Goldman CEO calls pay raises 'wage inflation'
The big players on Wall Street have been offering pay raises and huge bonuses in recent weeks, partly due to rewarding some divisions for good performance and partly under pressure to retain their best staff. This has shown up on their bottom line - and not everyone is entirely happy about it.
In a call with analysts on Tuesday, Goldman Sachs CEO David Solomon said that there is "real wage inflation everywhere in the economy", blaming the COVID-19 economic situation and the impact on savings rates. Compensation expenses at the bank shot up to US$17.7 billion in 2021, or a 33% increase.
But while ongoing supply shortages have indeed affected consumer purchasing power, multiple Wall Street executives have also stated that the recent pay increases arise less from concerns about employees' financial security, and more from employer concerns about holding onto top talent. For instance, the majority of Goldman's pay increases were driven by good performance. Goldman's revenue shot up last year, with investment banking revenue in particular rising by 55% to hit US$52.9 billion.
What this means is that the 'real wage inflation', or pay increases, is confined to the very best performers in the investment banking division. It's the same story that has played out in Morgan Stanley, Bank of America, and other Wall Street firms that recently announced massive bonuses and salary hikes. The majority of bank employees don't enjoy these enormous pay packages, and in fact Goldman has said that its new hires tend to be located in geographies with a lower cost of living - and thereby lower pay scales.