Goldman to cut salaries of some London employees
26 Aug 2011
For several hundred of Goldman Sachs Group Inc London employees, it could be the end of extra fat pay cheques soon.
One-on-one conversations between Goldman managers and their London-based employees have often focused on the fact that higher salaries granted to them for 2010 would come to an end in 2012, with their pay reverting back to what similarly ranked employees were earning elsewhere in the company. The move was expected.
The decision to shift bankers' pay into salaries doing away with the incentive-based compensation comes following a fierce public backlash against big bonuses.
Different employees got salary hikes of varying amounts in 2010; there was no 'across-the-board' percentage increase and employees were told at the time that the pay would revert back after two years.
The London cuts would affect senior bankers, known as managing directors in Wall Street parlance, and junior employees, but not the upper echelons of Goldman's hierachy known as partners, as their salaries did not increase in 2010.
Goldman upped the salaries of the employees at the time even as regulators in the UK and EU were drafting rules to cap bonuses.
Bonuses for London-based partners were capped in 2009 at £1 million ($1.6 million), which led to the exit of some partners.
Last August, with a view to compensate around 100 or so London partners, Goldman granted a midyear bonus in stock, which they could not sell for five years, after leaving the firm.
Goldman ended up paying $600 million in last year's second quarter for a UK tax on 2009 bonuses over a certain amount.
Employees' salaries at other banks also rose after the end of the financial crisis in order to ease their fears that overall take-home pay was about to be cut. Base salaries were hiked in response to regulatory criticism of Wall Street's conventional pay method, which was structured on a relatively lower salary and a high percentage of total compensation coming from variable bonuses. Following the crisis, regulators and politicians slammed the system for promoting a culture of excessive risk-taking in the financial industry.
Base salaries at banks have gone up 30 per cent to 80 per cent since the financial crisis, according to industry watchers who say dollar for dollar bonuses had fallen.
In another move, Goldman also has hiked salaries at the highest rungs. According to Goldman, in January it raised the salary of chief executive Lloyd Blankfein to $2 million in 2011 from $600,000. It also raised the salaries of chief operating officer Gary Cohn, chief financial officer David Viniar, and vice chairmen Michael Evans and John Weinberg to $1.85 million.
