Goldman Pays Up for Talent, Sending Profits Down

Investment banking units across the industry have notched blockbuster results in the pandemic, first from nervous companies that wanted to raise debt and then from confident CEOs who wanted to expand their empires. Raucous markets pushed trading revenues skyward. Firms like Goldman have raced to hire enough people to keep up with the flood of deals, and are now paying to keep them from jumping ship.

Wall Street tried to keep the lid on pay last year as business boomed but the overall economy languished. Goldman raised compensation by 8% in 2020, even though revenue jumped 22%.

In 2021, Goldman boosted its pay by 33%. Revenue also jumped 33%.

“There is real wage inflation everywhere in the economy,” Goldman CEO

David Solomon

said on a call with analysts.

Shares fell nearly 8%.

Like JPMorgan and Citigroup, Goldman recorded big profits for the full year. Goldman’s investment bank reported record annual revenue and its trading unit booked its highest annual revenue in 12 years, driving the firm to record annual revenue and profit.

But the compensation expenses weighed on fourth-quarter results. Goldman’s fourth-quarter profit declined 13% to $3.94 billion, or $10.81 per share, ending what had been a streak of big gains. The bank also missed analysts’ forecasts for per-share earnings.

Goldman’s revenue rose 8% to $12.64 billion, beating expectations.

Wall Street’s battle for talent has played out at all levels. Multiple firms raised salaries last year for junior bankers, many of whom found the grunt work of entry-level banking less appealing when they were doing it from home. Goldman, for example, increased base pay for its entry-level employees—first-year analysts—to $110,000, a nearly 30% increase from the previous starting salary of $85,000.

At senior levels, pay is largely in the form of stock awards and can stretch into the millions.

Goldman is also giving its partners an additional one-time stock bonus. The additional grant was first reported by Bloomberg News.

JPMorgan this week is awarding investment bankers bonuses from a pool that is 30% to 40% higher than it was a year ago, according to a person familiar with the matter.

“We will be competitive in pay,” JPMorgan CEO

Jamie Dimon

said last week on a call with analysts. “If that squeezes margins a little bit for shareholders, so be it.”

Some firms, like Citigroup, are using their more-flexible work-from-home policies as a recruiting tool. Goldman and JPMorgan were more aggressive last year in calling employees back to the office, though Goldman told employees last week that they could work from home until Feb. 1 because of the Omicron variant.

Mr. Solomon said Tuesday he expects Covid-19 will become endemic and that “as a society we will find a way to live with it.” He said he is optimistic that Omicron’s economic…