Morning Coffee: Goldman Sachs bankers to get enormous bonuses, or not. Urine on the floor at top hedge fund

efinancialcareers.com:

It’s getting near the end of the year, when junior bankers start looking forward to the party season.  Senior managing directors, however, know that they’ve got one more grueling task to get through before they can relax – the annual round of compensation committees.  Dividing up the bonus pool is a fraught, political business at the best of times; in a year when there’s precious little surplus revenue to be shared out, it can be incredibly difficult. 

The task is always made worse when there are a small number of key employees who absolutely have to be looked after, or they’ll move to the competition.  This might be part of the reason why Goldman Sachs is adjusting the bonus system for select employees in its asset management division. A bigger share of their pay will be determined by the performance fees or carried interest on the funds they manage.

That could solve an immediate problem.  By aligning the pay to be closer to the structure of the rest of the alternative funds industry (Apollo has done something similar recently), it’s less likely that Goldman will see its portfolio managers poached by the opposition.  It could also reassure top performers in the asset management division that they won’t lose out from the fact that some of their top executives, who might have been expected to fight hard for them in the committees, have resigned over the last year.

But it comes at a price, for both Goldman and the employees.  Banks are usually quite reluctant to have too much “direct drive” in the compensation system, because it makes things much harder to manage.  Other successful teams and franchises are likely to start asking what’s so special about the asset managers, and demanding a similar deal for themselves.  It