Greg Smith is the new folk hero. The executive director of Goldman’s ‘US EMEA equity derivatives business’ is being lauded as honest, courageous and a role model for students after printing his resignation letter in the New York Times and claiming the firm has become interested in nothing more than making money for itself, regardless of the implication for its clients.
Smith's accusations have not been commented upon in detail by Goldman Sachs. Lawyers point out that the New York Times appears to think they're true, otherwise the paper could vulnerable to being sued for libel.
Who was Greg Smith?
Smith makes it clear who he was in his letter: a Goldman lifer. He joined the firm as an intern and he stayed there for 12 years.
Smith is a high achiever. He is a South African who got a scholarship to Stanford and then went to Oxfordas a Rhodes Scholar.
In his letter to the NYT, Smith displays self-affirmative behaviour common among high achieving types: “I was selected as one of 10 people (out of a firm of more than 30,000) to appear on our recruiting video, which is played on every college campus we visit around the world,” he says.
What did Smith do at Goldman and how much did he earn?
Smith describes himself as: “Goldman Sachs executive director and head of the firm’s United States equity derivatives business in Europe, the Middle East and Africa.”
Headhunters point out that an executive director is equivalent to a VP. “Head of the firm’s US equity derivative business in EMEA,” seems to imply that Smith was head of a sales team selling US equity derivative products to European clients, although this isn't certain. The Wall Street Journal claims that Smith's team comprised one person: him.
ED/VPs at Goldman in London earn varying salaries. Headhunters point out that when Goldman increased its salaries a few years ago, it didn’t do so uniformly. Some VPs are therefore on £175k; some are on £250k. Smith only came to London in 2011, so would have received a New York salary prior to that.
Smith would probably have received a bonus as well, but this year Goldman paid a lot of zeroes. At most, therefore, he may have earned around £700k for 2011. At least, he may have earned £175k.
Why else might he have written that letter?
As we noted earlier, Smith’s departure seems curious.
If he left under a compromise agreement, Jane Mann, head of employment law at Fox Williams, says it would been usual for him to sign a non-disparagement clause. Compromise agreements are common when employees are made redundant or move to a rival firm. They are usually a precondition to departing employees receiving all their unvested stock.
That he’s disparaged his former employer heavily in the New York Times, therefore implies that Smith has left without receiving his unvested stock. “He may just have walked out,” says Mann.
Why would he have done this? Maybe it was, as the letter points out, simply because he felt Goldman had become morally dissolute. Other factors could possibly have contributed: Goldman is understood to have reduced salaries for many of its VPs and has been selective about who it who it allocates bonuses to. Was Smith affected? Apparently so: the Wall Street Journal says Smith's small bonus was a source of friction.
Having come over from New York last year (possibly with a young family), it’s also possible that Smith found his new role in London less appealing than he'd anticipated. After after spending 12 years at the firm, he hadn’t been promoted to MD. In this context, if Goldman also cut his salary and reduced his bonus, he may have been justifiably put out. All this is speculation: we’ve tried calling Smith, but he’s not answering the phone. It's always possible that Smith's salary and bonus were perfectly acceptable and he'd just had enough.
Higher stock bonuses coming soon at Goldman?
One likely outcome of Smith’s actions seems to be that Goldman will pay less cash and more stock in its bonuses in 2012.
As we’ve noted, Goldman Sachs has been paying a very high proportion of its bonuses in cash. This being the case, Smith may have been moved to resign without signing a compromise agreement because he didn't care financially: after years of cash bonuses, he may have been leaving very little stock on the table. Given the furore caused by his letter, it seems probable that Goldman will move to discourage this in future. Heavily deferred bonuses are the obvious answer.