For decades, a top spot at Goldman Sachs was seen as the pinnacle of money and power. But in today’s era of hyper-wealth creation, the bank’s most senior leaders have come to believe they’re not getting paid enough.
CEO David Solomon and his deputies, who’ve contended with mounting pressure to reward trainees this year, have been searching for ways to juice their own eight-digit pay packages.
Among the ideas floated: Partaking in a cut of the richest rewards thrown off by Goldman’s own SPACs, the blank-check companies that are all the rage on Wall Street. They’ve also laid the groundwork for big raises heading into 2022 and pressed, with some success, for incentive packages.
The notion that top bankers reeling in more than $20 million a year are underpaid is yet another exclamation point in this era of turbocharged wealth. At a time when Elon Musk is worth $300 billion — and each day seems to bring news of another fortune in technology, crypto and private equity — the old yardsticks of success are being tossed out.
Yet ever since the 2008 financial crisis, board members at investment banks have faced pressure to keep a lid on pay for senior managers. That especially applies to so-called NEOs, or named executive officers, whose compensation is routinely disclosed and closely watched.
Now, as Wall Street firms set revenue and profit records, junior bankers are finagling raises to put themselves well above $100,000 a year. Veteran dealmakers and traders are hopping between firms to get better pay and positions. And some executives at the top are feeling the limits of what they can take home — leaving them to ponder the lucre that could be earned elsewhere.
Solomon's total stake in Goldman including unvested stock is worth more than $180 million. The board awarded him $27.5 million for his performance in 2019, his first full year as CEO, and the same amount again for 2020. Then in October, it announced a surprise $50 million bonus plan to be shared between him and a deputy, John Waldron.
But even that was a watered-down version of a more ambitious reward Goldman’s leadership team had previously sought.
This account of compensation deliberations within the firm is drawn from interviews with nine people with knowledge of the situation who spoke on the condition that they not be named describing internal discussions.
"We have offered co-investment opportunities for our senior executives that align interests with investors. That the board of directors would explore additional opportunities is hardly surprising," said Pat Scanlan, a spokesman for the bank.
Some recently departed Goldman alumni have landed plum jobs in the past year. Former investment-banking head Gregg Lemkau runs Michael Dell’s MSD Partners.
Former asset-management chief Eric Lane is now president at tech-investing behemoth Tiger Global. Ex-trading head Pablo Salame was elevated in November to help run $43 billion hedge-fund giant Citadel.
Tiger Global founder Chase Coleman and Citadel’s Ken Griffin routinely see their net worths surge by billions a year on the Bloomberg Billionaires Index, and their firms are bastions of wealth generation for other top executives.
Goldman’s leaders are keeping careful score. Solomon has personally quizzed some departing veterans on whether money was the main motivation for their decision to call time on their Goldman career.
When seven-time Super Bowl champion Tom Brady bailed on his appearance at Goldman’s partner meeting in Miami last month, the schedule still promised a rare on-stage interview between Solomon and his predecessor, Lloyd Blankfein — two Goldman leaders whose tenures reflect different eras.
Blankfein became a billionaire during his time as CEO. It helped that he already was a senior executive in May 1999, when the firm ended its longtime partnership and went public, positioning a generation of managers for windfalls that swelled as the stock soared. Solomon arrived a few months after that market debut.
Less than a decade later, Blankfein rose to the top job at a moment of Wall Street ebullience, netting $68.5 million in his first full year as CEO in 2007.
Solomon, in contrast, was required to forgo $10 million from his 2020 pay as the board sought measures of accountability from Goldman’s leadership after the firm resolved a criminal probe into Malaysia’s 1MDB bribery scandal.
The SPAC business is one well the company could draw on to augment his pay.
These ventures — special purpose acquisition companies — raise money from the public to go hunting for acquisition targets. The big pull for SPAC managers is what’s known in the business as the “promote” — a compensation structure that typically lets founders acquire 20% of the venture’s shares at a steep discount. Stakes purchased for thousands of dollars can quickly soar into the millions.
Goldman operates an in-house SPAC business even as it advises outsiders on their own. The firm already has rolled out two SPACs and disclosed plans to create several more.
