The average Goldman Sachs employee will receive a $700,000 salary this year. That's an average employee, not a top executive. In comparison, the average salary in the U.S. is $42,270, or $657,730 less. It's not only Goldman Sachs (one of the biggest investment banks in the world) that's paying out huge salaries. Wall Street in general is paying out record highs. The Wall Street Journal is reporting that Wall Street firms will pay out $140 billion this year to their employees. Check out this table from wsj.com that chronicles the pay at 23 major Wall Street firms.
That leaves me speechless--mainly because most of the words I want to say can't be printed in this blog. On top of that, more than 15 million American workers (9.8% of the workforce) are out of a job, left with absolutely no salary. 7.6 million of these job losses stem directly from the economic recession that was started largely by Wall Street playing fast and quick with people's money. Read this article from Conde Nast Portfolio for a detailed explanation on Wall Street's culpability, or my brass article Doomed To Repeat for a shorter version.
In plain English, Wall Street took huge risks that did what most huge risks do, didn't pay off. That in turn set off a chain of events that have led to a global economic crisis that in the U.S. has cost 645,000 jobs per month from November 2008 through April 2009 and 307,000 per month from May 2009 through Sept. 2009, according to bls.gov.
Yet, the same fat cats who played a huge part in nearly bankrupting global finance are making off with record paychecks. They call Bernie Madoff a crook, but this looks like thievery on an even grander scale to me.
Let me know what you think; feel free to disagree.
--Jens
Articles such as this one exemplify why average American salaries are so low. The distribution of compensation at GS is extremely right skewed with the top 200 (or so) employees getting significant pay days. Rather than blinding quoting an average, a more appropriate statistic would be the median compensation at GS.
As for associating blame to Wall Street for the Financial crisis, once again your knowledge of the situation is insufficient and clouded with biases. There is enough blame to go around for what happened, but the main culprit is the FED. If Alan Greenspan did not keep rates artificially low, the housing bubble would not have occurred because the demand for houses would have decreased as the FED raised rates. Financial services firms would have had no need to increase the leverage in the system by peddling products such as MBS, CLOs, leveraged loans and CDOs because people would be able to get sufficient return on capital by offering traditional products. The monetary policy of the FED is the main reason for the financial crisis not the greed of wall street firms.
This type of sensationalist journalism makes my skin crawl...
Thanks for your opinion Research Guy. If you had read my article Doomed To Repeat you would have seen that I did place blame with the Fed all the way back in February of this year. You also need to consider that I didn't blindly quote an average, but sourced it to this table from The Wall Street Journal, which details "projected compensation per employee." Also, the average salary for Americans in general can be skewed by the extreme ends of the scale, so the pay scale comparison is still valid.
Jens - I read your article from February; while you did mention the Fed, I do not believe you highlighted their culpable role, as it was a "dense" article. Back to the point of the article (this is for you Research Guy, too) - Goldman Sachs is an enigma that I would be careful to cite. If you look at the list, only two other employers had higher net compensation, Blackstone at a whopping $4 MM per employee, and Och-Ziff, who I concede I am not familiar with. GS is known to have the best employees, and while compensation for their top employees certainly tilts the scales, they also are known to attract very smart people at all levels. While GS spends more on average for compensation than most firms, it also netted a profit over the last 2 years. While most banks are going to spend years trying to earn their way back to profitability, GS is already there.
While I would concede it’s frustrating that GS pays so much while people are unemployed, this isn't GS's fault. Yes, they took TARP, but this was because all banks were asked to because they didn't want a stigma assigned to recipient banks. GS would have also been fools to turn down such low costs of capital - and in the end, were one of the first firms to pay TARP back, because they did not need it.
In summary, although not the best argument I've ever assembled, GS pays its people a lot because it expects and gets a lot out of them, and that has led them to do much better than the other investment banks during this financial crisis.
GS Fan,
The argument that Goldman Sachs pays high salaries because they attract the best talent has been used by Goldman Sachs for a while now--here's a 2006 article from The Boston Globe with that exact justification by Goldman Sachs spokesperson Peter Rose. There is no denying that Goldman Sachs has made it through the financial crisis thus far in a much better position than other investment banks (one of the reasons the Financial Times named Goldman Sachs CEO, Lloyd Blankfein its Person of the Year), indicating that they are shrewd investors.
I don't have a problem with performance-based pay, the problem I have is that it appears Goldman Sachs profited from CDO investment strategies that directly led to huge losses by their own investors. Goldman Sachs was betting against the very investments that they were selling, and are now being investigated by the SEC and FINRA (the full New York Times article) because of this.
I'm not an opponent of paying for good talent, but I am skeptical of firms that make huge profits by betting against their own investors. Especially when those same firms are reaping record profits while the rest of the economy is in the tank.
Post new comment