The formation and growth of Goldman Sachs


In 1869, Marcus Goldman, a German Jewish immigrant, opened a small-business finance company in a one-room office in New York City, New York. Goldman's son-in-law, Samuel Sachs, joined the firm in 1882; and Goldman's son, Henry, and son-in-law, Ludwig Dreyfuss, joined in 1885 at which time the firm adopted its present name of Goldman, Sachs, & Company. But, how did a small finance company founded by a broker of commercial paper transform into a global leader in the investment banking, investment management, and securities industry?

An important component in the transformation of a prosperous business lies within the company's human capital and talent. And the successful acquisition of this component is derived from the competency and management of the company's HR department. According to a publication by PricewaterhouseCoopers, the key to sustainable competitive advantage comes from the ability to anticipate talent needs, optimize a talented workforce, and keep high retention rates. (PricewaterhouseCoopers, 2008)

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Goldman Sachs' Human Capital Management division is the company's most critical role in managing the firm's human capital and talent. This group is organized into teams that focus on building the company's workforce by attracting, developing, retaining, and managing their people. This team serves the company from locations across the world including the Americas, Europe, India, and Asia. They are responsible for various programs including recruiting, retention, succession planning, and risk management. The group is also responsible for workforce diversity, compensation, benefits design, employee relations, performance evaluation programs, and work-life initiatives.

An integral part in the Human Capital Management division is the recruitment team who focuses on graduate, diversity, and experienced hire recruitment. Graduate recruitment helps develop and implement the firm's entry level recruiting strategy. The group also promotes the firm to students at selected universities. They also facilitate candidate offers and on campus acceptance process as well as implement summer internship programs. According to Bloomberg-Businessweek, Goldman Sachs recruited on 121 undergraduate campuses in 2007-08 making job offers on 110 undergraduate campuses and recruited on 105 undergraduate campuses in 2008-09 making job offers on 74 undergraduate campuses. One of Goldman Sachs' recruiting tools is the company's undergrad intern program. Entry-level hiring included 1,049 people in 2008 of which 55% were undergrad interns and 399 people in 2009 of which 89% were under grad interns. (Gerdes, 2009)

In addition to graduate recruitment, the company's diversity recruitment expedites Goldman Sachs' aim to recruit a diverse group reflective of the communities and cultures in which they operate. This group is closely related to the Global Leadership and Diversity (GLD) team, whose job is to attract and retain a diverse employment population. Goldman Sachs bases its diversity recruitment on their Business Principle #7 which states that they are "constantly striving towards a more diverse workplace, both for the benefit of the firm and in order to more successfully meet the needs of our clients." (Sachs, 2011) And, the experienced hire recruitment team works to recognize and draw experienced professionals to the firm and manage internal mobility opportunities.

The company uses the Talent Assessment Group to determine individual development needs for employees. This group conducts surveys in order to measure employee satisfaction, engagement, and commitment. They also use the firm's performance review and feedback process to help department and division managers to develop their employees' talent. The company conducts substantial ongoing training and development programs which includes various areas such as products and markets, professional skills, leadership and management, diversity and inclusion, and division specific learning.

From a new-hire's first day, that person will be guided by both the manager and team. The company also uses both formal and informal mentoring programs. The company uses these programs to create supportive relationships that help develop skills, behavior, and insight to help employees to attain their goals.

Management at Goldman Sachs has based compensation practices on the premise that compensation should always reflect the performance of their company and employees. They also believe that the compensation framework and incentive structure should match the long-term evaluation of performance. This culture is positioned to align the long-term interests of company shareholders with the interests of their employees and to advance the company's philosophy of partnership.

During the 2009 Annual Shareholders' Meeting, Lloyd C. Blankfein, Chairman and CEO, expressed his opinion that firms need to establish principles and standards that focus on compensation. In order to keep the company in line with these compensation practices, management has established five compensation principles. They believe that "effective compensation practices should:

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1. Encourage a real sense of teamwork and communication, binding individual short-term interests to the institution's long-term interests;

2. Evaluate performance on a multi-year basis;

3. Discourage excessive or concentrated risk taking;

4. Allow an institution to attract and retain proven talent; and

5. Align aggregate compensation for the firm with performance over the cycle." (Compensation Principles, 2009)

Under the first compensation principle, management believes that compensation should reflect the company's performance as a whole and believes that employees should take ownership of the company's future whose thoughts and actions should reflect those of long-term shareholders. Employee performance evaluations are completed by superiors, subordinates, and peers. These evaluations include assessments in productivity, teamwork, citizenship, communication, and compliance. This structure is used to help advance the company's culture of stewardship.

Employee compensation includes an annual salary or commission along with year-end discretionary compensation. In order to ensure that the company's long-term performance remains a priority, management believes as total compensation, including equity rewards, increases then the amount of cash compensation awarded should decrease. Employees are made aware that they will forfeit their equity if that employee's actions results in a restatement of the company's financial statements or if that employee's misconduct results in legal or reputational harm. In addition to monetary compensation, the company provides a benefits package that includes health care, various insurance plans, and holiday/vacation policies.

Goldman Sachs has established a Compensation Committee comprised of independent directors. This committee reviews and approves the compensation structure including cash versus equity-based awards and all equity-based award terms (including vesting, delivery, transfer restrictions, and recapture criteria). The Compensation Committee reviews the company's compensation programs to assess appropriateness and ability to meet company objectives. The committee retains an independent compensation consultant who works for the committee instead of being an employee of the company and who assists in the review of the compensation programs. This committee even evaluates the CEO's performance before awarding his compensation for that fiscal year.

Goldman Sachs pays employees for individual, division, business area, and overall company performance. The company holds the belief that this type of industry places high demand on employees. The company also believes that people should be rewarded for their success and believes that it provides a highly competitive pay scale.

The company rewards its employees with annual base salary, annual discretionary year-end bonus, local allowances, health care, insurance, holiday and vacation policies, and retirement and financial plans. Employees are offered the Goldman Sachs Wellness Exchange to support their health and well-being and to help them manage their personal and family responsibilities. Services to support health and well-being include on-site medical professionals and health centers, on-site fitness centers or off-site subsidies, patient advocacy and critical health solutions assistance, ergonomic work station evaluations, and recreational activities and events.

In addition to monetary rewards, the company also offers personal and family responsibilities assistance programs. These programs are comprised of child care resources which includes backup child care on-site and near-site centers, employee assistance program, flexible work arrangements, leave-of-absence policies (marriage/domestic partner leave, maternity leave, parenting leave, adoption leave, public services program leave). The company also offers counseling and referral programs, adoption assistance, resources for expectant and new parents, and maternity mentoring program.