At Goldman, much of the promote is expected to benefit the bank, but portions have been set aside for executives directly involved in the ventures, people familiar with the matter said.
Solomon has pushed to expand the allocation of founder shares to a small group in the bank’s upper management. That’s irritated members of the SPAC team — essentially pitting them against the CEO for a share of the spoils.
One common criticism of SPACs is that public shareholders bear most of the risk while sponsors reap the promote. To ward off that perception, Goldman has allowed founder shares to start vesting only if the SPAC gains at least 20%.
While the bank has long allowed bosses to buy into its funds, investing in a SPAC’s promote would stand out, given the chances for outsized returns within just a few years from a public vehicle. Even structuring it as a fair-market-value investment still promises bigger gains than other opportunities available to the executives, the people said.
Internal teams have been scrambling to figure out how to structure and disclose the SPAC investment for the NEOs while avoiding the appearance of boosting pay. The proposal may yet fail to go through, two of the people said.
This isn’t the only time under Solomon that Goldman’s leaders have explored ways to increase their share of profits from internal investment vehicles. At one point they examined whether private funds operated by the firm’s merchant bank could carve off a larger slice of fund-performance rewards for senior managers than what other partners could collect.
As memories of 2008’s taxpayer-funded bailouts give way to rising public awareness of income inequality, many bank boards remain wary of paying executives too lavishly.
That often leaves directors playing a guessing game, seeking to raise CEO pay in line with what rivals do — while taking care not to overshoot and draw attention.
When Goldman was finalizing Solomon’s package in early 2020, it wanted to reward him for the stock’s best annual performance since 2013. But Morgan Stanley CEO James Gorman, whose shares were also on a tear, pulled out a surprise by trimming his own pay about 7% to $27 million. Goldman, caught off guard, delayed disclosing its compensation decision that January.
Gorman was aware of that dynamic and privately needled Goldman executives about it.
By the time Goldman published its numbers, COVID-19 infections had taken hold in the U.S., sending markets into a tailspin and leaving millions of people out of work.
The announcement of Solomon’s 20% pay hike struck a discordant note, putting Goldman on the defensive heading into one of Wall Street’s most lucrative eras, as investors and companies reacted to the pandemic. Over the past four quarters, Goldman has generated more than $58 billion in revenue and posted more than $22 billion in net income — more than it’s ever earned by either measure in any year.
In the wake of that performance, Goldman has been preparing to reach out to major shareholders or their advisers, underscoring that Solomon’s award for 2020 was $27.5 million — and not the $17.5 million he got after adjusting for the Malaysian scandal punishment. The idea is to give the board as much elbow room as possible to grant him more, without making it look like an outsized raise.
By mid-October, Goldman’s stock was up more than 80% under Solomon’s watch when the board granted him and Chief Operating Officer Waldron an off-cycle bonus. That could be worth more than $75 million if the share price meets certain targets.
While the amount itself is modest compared with corporate America’s recent spree of swing-for-the-fences incentive plans, the board’s reasoning for the perk — mentioning a “war for talent” — raised eyebrows within the firm. What danger was the board sensing with the duo just three years into Solomon’s term? It was all the more noticeable following the decision to dock their pay just months earlier over the Malaysian scandal.
Behind the scenes, the bank’s leadership team had been seeking a bigger incentive plan for a while. The effort gained traction as Goldman’s trading and deal-making business lines — areas where it dominates — boomed.
John Rogers, a powerful figure inside Goldman, has played a role in diluting the management team’s asks, the people said. Officially known as the company’s chief of staff, he’s a board whisperer with close ties to directors. He joined Goldman after a series of prominent government posts, including working in Ronald Reagan’s White House. Rogers is now one of a handful of Goldman management committee members who already were on the ascent at the firm before its IPO.
The 65-year-old sees himself as a guardian of its culture, keeping tendencies toward excess in check. In internal meetings over the years, he’s referenced a work by 16th century painter Pieter Bruegel the Elder, “Landscape With the Fall of Icarus,” to highlight lessons in humility.
In Greek mythology, Icarus ignored his father’s warning, flew too close to the sun and fell into the sea.
