Goldman Partners Sitting Pretty on Pay

By John Carney, Senior Editor,

NEW YORK ( CNBC) -- Although it seems like a tough week for Wall Street paychecks, partners at Goldman Sachs ( GS) are probably not fretting.

Sure, Goldman cut its overall accrual for employee pay and benefits in the first quarter by 16%.

But the amount of compensation per partner appears to have declined by far less--just about two-thirds of 1%, by my calculation.

Goldman set aside $4.4 billion for benefits and compensation in the first quarter of 2012, a 16% decline from last year's $5.23 billion first-quarter compensation figure.

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But Goldman also shed a record number of partners last year and early this year. Although Goldman doesn't disclose the total number of partners, an analysis by The New York Times and published in January indicated that 50 partners had left the firm and 10 were added. That brought the number of partners to 442 at the close of the year, down from 483 at the start of the year.

A source familiar with the matter says that 34 more partners have either left the firm or announced their intention to leave. Goldman declined to comment on the number. That would mean that Goldman would have just 408 partners left. Those of you doing the math will note that this would indicate a 15.32% partnership contraction.

It's very common for analysts and journalists to divide the total compensation accrual at firms by the number of employees, producing an average pay per employee. Goldman shed about 3,000 employees this year, reducing its headcount to 32,000. That produces an average pay per employee of $135,123 for the first three months of the year, an 8.6% decline from last year's first quarter number of $147,825.

In other words, Goldman is setting aside less money for each of its employees.

But this metric is somewhat misleading. Goldman employees are not paid equally. There really is no "average" Goldman employee. The total headcount includes both full-time employees, contractors and part-timers. Secretaries and janitors are lumped in with investment bankers and commodity traders.

A better metric for judging evaluating Goldman's compensation scheme is probably compensation per partner. Judging by this measure, Goldman's compensation scheme did not shrink by as much as the raw numbers indicate. In fact, it barely shrunk at all.

In last year's first quarter, total compensation divided by partner equaled close to $10.83 million. This year, the compensation per partner is roughly $10.76 million for the first quarter. That means that comp per partner decreased by just 0.64%.

Of course, only a fraction of that number will actually go to compensate partners. The compensation accrual includes salaries, benefits and severance packages for employees let go during the quarter. Partners generally take around 15 percent of the total compensation, according to a 2005 New York magazine article by Duff McDonald.

If that holds up, Goldman has set aside $660 million for partner compensation, or around $1.6 million per partner.

The fact that the compensation per partner has held more or less level might be an indication of the strength of Goldman's partnership. The number of partners--rather than the total number of employees--seems to drive overall compensation. Dramatic declines in overall compensation probably reflect partners departing rather than less money being set aside for each partner at the firm.

Pay at Goldman may be shrinking--but that's because the partnership is shrinking. The partners at Goldman will still do well this year.

Goldman declined to comment for this story.

--Written by John Carney at CNBC
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