Are higher salaries a risk to the economy?

In the war for talent, big U.S. banks see higher costs from rising workers' compensation.

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Good morning,

The stakes are high for Goldman Sachs when it comes to the war for talent amid inflation.

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Good morning,

The stakes are high for Goldman Sachs when it comes to the war for talent amid inflation.

“On compensation, our philosophy remains to pay for performance, and we are committed to rewarding top talent in a competitive labor environment,” the investment bank’s CFO Denis Coleman said on Tuesday’s earnings call.

Goldman released its Q4 2021 earnings report, which stated net revenues were $12.64 billion for the quarter. That’s about 8% higher than the same time last year. However, profits fell by 13% from a year earlier to $3.94 billion or $10.81 a share. This happened as dealmaking remained strong but compensation rose.

In 2021, compensation costs at Goldman increased 33% to $17.7 billion. For Q4 alone, operating expenses were $7.27 billion, 23% higher than the fourth quarter of 2020 and 10% higher than the third quarter of 2021, the firm said in the report. The increase compared with 2020 primarily reflected “significantly higher compensation and benefits expenses,” Goldman noted.  

Quarterly non-compensation expenses of $4 billion rose year over year, with almost two-thirds driven by technology spend, higher professional fees, and market development related costs, Coleman said. He started his tenure as CFO on Jan. 1, previously co-head of the Global Financing Group in the Investment Banking Division since 2018. He began at Goldman in 1996 as an analyst. 

Taking a look at another large company, Bank of America (BofA) spent about $36 billion on compensation last year, up by about 10%. CEO Brian Moynihan told CNBC in May that the company wants the best talent and “we’re willing to pay what it takes to get it.” BofA reported Wednesday that profits increased 28% in Q4 of 2021. “We earned a record $32 billion in 2021, with every business line solidly contributing,” Moynihan commented in the report. The investment banking division saw profits increase to $2.68 billion from $1.67 billion. “We ended the year on a strong note,” CFO Alastair Borthwick said in the report. “Revenue rose faster than expenses, producing our second straight quarter of year-over-year positive operating leverage.” Borthwick became CFO at the company in the fourth quarter of 2021. 

Goldman and BofA both face high compensation expenses, and it appears the companies will stay the course in that regard. However, some economists worry that “higher wages could lead to entrenched inflation that goes beyond simply short-term supply-chain issues and pandemic-related problems,” according to a Fortune report.  

I’d love to know what you are seeing at your company—is compensation spending up? By how much? Do you see it continuing?


See you tomorrow.

Sheryl Estrada
sheryl.estrada@fortune.com

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Courtesy of KPMG

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