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Facing 'Critical Mass,' Goldman Slows Promotions Path

The path to being named a managing director at Goldman Sachs just got a little longer. In an internal memo obtained by CNBC and confirmed by Goldman the investment bank said it will name a new class of managing directors every two years, instead of on an annual basis, beginning in 2013.

"Doing it every other year doesn't detract from the opportunities at Goldman," said Edith Cooper, Global Head of Human Capital Management. She added it adds to the long term value proposition of working at the bank.

Being named managing director means an employee is a step away from being named partner at the firm, though only a few make the final cut to the partnership pool. Of the firms more than 32,000 employees only about 450, or 1.8 percent of its workforce are partners, roughly 2,000 or about 6.3 percent are managing directors.

In an internal memo, Goldman said the decision to change from an annual to a biennial selection process was made because the number of managing directors at the firm had reached "critical mass." It added moving to a biennial schedule had been planned when the firm first started naming managing directors back in 1996.

Still, at a time when belt-tightening is in vogue among the banking sector, it could also trim expenses.

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"I think they are saving a lot of money on administration," said Alan Johnson, CEO of the compensation advisor Johnson Associates. "The reason they have the partner schedule every two years is that it takes a lot of time. Naming MDs every two years frees up people to do other stuff."

Whether or not it also saves Goldman in compensation costs remains to be seen. A managing director's salary is higher than a vice president's salary and depending on the role, the MD's bonus as well.

Any savings Goldman derives in compensation will depend on the number of managing directors it names every two years. Over the last few years, the firm has named about 250 managing directors each year. But the firm does not have a target number in mind when it names the MDs, so there is no guarantee 500 MDs will be named in 2015.

The final number will depend on the economy, the bank's needs and the individuals' performances.

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The decision to name managing directors every two years comes seven months after Goldman altered another key stepping stone to success on Wall Street. Back in September the firm did away with two-year contracts for analysts outside of sales and trading and investment research.

Well respected on Wall Street, the analyst program was a calling card for many of its participants to explore opportunities outside of Goldman Sachs once the two years were up. Goldman said eliminating the two-year contracts would help an employee develop a clearer career path at the investment bank.

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Correction: An earlier version of this story stated that the firm did away with guaranteed two-year contracts, and the bonuses it paid, for analysts outside of sales and trading and investment research.


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