An interesting metric at Goldman…

October 16, 2009

Yesterday, Goldman Sachs (GS) reported third quarter profits of $3.19 billion on revenues of $12.37 billion, which prompted stories like this one in the New York Times about Goldman’s public relations problems over giving high bonuses.

While the release didn’t talk about the controversial bonuses directly, it did have this to say on pg. 3:

Compensation and benefits expenses (including salaries, estimated year-end discretionary compensation, amortization of equity awards and other items such as payroll taxes, severance costs and benefits) were $5.35 billion, which was higher than the third quarter of 2008, due to higher net revenues. The ratio of compensation and benefits to net revenues was 43.3% for the third quarter of 2009 (compared with 48.3% for the second quarter of 2009), resulting in a ratio of compensation and benefits to net revenues of 47.0% for the first nine months of 2009. This ratio was 49.0% for the first six months of 2009 and 48.0% for the first nine months of 2008.

Doing some quick math, you get to around $17 billion set aside for compensation and bonuses, which the Times calculates to around $700K on average for each of the company’s 31,700 employees.

But here’s what caught our attention: the use of the term “ratio of compensation and benefits to net revenues”. This isn’t a new term that Goldman started using post-financial crisis. A quick skim of their filings shows that they’ve been using this metric at least since 1998. What’s surprising, however, is that when you look to see which other companies are using this metric, there’s not a lot, especially in the financial space. Among the few we did find was Cowen (COWN) whose ratio is much higher than Goldman’s — around 60% according to the Q they filed back in August. Lazard (LAZ), whose Chairman and CEO, Bruce Wasserstein, died earlier this week, is also around 60% according to that Q.

In light of those two numbers, Goldman looks almost miserly with its employees.

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