Jack and Rick Take on Goldman Sachs' Latest Layoffs and Wall Street Compensation

[Music] hey everybody and welcome to this special episode of the blind ambition with Jack Kelly it's your friend Rick from blind and today I've asked Jack to come on the show and break down this headline he's covered in forms Goldman Sachs is having another round of layoffs it's going to be about 3% to 4% of the banks bull head count which ends up being around, 1300 to 1,800 jobs and the kicker here which is why I want Jack to break it down for us is it's connected to the annual review process and the bank the executives have come out saying hey these folks that are getting cut we're doing it because of performance reasons it's not a typical reorg layoff it is performance focused now did I get that right jack yeah you know so this is what I think is so unfair it's not just G today we're talking about Goldman Sachs really well regarded one of the to tier invest you know investment Banks there is and what happens on Wall Street is kind of coldblooded every year sometimes a couple times a year call the herd so what happens they'll take supposedly the the low perform performers you know the people who feel are not up to Snuff and just let them go and it's harsh it's cold it's brutal and not only that it's not just a layup the challenge is this so let's say Rick and I are Goldman Sachs and we're let go the Press is showing that they're letting go low performers non-performers words to that effect so if we're going to now go and interview at Morgan Stanley or interview with Deutsche Bank or a hedge fund or a private Equity shop the companies aren't stupid they're going to say h why did Jack and Rick get chosen to leave the company wow while there's 40,000 people at the company already why did they leave why were they asked to leave is there a problem is there an issue so now all the do you not do you lose your job but now you have this stigma attached hey you're a non-performer you're a low performer you're not up to Snuff you know there's something wrong you didn't do something right so now that follows you so imagine going to an interview and the interviewer at a Morgan Stanley they're gonna you know human nature they're going to be curious hm are we taking a leftover from somebody is this a bad person is this someone who did something really bad did they do in started trading did they do something questionable and now that sticks with you so Rick I don't think it's like that in the tech sector but it's a really cold way in my opinion really cold way of doing it now if they didn't put on the imperor of low performer and words to that effect okay why you say that it plants that seed for other people to look at you in that way it just seems like a double tap of negativity losing a job having this like prejudice against you because maybe it was your fault something happened so it's like not only do I not want you I'm going to screw you so that you can't get a job anywhere else it's The Scarlet Letter that's gonna stick on your resume oh my that's a great way to say Scarlet like hey beware of this person with the Scarlet Letter on this is a problem watch out for this person and then you know what think about this this is what's also so crazy this is what drives me nuts if you have a thousand people getting laid off they make it sound like it's nothing oh it's only 1300 people only 1300 people where the hell are the managers if there's a thousand people that are not performing up to a certain level whose fault is that wouldn't you have to point to the managers and say wait a minute are you doing your job are you training them are you coaching them are you mentoring them are you reskilling them are you doing everything you can to to to bring them up maybe it's not the workers's fault and this is another reason why it's so frustrating for people because it could be the managers who suck like like why do we absolve them of everything if they were good managers presumably they would see that their people aren't really doing well so they'll do everything in power to bring them up so they don't have to be cold right I mean and we ignore that part I wonder and so this is my my days when I wanted to be a lawyer Young Rick time yeah but a lot of these big law FBS they have these so-called up or out policies where you know after five seven years if you're not a partner at the law firm you're let go is that the case at some of these Wall Street Banks Goldman Morgan Stanley what have you do they have a similar practice in terms of hey you know if you've been at the firm for this couple of years and you're not on that partner track or you're not in executive yet is that how they're kicking these butts of the managers is it in another roundabout way or does that culture not exist or does it exist in a different way on Wall Street that's a really good question what happens is this with Wall Street it's similar to the way you're describing but a little different let's say you're an investment banker you're doing deals you're doing merges and Acquisitions you know you're doing underwriting for IPOs what have you and you're the Hot Shot you're doing great but then all of a sudden there some years go by maybe you lose some clients the economy is different maybe not so great so now let's say Rick and I were like hot shot Young investment bankers but due to the economy due to other events due to our age maybe things are changing and now it's kind of what you're saying about the law firm they may tap us on the shoulder and say hey guys you know you had a great run but we're looking at the numbers and we're paying you you know a million a year and you're not really generating that much so um uh sorry so it's a little similar like it's your expiration date all right really good you really helped us you made a lot of money but you're not making us money anymore so see you take