Goldman Sachs wage dispute hangs whether the CEO is a banker or a private market Titan

(Bloomberg) – As Goldman Sachs Inc. asks shareholders to offer a special bonus of $160 million to its top two executives this week, investors hope that investors will agree that the company is much more than a wealthy investment bank.

The reserve packages of CEO David Solomon and President John Waldron give the latter more reasons to dominate the place – but Goldman Sachs’ reasons go beyond that. It said their compensation needs to reflect their position as head of private market giants.

“The board considered the unique competitive threats of talent facing Goldman Sachs, including those outside of alternative management companies and other people outside of traditional banking,” the company said, announcing bonuses and new with new interests in January. After all, Goldman Sachs is the “top 5 alternative asset managers.”

Now, in a non-binding vote, shareholders are preparing to weigh the trade-offs at their annual meeting in Dallas on Wednesday and have an unusually controversial vote on Goldman’s compensation practices.

In recent years, the company has increasingly served as Blackstone Inc., KKR&Co. and competitors like Apollo Global Management Inc., which has a high market valuation and has allowed non-founder leaders to shoot as billionaires. But before Goldman voted, there were several influential voices with top brass rewarding itself in similar ways.

Unlike Wall Street Bank’s most popular performance bonuses since the financial crisis, Goldman hung a pair of $80 million in multi-year restricted stock bonuses for Solomon and Waldron that mainly require them to stay for five years within the company’s five years. Wells Fargo & Co. analyst Mike Mayo said it could be “estranged” from Goldman’s workforce. Two prominent shareholder consulting firms urged investors to reject the packages, one marked as “over” and the other called incentives “bad practice.”

“This consultation vote is just to give our shareholders the opportunity to comment on executive compensation,” Goldman Sachs spokeswoman Jennifer Zuccarelli said over the phone.

At the heart of spit is the blurred line between diversified investment banks and alternative investment firms (called “Alts”) in the era of emerging private markets. Both parties are expanding their traditional roles, with banks collecting more money from the wealthy and institutional investors to invest in companies privately, while Alts is expanding their loans.

This raises the question of whether banks’ valuation and compensation should also narrow the Alts gap.

Goldman Sachs Asset Management now has about $500 billion in private assets, which is mainly composed of public market funds of the total $3.2 trillion oversight by the company. Blackstone, the world’s largest Alts company, owns more than $1 trillion in private assets.

“This is the same zip code as some of the largest publicly traded alternative asset managers,” said Devin Ryan, an analyst at Citizens Financial Group Inc. Inc.

Currently, Goldman Sachs’ stock market valuation shows that the company still has more work to convince shareholders.

Its stock is about 12 times worth, roughly consistent with bank peers such as JPMorgan Chase & Co. and Morgan Stanley. By comparison, Alt Giant KKR trades about 29 times, while Blackstone receives investors’ lightweight balance sheets and rewards focused on expenses – hovering around 37 times the revenue.

At Goldman Sachs, investors have long been paying attention to its investment banking and trading franchise performance. Christian Bolu, an independent research analyst, said achieving multiples close to Alts “seems unlikely because it’s hard to get close to the biggest driver of Goldman Sachs’ revenue.”

The difference also appears in salary. JPMorgan awarded CEO Jamie Dimon $39 million, in line with Solomon. Meanwhile, at KKR, carrying interest, bonus payments and stock rewards allow its co-hosts to earn $73 million and $64 million per person.

Even the largest bank CEO salary packages can be dwarfed by the incentive fees of their private equity peers and the benefits of cutting profits from funds called carrying interest. Blackstone founder and CEO Steve Schwarzman made $83.7 million from those sources last year. The billionaire also received a dividend of about $916 million, the company’s largest shareholder.

“Talent is a big part of this business, so you have to be competitive,” Bolu said. “If it grows faster and returns more money, I don’t think there is a need to worry about compensation.”

Goldman Sachs also began imitating profitable plans in its own compensation structure, according to its January disclosure, providing senior executives including Solomon and Waldron.

Solomon has been talking about Goldman’s upbringing stories, especially as the company opens up more money to individuals looking for huge returns. During this month’s revenue call, he stressed that the stable income earned from management fees is part of a profitable and lasting trend in the private market.

“We are still in long-term secular growth in terms of private assets and private asset allocation,” Solomon said. “As more and more people continue to move to acquire the impact of private assets, secular growth over the next five, ten, 15 years will make sense.”

It happened that this was a tough time for Alts. President Donald Trump’s tariff policy injects uncertain rounds into global markets, sparking a wave of deals that benefit banks while making it harder to acquire companies to sell or publicly list companies they control.

At least Goldman Sachs’ private equity is in a relatively comfortable place. It is highly inclined to invest in asset services and technology companies that are relatively less affected by tariffs. The team also pulled out a lot of investments after the pandemic, eased the pressure on the company to cash out this year, a person familiar with the matter said.

Despite this, its asset and custody management departments are expected to grow with the smallest growth in the past five years, analysts estimate.

Citizen Ryan predicts that the entire asset management business may grow in two years, contributing about Goldman Sachs’ revenue, up from about a quarter of 2024, and that its private assets could double to $1 trillion in five years.

When it announced in April how its investment in alternatives will grow in the coming years at a media event, Goldman Sachs head of asset management Marc Nachmann smiled.

“We have no goals,” said executives who are usually acquiesced. “I hope the alternatives grow faster than the traditional ones. We hope, hope, and work hard to develop both.”

– With the assistance of Sridhar Natarajan, Allison McNeely and Dawn Lim.

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