Goldman Sachs hiked pay expenses by nearly 50% this year after the best ever performance by its dealmakers so far in 2021.
The US investment bank put aside $11.3bn in compensation costs for its staff in 2021, an increase of 47%, as its strong earnings have continued even as the Covid-19 trading boom has waned. That translates is an average annual total pay of $277,100 per employee.
The bank posted net profits of $5.4bn in the second quarter, ahead of analyst expectations. Revenues of $15.4bn were 16% above the same period last year.
“Our second quarter performance and record revenues for the first half of the year demonstrate the strength of our client franchise and our continued progress on our strategic priorities,” said chief executive David Solomon in a statement.
The fixed income trading boom that sustained banks’ profits throughout last year as Covid-19 spurred volatility has subsided. Goldman’s fixed income unit was down by 45% during the second quarter compared to the same period in 2020, following rival JPMorgan (45%) with a sharp decline.
Overall trading revenues at Goldman were down by 32% on the previous year, with equities trading dropping by 12%.
Investment banks’ trading units remain the engine room for revenues, but dealmakers have helped take up some slack from the decline in markets. Goldman made $3.6bn from investment banking fees in the second quarter, an increase of 36%, driven by an 82% gain within its prized M&A division to $1.3bn.
This was the second best ever three-month period for Goldman’s investment bankers, surpassed only by the first quarter of this year, which was propelled by a boom in blank cheque companies. The bank has therefore made a record start to 2021 within its dealmaking units, and has hiked pay to reflect performance.
Compensation costs were up by 18% during the second quarter to $5.3bn, with the bank typically taking a ‘pay for performance’ approach to its staff. Employee numbers increased by 1,700 compared to the same period in 2020.
However, Goldman remains among a handful of investment banks not to increase salaries for junior bankers amid a burnout crisis spurred by the increase in activity. Rivals including JPMorgan and Citigroup have increased entry level pay to $100,000 in recent weeks, while Goldman has stood firm.
Goldman ranked second in the global investment banking fee pool league tables so far this year, according to data provider Dealogic. It brought in $5.4bn, or 9.2% of the overall market, up from 8.1% at the same point in 2020. It has also maintained its lead at the top of the equity capital markets and M&A rankings.
Under Solomon, Goldman has been expanding beyond its Wall Street roots, most recently unveiled a new UK transaction banking unit, as well as moving into retail and consumer cards. However, its trading and investment banking units still accounted for 56% of overall revenues in the second quarter.
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