care It just strikes me of this culture of what have you done for me lately right there's this recency bias in terms of like hey are are you producing right now here in this last year or whatever that cycle might look like it's it strikes me because intact I find that there's not the same culture you know you could be a senior software engineer and that could be your terminal level and no one would bad an eyelash like hey Rick why aren't you a staff software engineer why aren't you a director why aren't you a CTO you know if you're just killing it at coding shipping all the time that's fine um or you know if you are laid off by Google I'm sure Microsoft would love to have you right I'm sure Apple would love to have you there's hundreds thousands of startups that would dream picking you up right so they could say hey hey we have a former Google engineer now at now at our startup again this is why I wanted to chat with you about it it just strikes me as so right what happens to these thousands of people and I imagine these Banks Goldman everyone else does this every single year do you just have to leave the industry entirely does it snc you that bad do you have to go down a tier because it just seems so especially brutal when Goldman does it so many people want to work at Goldman what if you finally make it and you're just part of this herd that gets called this year are you just screwed all out of the whole Finance industry because Goldman has put this brand on you you know the positive side to working in finance is that unlike Fang where you may have half a dozen or plus top tech company everyone wants to work for finance it is is really large I think a lot of people don't realize how big that industry is you have everything from wealth management to money management to hedge funds to private Equity to trading you have fintech so there's so many different ways you can move your career so let's say you have that Scarlet Letter you can move to different areas you may have the background experience to Pivot into merges and Acquisitions you could maybe pivot into private Equity hey all right it didn't work at Goldman because you were doing this but you really do have the knowledge the background the credentials you could go somewhere else so you can tell me if I'm wrong it just seems to me there's so so many more outlets for people to go within the financial sectors because even with Finance you have insurance you have so many different practices that you can move into that you can make a nice living and do well where I think with tech you really and again tell me if I'm wrong about this all the attention really is for that's like the Mecca and if you're not there you're nowhere it is similar to Wall Street where you want to be in the top Echelon whether JP Morgan Bank of America KKR which is Big private equity and so forth but even if you can't do that there's so many other you know mid-tier what have you now you might take an ego hit so if you go from Goldman and you go to maybe a second tier Investment Bank you might say uh but at least you have a job you know you're still on the game right where I think within Tech it's hard because you're you're you're fighting over just a limited five six companies at least when I see I'm blind all the time so you're fighting everybody else brush it up on their Elite code and doing whatever you can to make sure that you get into there where with finance and Wall Street I think it's more open and it's also across the whole us and international so like you could actually work in different countries in different cities in different states so I think you have more Mobility it sounded harsh when we started talking about what do you do next if let's say you're laid off from a Gman or another bank there are lots of other opportunities for good smart people wow I I appreciate sharing that other part of the coin because in Tech my understanding having been in this industry for so long is is everyone wants to go to these five six companies because those simply are the companies that pay the best tech it seems analogous to finance in the sense that there are many different Specialties different Industries certainly many different company sizes that you can work at but God like the pay difference from this top tier to the second tier or God forbid tiers below is just so significant that you really feel it on the way down you really feel it on the way out where you might have to change your entire lifestyle maybe that's not the case is what I'm getting from from what you're saying Jack in finance where maybe the there's just more off-ramps and that offramp is less steep it doesn't kick you in the butt on the way out as much as it might do in Tech well let me ask you with tech if you're in Fang it sounds like there's like a big drop off if you go down tiers like how much money let's say for typical let's say someone working for Amazon or apple I see the what they're what people are saying on blind that they're making 500 600 700 800,000 is that is that accurate or are they hyping it or what's what's the real deal that goes on yeah I'm glad you asked because part of it is a bit of a hype right where you're pumping it up and that's largely because if you look at the stock market most of the gains in the biggest 500 companies the S&P 500 it's pretty much the seven companies right the so-called magnificent 7 and they're primarily tech companies the Amazon the nvidias the metas so that's why those end up being the seven or 10 companies that everyone in Tech wants to work at because stock-based compensation is such a big part of compensation packages when you're looking at your TC your total compensation a lot of folks their initial Grant in their offer letter might be something to the effect of base salary is going to be K and you are going to get a stock package worth 500k split up over four years so your