Goldman's pay pool shrinks fastest amid trading squeeze

Wall Street traders, who typically receive the fattest year-end bonuses among bank employees, are poised to suffer the biggest pay cuts as revenue at their divisions dropped an average of 12 per cent so far this year.

Goldman Sachs Group Inc, the New York-based bank that makes most of its money from trading and set a Wall Street pay record in 2007, slashed average compensation 26 per cent in the first nine months. By contrast, Charlotte, North Carolina-based Bank of America Corp, which employs branch managers and brokers as well as bankers and traders, raised average pay 10 per cent.

While some compensation consultants say traders’ pay will rebound as soon as revenue recovers, new regulation and capital requirements may lead to sustained reductions in the multimillion-dollar awards that sparked popular outrage and spurred investigations by politicians and regulators after the 2008 financial crisis, analysts say.

“The industry will be significantly less profitable going forward, also significantly less risky,” said Douglas J Elliott, an economics fellow at the Washington-based Brookings Institution and a former JPMorgan Chase & Co banker. “The lower profitability means there will be less net revenue to distribute between the shareholders and the employees. I do think there will be a squeeze on compensation over time.”

Compensation reversal
Compensation trends at eight of the world’s biggest banks (see table below) show the reversal that has taken place since the first quarter, when many trading desks earned money every day for three months. While average pay per employee has dropped 0.8 per cent this year at the eight banks, it has fallen 11 per cent at six that focus most on trading, such as Goldman Sachs and the investment bank unit of Credit Suisse Group AG. “There’s been a drop-off in activity — predominantly around client volumes and related trading flows — that has impacted the revenues,” said John Lee, a New York-based partner at recruitment firm Heidrick & Struggles International Inc.