Goldman CEO says he sees 'real wage inflation everywhere' after 33% jump in pay expenses

cnbc.com:

In this article

Wall Street firms are playing catch up with employee compensation, boosting pay in the second year of a deal-making and trading boom.

That's what Goldman Sachs CEO David Solomon conceded on Tuesday during a conference call with analysts to discuss the bank's fourth-quarter results. At one point during trading, shares of the bank had fallen more than 8% after a jump in quarterly expenses took investors by surprise.

Analysts peppered Solomon and new CFO Denis Coleman with questions about the elevated expenses and their expectations for the future. The jump in compensation costs disclosed across Wall Street for 2021 may have surprised analysts because in the prior year, the first of the pandemic, banks showed restraint on compensation.

«There is real wage inflation everywhere in the economy, everywhere,» Solomon declared, when asked by Deutsche Bank analyst Matt O'Connor if the recent pay gains were «catch-up» raises.

«There were definitely places where I think with hindsight and with the constantly evolving environment of Covid and supply chain changes, the monetary and fiscal policy environment, what they did to savings rates, etc., there was real» pressure on wages, Solomon said.

Compensation costs at Goldman jumped 33% to $17.7 billion for 2021, a whopping $4.4 billion increase fueled mostly by pay increases for good performance, executives said. That made the average per employee compensation reach about $404,000 in 2021, up from $329,000 in 2020.

The pay increase at Goldman largely tracked the year-over-year increase in non-interest revenues, a 33% jump to $52.9 billion, driven by a massive 55% gain in investment banking revenue. The story was different in 2020, when revenues climbed 24% and