first year technically on peer your compensation is actually 200 plus the 125 325,000 but what ends up happening is as your stock gets released to you as it invests over time the stock value the share price actually trades up because you know they're innovating they're coming up with all these new you know Technologies and products and services where the company is becoming more valuable that $125,000 stock grant that you got every year ends up being worth 200 300 400 and so your total compensation ends up being 600 700k every single year when on paper you know it was just supposed to be that 125 and that big drop in terms of that high level to you know a startup is especially extreme because it's all about the liquidity right if you work at meta you get that stock you can sell it immediately as it bestest because you can go to Fidelity you can go to E Trade you can go to you know meril Lynch Robin Hood and buy meta right now today every one knows exactly what the share price is going to be there's a market where you know you're going to be able to sell it but if you work at these startups even these huge companies about to go public that liquid Market doesn't exist right so you have basically lottery tickets where you can't necessarily sell your shares if you do try to sell your shares you're not necessarily sure what you can get for them there's all these marketplaces and we've had them on the show but that market is opaque people might not necessarily you want to buy it or you might have to wait four five seven 10 years even for that liquidity event to happen whether it's a secondary sale of shares or that eventual IPO or an acquisition so you could be sitting on a lot of paper cash you know that recruiter that offer letter will say at a startup hey you're going to get 100,000 shares and you're like great but you can't sell it or you have to sell it at a discount so that's that that big drop it really comes down to that stock based compensation I've been on the other side where on paper my stock compensation was supposed to be 100K and the company actually does poorly the shares trade down and so you're actually seeing a PE cut it's not something that anyone at the company likes but I've been there too so so let me just understand this if you're in the right company and is doing well and your stock appreciates that 125 and the Bas will be like almost chump change compared to what you're going to get on the appreciation of your stock right so is that so is that so is it almost like you guys are gambling on the tech side where you're gambling that you find that right company and maybe that's why everyone wants to go to Fang because they feel like the Stock's always going to go up and if it always goes up and you have a lot of that stock you're going to be freaking rich is that is that the game is that how it works a little bit sort of I mean it's less of a game in the sense that you know meta Amazon the volatility is not quite there it's not a meane stock the variation isn't going to be that crazy right these typical offer letters at these large companies when they're describing your compensation most a salaries are going to be the same if you're going to be a senior professional on the business side or a software engineer it might be something like 200 to 250 and that band is pretty tight it's really the stock compensation that's different right so there's certain roles like engineering Tech side they might earn more stock than someone that is you know on the HR side or on the marketing side you'll get something in your offer letter that says you know $400,000 but invest over four years and so you do a little bit of math and you end up saying oh that's $100,000 a year so they'll give you $100,000 worth of stock whatever that might be and it's usually based on a certain date um after you join or or a certain point of time in the year where they'll like take a snapshot of what is our stock trading on on that day and then give you that many shares and you just got to Hope oh well I got 50 shares oh lucky for me our our stock actually went up and so my 100K of stock is now worth 120 or 200 or whatever that might be Rick what I find so interesting and funny is that if you ask any person at random about tech vers Finance Wall Street they would say oh the wall streeters are the gamblers they're the ones taking the risk but the more I'm hearing you talk about it it's different let's say you're at a Barkley's Deutsche Bank or you know you know good firms but you know you know not let's say Goldman and Morgan Stanley or JP Morgan or the big PE you'll get a really nice space and then you get a large bonus so most of the money on Wall Street and finance it's the bonus time they get little stock for the most part maybe some big Executives get some stock but it's really the bonus so you're working the whole year hoping you'll get your bonus in fact a lot of a lot of people who work on Wall Street their salar is just to pay the bills and all that but then they wait for the end of the year where you get that big bonus and then you're like yeah the gamble is that you could have a bad year but you're you're crushing it all along like think about what going on now in the market everything is going up up up up all of a sudden Nvidia is going down the stocks are going down so you could have this great year and then all of a sudden uh not so great and now your bonus could be what they call a donut or zero or a bag immediately literally you could have been crushing it almost all year and then in like November early December things go bad and like oh sorry Jack sorry Rick you got a bagel you got like a zero on your bonus or very little bonus so that's gambling you're hoping you're going to hold your job and then get a good bonus on your side with tech you got to hope that the company you're with your Equity is good and it's nothing goes wrong with