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At Goldman, Partners Are Made, and Unmade

On Wall Street, becoming a partner at Goldman Sachs is considered the equivalent of winning the lottery.

The Goldman Sachs booth on the floor of the New York Stock Exchange
Getty Images
The Goldman Sachs booth on the floor of the New York Stock Exchange

This fall, in a secretive process, some 100 executives will be chosen to receive this golden ticket, bestowing rich pay packages and an inside track to the top jobs at the company.

What few outside Goldman know is that this ticket can also be taken away. As many as 60 Goldman executives could be stripped of their partnerships this year to make way for new blood, people with firsthand knowledge of the process say.

Inside the firm, the process is known as “de-partnering.” Goldman does not disclose who is no longer a partner, and many move on to jobs elsewhere; some stay, telling few of their fate.

“I have friends who have been de-partnered who are still there, and most people inside think they are still partners,” said one former Goldman executive, who spoke only on the condition of anonymity. “It is something you just don’t talk about.”

Goldman has roughly 35,000 employees, but only 375 or so partners. The former Treasury Secretaries Henry M. Paulson Jr. and Robert E. Rubin, and former Gov. Jon S. Corzine of New Jersey, now chief executive of financial firm MF Global, were all partners.

It can take years to make partner, and being pushed from the inner circle can be wrenching.

“Being partner at Goldman is the pinnacle of Wall Street; if you make it, you are considered set for life,” said Michael Driscoll, a visiting professor at Adelphi University and a senior managing director at Bear Stearns before that firm collapsed in 2008.

“To have it taken away would just be devastating to an individual. There is just no other word for it.”

The financial blow can be substantial as well. Executives stripped of partnership would retain their base salary, roughly $200,000, but their bonuses could be diminished, potentially costing them millions of dollars in a good year.

While gaining the coveted status of partner, and then losing it, is certainly not unheard-of at private financial and law firms on Wall Street, Goldman’s partnership process stands out for its size and intricacy.

Goldman weeds out partners because it is worried that if the partnership becomes too big, it will lose its cachet and become less of a motivational tool for talented up-and-comers, people involved in the process say.

If too many people stay, it creates a logjam. The average tenure of a partner is about eight years, in part because of natural attrition and retirements.

Goldman insiders also note they have what they call an “up-and-out” culture, leading to the active management of the pool.

The process of vetting new candidates for partner and deciding which existing partners must go began in earnest in recent weeks, according to people with knowledge of the process, which takes place every two years. They spoke on the condition of anonymity.

The 2010 partners will most likely be announced in November. Candidates are judged on many qualities, primarily their financial contribution to the firm.

But lawyers and risk managers — who are not big revenue producers — can also make it to the inner circle. The executives responsible for running the partner process this year are the vice chairmen, J. Michael Evans, Michael S. Sherwood and John S. Weinberg; the head of human resources, Edith W. Cooper; and the bank’s president, Gary D. Cohn.

Goldman typically removes 30 or so partners every two years, said those people who described the process. The number is expected to be significantly higher this year because fewer senior executives have left the firm as a sluggish economy and uncertain markets limit their opportunities elsewhere.

Removing partners like this is unique to Goldman among publicly traded firms. When companies go public, they shed the private partnership system, and ownership of the company is transferred to shareholders.

Goldman’s ownership was also transferred to shareholders, but it created a hybrid partner model as an incentive for employees. Those whom Goldman does not want to keep are likely to be quietly told in the coming weeks.

Each situation is handled differently, the people with knowledge of the process say. Some partners are given time to find other jobs outside the firm. Others are told they will not be made partner and are asked to consider what they want to do next within the company.

While Goldman is on track to remove many more executives than usual, the process is in its early stages and no final decisions have been made, these people caution.

A Goldman spokesman declined to comment on how it selects and removes partners. The process is at the heart of Goldman’s culture, a way for the firm to reward and retain top talent.

Goldman was one of the last of the big Wall Street partnerships to go public, selling shares in 1999. When it was private, the partners were the owners, sharing in the profits, and in some cases having to put in money to shore up losses.

To retain that team spirit as a public company, Goldman continued to name partners. In 1999, there were 221.

Yet there are differences from past practices. When Goldman was a private partnership, it was rare that a partner would be asked to leave.

“Once you made partner, you typically retired as a partner,” said another former Goldman executive who used to be involved in the process. “If we asked someone to leave, it was because we had really screwed up and the person wasn’t pulling their weight.”

It has been a rough year for Goldman. In July, it paid $550 million to settle civil fraud accusations that it had duped clients by selling mortgage securities while failing to make critical disclosures.

The firm did not admit or deny guilt. Still, even in the worst of years, the chance to ascend into the private partnership at Goldman is a huge honor.

Candidates can be up for partnership two or even three times before finally being chosen. Partners get investment opportunities not offered to other employees, and are typically the highest paid at the firm.

Goldman will even book tables for them at fashionable New York restaurants. A big payday is not guaranteed, however. When the firm does not do well, partners tend to bear the brunt of it. Top Goldman executives did not receive bonuses in 2008, the peak of the financial crisis.

But in 2007, a banner year for Goldman, the firm set aside $20.19 billion for compensation and benefits, and its chief executive, Lloyd C. Blankfein, took home $68.5 million in stock and cash.

Candidates for partner are vetted by current partners. The review process is known inside Goldman as “cross-ruffing,” a reference to a maneuver in bridge.

A few hundred people are typically nominated within the whole company, and the number is eventually whittled down to about 100. Each department compiles a list of potential candidates, with photos and performance reviews.

Partners in another department review it. Candidates are not interviewed, and in many cases are unaware they are even up for partner.

When final decisions are made, it is usually Mr. Blankfein who breaks the good news to the new partners. Few candidates ever find out why they missed the cut. And Goldman announces only inductees, not those who have been removed.

Still, there may be a few telltale signs this year.

Goldman recently moved to a new building, just steps away from the Hudson River in Lower Manhattan. Outer offices are hard to come by, and typically given only to partners. Goldman insiders are already speculating that de-partnered executives who decide to stay will have to give up their window view.

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