone is getting $700,000, and they're not!

Come on, seriously? This sounds like it was written by Rush Limbaugh. The average person (in the US, anyway) has used Google or gmail, and appreciates their products. Not to mention they give away most of their services for free.

On the other hand, the average person doesn't have an appreciation for abstract concepts like "efficient allocation of capital" or "provision of liquidity". On top of that I can't remember the last time the government had to step in to keep Google from potentially failing.

It's not always about jealousy.

 

[IlyaKEightSix]

Wrong. Goldman didn't receive the money to keep from failing. Goldman was forced to take the TARP money to keep banks like Citi, BofA, and Merrill from failing. Why? Because the Wall Street CEOs knew that taking government money would put them in the headlights. However, if the strong banks didn't take the TARP money, then only the weak ones would have needed it, and that would have literally caused a run on those banks, and we would have had a major catastrophe. Remember that Goldman made out like bandits during the whole subprime collapse. What killed Lehman and Bear was what Goldman took the other side of.

Goldman was in no special danger of failing a la Lehman or Bear or Merrill or Citi or BofA. Clearly, if the entire financial system failed, then that would have been a massive problem, but Goldman for its own specific reasons? No.

And yes, a lot of people have used Google or GMail. But that's not what's at issue here. The issue, as GoIllini has said, is that Goldman happened to be in the headlights of doing extremely well in less than stellar times, and rewarded its em ployees proportionally. After all, there's a reason that Google hires only the best--not everyone understands everything Google does. It's that GS is our current societal scapegoat for "evil people because they're doing well, we're not, and they're not sharing the wealth".

Never mind that Google provides every single benefit on Earth to its employees short of buying them cars and homes.

It's just that the mainstream media and all the NYT articles and whatnot are saying "HEY LOOK, $700,000 BONUSES AT GOLDMAN!" Well, really, what do you expect to happen when someone says "look at who's doing well in tough times!"? You could have replaced Goldman with any company that's doing well and paying their employees some exorbitant sum.

It's just that rather than give you just about everything you want physically the way Google does, Wall Street hands out a check at the end of the year and says "have fun".

As for efficient allocation of capital and provision of liquidity, the cursory concepts are easy enough to understand. In my mind, ignorance has no right to be a defense. And if congress tries to pander to the ignorant masses, then our country has a massive problem.

 

[iddqd]

And yes, a lot of people have used Google or GMail. But that's not what's at issue here

But that is the issue here, at least with the argument you were trying to make. People don't care what Google employees get paid because they provide a tangible service that the average person understands and benefits from. People (for the most part) don't hate Google. They aren't seen as a bunch of government-backed angleshooters, which is the perception with so many financial services companies lately.

 

[Adam]

It isn't the bankers that these people are angry with.

It's anyone who has more than them.

They're simply jealous. It's not that they have a problem with the Goldmanites getting $700,000...it's that someone is getting $700,000, and they're not!

That's right. It could be anyone at all. This explains why people are rioting in the streets protesting the millions of dollars Tom Hanks gets per picture. America is jealous that Tom Hanks makes a lot of money and they don't. America hates Tom Hanks.

 

[GoIllini]

It isn't the bankers that these people are angry with.

It's anyone who has more than them.

They're simply jealous. It's not that they have a problem with the Goldmanites getting $700,000...it's that someone is getting $700,000, and they're not!

But of course, it'd be political suicide for anybody to tell a horde of people that this is how things work and to suck it up.

What's your point and why is this unnatural or a problem for society?

It's human nature, a product of evolution, and successful people need to learn to work around it rather than gripe about the things they can't change. (CC: the process that made you successful.)

The best way to work around it is to stay humble and demonstrate your value to society by more than just producing and making sure you get compensated for it. And that gets back to my original point- GS would be wise to donate a substantial (lower two-digit percentage) portion of the bonuses to charity.

As for efficient allocation of capital and provision of liquidity, the cursory concepts are easy enough to understand. In my mind, ignorance has no right to be a defense. And if congress tries to pander to the ignorant masses, then our country has a massive problem.

Well, again, that's only what's in your mind (and my mind- when I am feeling less pragmatic). In reality, as history demonstrates, "Might makes right."

The federal government is the most powerful entity in the world and it is ultimately controlled by 200 million potentially very angry voters. At the end of the day, you might be right, but if you don't have the power to enforce the fact that you're right on someone who is ignorant, you're stuck. Unfortunately, GS's ignorance of this fact is going to cause difficulty for everyone else in the financial sector.

 

[Sonass]

The information is not true. Some of the employees who have put in their best efforts were denied bonus. This company's work culture & assessment method have put a question mark while deciding the performances. I have seen, some of my colleagues, who have put in their best efforts & were really worked hard on their projects but just because of internal politics & non competent project managers, there efforts were neglected. Can you imagine, how these people would have felt when some of these colleagues were denied their deserved rewards & recognition. Even top management executives neglected their grievances.Some of the colleagues have left & who are still here are really demoralized. People, talks a lot about this company's name & work culture but the reality is far different.

 

[ThinkDifferent]

700K is nonsense. it is clearly not even close to the median.

i can tell you how much, say, quant strategists get as a bonus. It is around 100% base. if you did really well, you'd get something like 110%-125% of your base. And base salaries for quants are not exactly steep at GS. Say, associate with 2-3 years experience would have about 70K GBP as a base.

that's the picture with exact figures for relatively junior (associate-VP) quants.

 

[IlyaKEightSix]

When you have a distribution as left skewed as salaries are (most people make peanuts, a few take the whole kit and kaboodle), the median will be far less than the mean.

The report says mean payout.