Goldman Sachs leads the way on lower pay

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More banks are coming around to the view that compensation must be cut in this era of extreme cost-cutting.

Shareholders are aligned against employees for scarce resources (profits), and ultimately shareholders have to win. There's no way around that. Goldman Sachs seems to be leading the way forward.

Reuters notes that the influential bank "cut the percentage of revenues it pays to employees in half to 21 percent. That brings the ratio for the entire year to its second-lowest level since the bank went public in 1999. With less money going to employees, more was available for shareholders."

The bank's annualized return on equity jumped to 16.5 percent in the fourth quarter from 5.8 percent a year earlier. Of course the ROE remains far below the levels achieved in the pre-2008 golden days.

One top analyst was quoted saying that, "Arguably for the first time, Wall Street's shareholders are getting the lion's share of the profitability."

The winning formula seems to be to slash jobs in a way that leads to more compensation per employee, even if the bank is setting aside less in absolute terms. At some point, the industry may well get to the point where employees make progressively less every year given the same level of performance.

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