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Goldman’s Cohn Warns of Poaching Risks From Further Cuts

Goldman Sach COO Gary Cohn
Gary Cohn, president and chief operating officer of Goldman Sachs Group Inc. Photographer: Joshua Roberts/Bloomberg

Goldman Sachs Group Inc. President Gary Cohn said the firm is limited by competitive pressures in how much further it can cut compensation as its seeks to increase returns.

“There is enormous pressure out there, even in a market environment like this, for the best people,” Cohn said today at a New York investor conference. “There’s always a competitor or in some cases a client willing to hire our good people.”

Goldman Sachs reduced compensation costs by 40 percent since 2007, while its U.S. peers cut just 1 percent, according to a presentation Cohn gave. Managing pay is one way to make up for lower leverage as it seeks to improve returns on equity, the firm said. Still, Cohn said the New York-based firm can’t risk defections of its top performers.

“Losing those good people will have a dramatic impact on revenue,” Cohn said. “It’s not as simple as just paying people less and increasing dividends.”

Goldman Sachs, the fifth-biggest U.S. bank by assets, could have increased the average ROE over the last 13 years by about 3 percentage points if it had applied its 39 percent compensation ratio from the last three years to the period before the financial crisis, according to the presentation. That would more than offset the reduction in ROE resulting from a cap of 20 times leverage, the firm said.

Goldman Sachs set aside $4.4 billion for employee compensation in the first quarter, enough to give each of its 32,400 employees $135,123. A year earlier, the company’s $5.23 billion first-quarter compensation expense equaled $147,825 for each of the 35,400 employees at the time.

The firm is reducing compensation costs in part by increasing hiring in what it called “high-value locations,” including Salt Lake City, Dallas, Singapore and Bangalore, India. Those cities cost 40 percent to 75 percent less than New York, London and Tokyo, Cohn said. More than a third of the firm’s hires since 2011 have been in the lower-cost locations, he said.

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