The bank has long remunerated employees partly in prestige. The same recruitment model operates at other famous brands, ranging from fashion magazines to the UK's Treasury department. The bet is that staff — particularly the junior kind — can cash in via a better-paid job at a lesser-known employer after a few years if they wish. At Goldman, leavers typically switch to the buy side.
The business remains the top franchise in investment banking. Its overall annualised return on equity of 31 per cent in the first quarter was its highest in years, after a rocky period. Reluctance to raise junior salaries sends the message that the franchise matters more than individuals. Working intensely for pay at the low end of industry averages is seen as a rite as passage by older bankers.
The question is whether the current generation thinks differently enough for other employers to create competitive advantage. Banks such as Citigroup are touting their flexibility on workplace attendance. Boutiques such as Centerview and Evercore can match Goldman in terms of private equity and hedge fund placement.
Last year Goldman Sachs spent US$13 billion on total compensation. If it has 1,000 analysts, a US$15,000 bump costs just US$15 million. Making future talent feel it is valued surely has a return on investment higher than that.
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