As discussed yesterday, over the course of the past 17 years, Goldman trimmed its cash equity trading desk from 600 workers to just 2, replacing virtually all carbon-based traders with automated programs, engineers and algos. But while the gradual replacement of expensive traders with cheap machines is nothing new, Goldman CFO Marty Chavez opened a whole new can of worms when during a presentation at Harvard conference last month, he said "next, will be the automation of investment banking tasks, work that traditionally has been focused on human skills like salesmanship and building relationships. Though those “rainmakers” won’t be replaced entirely, Goldman has already mapped 146 distinct steps taken in any initial public offering of stock, and many are “begging to be automated,” he said.
"It now appears that this far more troubling outsourcing may have started when Bloomberg reported that Goldman Sachs didn’t pay 2016 bonuses to about 100 "plain vanilla" investment bankers who advise on takeovers and underwrite securities offerings, "signaling to a bigger crowd of underperformers that they’re probably better off elsewhere."
As Bloomberg adds, the move is more draconian than in past years when many dealmakers who failed to impress their bosses still got something. The number of employees denied a bonus in recent weeks is higher than a year ago -- eliminating what’s typically a major component of their pay. The news is surprising when one considers that as of Q4, Goldman's bonus accrual was the highest on one year, suggesting that the bank may be increasingly concerned about future revenue prospects.
Still, despite the pick up in compensation, and despite remaining No. 1 in global merger adviser in 2016, investment-banking revenue tumbled 11% to $6.27 billion, more than some rivals such as JPMorgan where iBankning revenue slipped 6.7%.
In addition to bankers, Goldman also reporetedly denied bonuses to employees in the securities division, run by Isabelle Ealet, Pablo Salame and Ashok Varadhan, though the number affected was more in line with previous years, Bloomberg adds. The fixed-income business in that unit has already seen broad job cuts, and client activity there improved in the second half of the year.
Receiving no bonus on Wall Street is mostly is self-explanatory:
For bankers and traders at a well-capitalized and profitable firm, getting no bonus is a dreaded scarlet letter -- usually a strong hint that they’re no longer wanted and should start hunting for another job. Around the industry, it’s known as getting “blanked,” or receiving a “goose egg,” a “bagel” or a “doughnut.”
It’s all part of a Wall Street compensation model that distills an individual’s performance into a single number at year-end. Many employees spend the intervening months trying to calculate how their business is faring, and how much they’re contributing, in anticipation of a bonus that can sustain an expensive lifestyle, build wealth or even pay for a house.
As Bloomberg further explains, Goldman typically places staff into one of five performance tiers, known as quintiles, during its annual performance reviews. Members of the lowest quintile, the bottom 20 percent, missed a bonus this year - though most were spared, the people said.
Management determined it needed to reward top performers, and took bonuses away from less productive workers to control overall compensation costs, two people said. The bank’s compensation ratio, which compares pay to revenue, rose to 38.1 percent for 2016 from 37.5 percent in the prior year.
It was not immediately clear if overall bonus levels across i-banking were cut relative to last year, or if the remaining staffers ended up benefiting from the upcoming culling within what is otherwise the bank's best paid group.
