New Book Criticizes Goldman Sachs Bonus System

Greg Smith
Greg Smith

Determining how to reward employees can be a difficult task for management. Regardless of whether your corporation is large or small, it’s something that every company deals with. Some management staff are very generous with bonuses, while others are less likely to provide additional income. Every business decides how to handle it and often top management make the choices.

When it comes to having a bonus or reward system for employees, it’s important to make sure they reward good behavior and also stimulate productivity and positive attitudes. That’s the whole point of giving out bonuses! They should be designed in a way to reward reliable and profitable behavior. Good all-around performance is what a bonus or compensation package should boost for your company. Focusing on only one of those options, profitable behavior, can be bad for a business.

Author Tells us About Goldman Sachs’ System

There has been a lot of recent news about a former Goldman Sachs employee. His name is Greg Smith and he published a new book about why he left the 143-year-old firm. Christine Harper at Bloomberg has a great article about one aspect of the company revealed in the book: the company’s bonus system.

According to Greg Smith, originally employees were given rewards “not just on how much business you’d brought in, but also on how good you were for the organization.” One would expect something like this from an upstanding and respectable corporation. It makes sense. But what occurred after 2005 changed the entire environment at Goldman Sachs. The system became “mathematical” and you received bonuses based solely on a percentage of the “amount of revenue next to your name.”

That means the priority was solely on revenue. Workers began fighting over the credit behind showing how much they had made for the company. Smith writes, “Over time, this corrosive behavior had filtered down through the system.” This is not the sort of environment any corporation should create through its bonus system. Hopefully Goldman Sachs has taken steps to alleviate this issue. They are after all the fifth largest bank in the country.

For Management

CFOs and other prominent management positions continue to adapt and take on additional roles. As this continues, it’s important to keep a broad perspective when it comes to managing vital aspects of how a business is run. Creating a compensation system that becomes a numbers game and causes office conflict shouldn’t be the goal. It will ultimately lead to problems and corrupt the solid goals of any organization.

Do you consider compensation packages as important parts of your corporate philosophy? Do you think Goldman Sachs made a mistake designing their system the way they did?