Goldman Sachs warns traders of shrinking bonus pool as Wall Street retreats

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Goldman Sachs Traders and sellers are having to deal with a bonus pool that’s at least 10% smaller than last year, despite making more revenue this year, according to experts who know the situation.

That’s because the New York-based bank is grappling with a slowdown in most of its other businesses, particularly investment banking and wealth management, areas that have been hit by rising interest rates and falling valuations this year.

Goldman this week began informing executives in its markets division that it expects a smaller bonus pool for 2022, according to the people, who declined to be identified when discussing compensation matters. The number will be reduced by a “low double-digit percentage,” Bloomberg reported, although wage discussions will continue into early next year and could change, people said.

Wall Street has grappled with sharp falls in investment banking earnings after parts of the industry involved in listing companies, raising funds and issuing stocks and bonds were confiscated this year. Goldman was the first to announce company-wide layoffs in September and has since Citigroup, Barclays and others have fired employees deemed underperforming. JPMorgan Chase will use selective year-end cuts, attrition and smaller bonuses, and this week MorganStanley CEO James Gorman told Reuters that he plans to make “modest” cuts to operations around the world.

Despite the difficult environment, trading was a bright spot for Goldman. Geopolitical turmoil and central bank actions to combat inflation led to higher activity in currencies, government bonds and commodities and the bank’s fixed income staff took advantage of these opportunities.

Revenue in the Markets division rose 14% for the first nine months of the year compared to the same period in 2021, while the company’s overall revenue fell 21%, driven by sharp declines in investment banking and wealth management results. Accordingly, the amount of money the bank set aside for compensation and benefits fell 21% to $11.48 billion through Sept. 30.

“We always tell people that their bonus depends on how they did with themselves, their group and ultimately the company,” said one person with knowledge of the company’s processes. “This year some of the good traders who made their money need to fund the other parts of the bonus pool.”

Employees should know that big banks, including Goldman, are trying to smooth out compensation volatility, which means valued workers struggling in a slow environment may be getting better bonuses than sales numbers suggest, and vice versa, so this person.

A Goldman spokeswoman declined to comment on the bank’s compensation plans.

While the overall size of bonus pools will shrink everywhere, individual high performers may see more or less than they’ve earned in 2021 as managers look to reward employees they want to keep while signaling others to pack their bags.

The decline in the bonus pool comes after a strong 2021 for both trading and investment banking. In retrospect, this was probably the last breath of an era of low interest rates that encouraged companies to go public, issue securities and borrow money.

The need for job cuts and smaller bonuses on Wall Street became clear in the middle of the year when the hoped-for recovery on the capital markets failed to materialize.

Investment bankers are likely to face the deepest pay cuts, with those involved in underwriting securities facing losses of up to 45%, according to industry advisers.