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 Considerable chatter has been generated over Goldman, Sachs & Co.'s decision to kill bonuses for its top seven executives. Opinions vary, and given the times there's a general snorting about the notion that Goldman is trying to lead Wall Street on a toxic issue or that the big dogs have made some commendable sacrifices. After all, Lloyd Blankfein made over $60 million in bonus comp last year; he's not exactly heading to the poorhouse. And if Goldman is trying to lead Wall Street, whatever that is anymore, then it's a first.
Look at it another way. Blankfein et al. are protecting the one mechanism that distinguishes Goldman from every other investment, er commercial, bank: Its talent recruitment and development system. Goldman finds the sharpest souls, trains them, deploys them -- and either kicks them out or keeps them motivated. What's amazing is that Goldman manages to forge an implicit pact with the best and brightest: Give up your life, give us your soul, and at a relatively young age we'll make you really wealthy, even by Wall Street norms. Once "gone limited" -- retirement to the rest of us -- the most senior Goldman folks can resume life at a much higher plane, say at 45. And so, for all the talk of high comp at Goldman, much of it, at least for the partners, remains out of reach until they go limited. Folks may like to work at Goldman for the prestige; but they stay, they fit in, and they compete like crazy for both their eventual windfall and for their eventual freedom.
That system binds together the generations at Goldman a little more tightly than most firms or banks, which are mostly aggregations of free agents. Goldman is not Goldman without that system, which is unique and fragile (though it did survive the shift from private to public). If the pool that feeds Goldman partners shrinks, or its returns fall, or the firm stops sending partners limited, the pressure builds from below, and the mechanism begins to break down. Arguably, this last year has seen unprecedented challenges to that machine. It's not so much that profits are getting hammered; after all, right now, there's not a lot of places to go with better profits and prospects. Rather, the threat is twofold, both of which stem from Goldman's decision to become a bank holding company and recipient of bailout bucks. The first is obvious: The government slashes bonuses, robbing Goldman of the incentives that drive the firm. Second, its existence as a bank reduces leverage and risk taking, shrinking the compensation pool over time. In both cases, Goldman slides back to the pack, losing that coherence that has made it special, even in this most difficult of years. The problem at Goldman is that the firm appears to be unsure where to go next. You don't need the best and brightest in commoditized, risk-averse businesses like much of commercial banking. Goldman's recruitment and development machinery was designed for high risk and reward investment banking and principal investing. But those, for now, have mostly disappeared. The top dogs' "sacrifice" may be just a holding action until Blankfein et al. can figure out what they want to be and who they want to make that work. In the months ahead, trying to figure that out will be a lot more interesting than a bonus "sacrifice." - Robert Teitelman Robert Teitelman is editor in chief of The Deal. CategoriesComments
From: Andrea Greenslade ,
A brilliant insight into the hideous Goldman machine that chews so many people up and spits them out gold plated.
Posted on:
November 19, 2008 8:20 AM
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So on target. Nice to see a story with truth and guts.