As Wall Street firms struggle to hold on to top talent, Goldman Sachs isn’t just paying bigger bonuses to dissuade executives from leaving — it’s turning the screws on those who do.
For decades, Goldman has cultivated close ties with departing executives, nurturing the corporate world’s most powerful alumni network. They often establish lucrative, second careers and then enlist Goldman for advice, deals and trades. It’s a connective tissue for a lifetime of shared riches.
But new pressures are leading to strained exits at the banking powerhouse.
A year ago, the firm was heralding Omer Ismail, 42, as its future. Then the Goldman lifer and a deputy, David Stark, left to run a banking startup backed by Walmart, drawing the wrath of Goldman’s leader, David Solomon.
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As retaliation, Goldman is now exploring the nuclear option of confiscating their vested stock — usually reserved for cases of misconduct, and not wielded against executives taking new jobs. It’s just one of the ways the bank is playing hardball with those who leave.
Other surprise measures include pulling unvested compensation from long-time loyalists like former division chiefs Gregg Lemkau and Eric Lane — who left for firms that would be considered clients. It’s part of a pattern of expanding the list of what counts as a competitor to enforce more restrictive exit agreements.
Like other Wall Street leaders, Solomon has been frustrated by the escalating turnover through the pandemic that’s forced firms to sweeten rewards for rainmakers to levels not seen since the financial crisis. But there are also more punitive ways to send a message to senior executives weighing their options. Goldman is willing to make it very costly for those wanting to jump ship.
This look at Goldman’s handling of recent departures is based on conversations with eight people familiar with the bank’s decisions. They asked not to be identified discussing private personnel matters.
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“Equity awards are governed by the agreement signed by the recipient,” said Patrick Scanlan, a spokesman for Goldman. “In each case mentioned by Bloomberg, there were explicit terms which were upheld.”
Representatives for Lemkau, Lane, Ismail and Stark declined to comment.
Wall Street firms’ employment agreements give them broad power if someone even sneezes to their displeasure. But banks seldom exercise those rights to the strictest interpretation unless someone defects to a direct rival. Clients of a bank are rarely dubbed rivals in that context, even if they do compete in some areas.
One infamous incident: Andrea Orcel’s 2018 move from investment banking head at UBS to become CEO of Banco Santander. That blew up in part over an assumption that the Swiss firm wouldn’t view the Spanish retail lender as a direct competitor and thus Santander wouldn’t have to replace forfeited awards. UBS Chairman Axel Weber refuted that with a simple mantra: You leave, you lose.
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Goldman went one step further with Ismail and Stark. In January, the firm blocked the duo from cashing out stock bonuses that had vested and been taxed going back five years. Those were shares they should’ve been able to sell after standard restrictions had just started to lapse.
The punishment mimics the clawbacks that came into vogue after the financial crisis to make sure executives can’t profit from malfeasance. Equity awards to bankers at Goldman typically vest over three years in equal increments. But recipients aren’t allowed to cash out the stock until five years after the first award, even as they pay taxes on it. The idea is to ensure employees’ interests are aligned with the company’s long-term health.
With Ismail and Stark, the bank refused to release transfer restrictions on stock going back to the 2016 pay cycle. Those shares, granted in 2017, would have just become eligible for cashing out in January. Executives at the bank have argued they have the right to confiscate that stock. The pair have also been banished from company-led alumni events.
In other cases, the bank has done away with niceties even with veterans who’ve spent decades there.
Inside Goldman, a tradition known as the Rule of 60 lets executives keep their deferred stock if the sum of their age and tenure at the firm exceeds 60. It’s a way to reward long-time employees who decide to take a run at another career.
Through the pandemic, the bank has surprised a number of long-timers by pulling their unvested compensation after concluding the buy-side firms they were joining now count as rivals.
Lemkau and Lane, who left within months of each other, both easily qualified for the Rule of 60. They had arrived at Goldman before Solomon, who started in 1999. Yet they were stripped of millions of dollars in stock awards that hadn’t vested, a rebuff that surprised and rubbed raw with many senior Goldman executives. Lemkau went to run MSD Partners, the Michael Dell-affiliated investment firm, while Lane joined Chase Coleman’s Tiger Global Management, which focuses on technology investments.
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The friction is also playing out awkwardly with big-ticket clients.
Dell, who made his fortune from the sale of the eponymous computers, has paid Goldman some hefty banking fees in recent years. The entrepreneur was disappointed about Goldman’s treatment of a long-term loyal employee, three people familiar with the matter said.
And then there was the call with Doug McMillon. Stewing about his top consumer bankers getting lured away at the same time, Solomon took it up directly with the CEO of Walmart, the world’s largest company by revenue.
Other incidents have piled up at Goldman.
After resigning, another executive was threatened with penalties on the way out for having worked too few days from the office during the pandemic. And in a sign of strains, at least two partners who have considered leaving in the past month have sought advice from colleagues on whether and how they can separate from the company amicably.
Banking leaders across Wall Street are under pressure to stanch defections while keeping compensation costs in check. So might they copy the practices taking shape at Goldman? The firm, which achieved record revenue and profit last year, often leads the way.
At least one rival started inching in that direction last year. Bank of America briefly pursued a plan to issue bonuses that would be exempt from the Rule of 60 tradition — that is, forfeitable regardless of age and tenure — until they vested. But an outcry from senior dealmakers and traders forced the bank to quickly back down and scrap its plan.
Goldman isn’t just withholding stock and getting strict with its six-month gardening leave for partners. Some executives have also been caught off guard by a clampdown on a lesser-known perk: The bank’s sponsorship of charitable giving through accounts it creates for partners as part of their pay packages.
The program — established in 2007 — recently changed its rules, forcing those who quit to wind down the balances quickly, or in some cases not giving that option at all. One executive said that when he was planning to leave, he pre-preemptively drained his GS Gives charity line before the bank could freeze it.