your company because then you can say oh my God all right my base is all right but now whatever is going wrong with my company RSU restricted stock unit RSU so you have rsus but like if your company all of a sudden something goes wrong then you're skunk too right you did all that hard work and maybe you don't have much to show for so I guess both sides you're gambling on what you right like how it's going to play out well the pr person in me would say no it's not a gamble because it's to align incentives we're in the same company together we all want the company to do well we're getting shares of the company because we're literally part owners of the company and so that's to reward you for the hard work it's almost like a profit sharing where it seems like on Wall Street you're getting car hold car cash right for your bonus and Tech that cash bonus is is less frequent some companies do have it in addition to the stock and your base salary but it's primarily stock right so there's almost two kind of gambles if you're working at a startup you're getting stock options instead of restricted stock units for the most part with stock option you actually have to buy them with your own money at a certain strike price at a certain price and you're hoping that one the price that I'm allowed to buy those shares at is low enough or lower than what the eventual value might be if IPO or whatever then second that the company eventually hits that Milestone where someone wants to buy the stock or the stock becomes liquid because you know I've been companies where buy my stock for my stock options and I'm just sitting on the stock I don't really have a good way to sell it the value might even go down because you know um in in 20120 2021 a lot of tech was flying high these companies were raising at these crazy evaluations and so on paper the stock uh went up but now we're in 2024 that might not be the case there's no liquid market so you're kind of making this guess but what if I had joined in 21 got these stock options that were priced really really high and now I have to wait and hope that the company will eventually get to those same levels or grow into that valuation for my stock options to be worth or something alternatively you work at you know a not so cool public company the stock goes down and so I was promis k a year but now it's you know the stock gets haved and now I actually have 50 DK and stock it's like great I I got a pay cut oh this this opens up a door let me just kind of think this throughout loud because I'm blind on the blind platform and you know I would encourage anybody who is going to watch this to check it out because it's interesting to learn what goes on behind the scenes in different Industries in different sectors so what I'm what I see is this within the finance area here's kind of a drawback or or maybe a little Pitfall is that let's say you're a stock broker wealth manager money manager what have you the incentives is that you need to sell more you have to do certain things but by doing so we see on a regular basis like oh my God here's what happened this terrible thing because you get big bonuses based upon your productivity human nature you're going to push the envelope let's say you're a stock broker insurance rates are going up mortgage rates are going up everything food is going up you're like oh I need some extra money maybe I'm going to tell Rick this stock you bought let's let's let's get you out of this stock and put you in this stock so now the broker will get some more commission money because they're churning your account a little bit because they got to come up and that's just one little example of it on the finance Wall Street side I don't know if the same thing happens in Tech because Tech is is seems to me kind of like you can't fudge the number to Goose up your total package yeah I'm I'm trying to figure out if there's an analog in Tech right obviously we have Tech sales where you can structure a deal in a way that gives that sales rep more commission up front or something like that but you know if you're a marketing professional or a PR guy like me I I get that stock no matter what the cause and effect in my day-to-day work is less clear right obviously as an engineer your work the code that you're producing ends up being the product that we can sell great the pr gets that publicity and hopefully drives more sales more qualified leads by marketing but there's less of an impact in terms of how I can kind of goose up my own numbers because it's it's at a company level yeah you you have to massively coordinate and and obviously that's what the company wants right like everyone wants you all to put in those crazy work hours so that everyone's shares can be valuable you almost have this Collective action problem where you really have to get every want to not rest in vest to like work really hard rather than kind of more immediate thanks for breaking down the state of Wall Street for us Jack and what these kind of annual performance related layoffs look like and and what it actually means for those people that are affected and how that affects their compensation packages it's it's it's unfortunately we have to talk about the calling and the low performers but you know what this is what it is the value that you and I add is by giving some color and context to what's going on sometimes you just have to have this calm Nuance conversation where you could really delve into hey what is going on so people who are trying to navigate their careers may say you know what listen to Jack and Rick I think the tech area is really good maybe how can I kind of crush over and vice versa so I think it opens up ideas particularly when it's a tough White Collar market for finding jobs I think that's the value that we offer in part is to show hey here are different things you could take a look at that maybe you didn't even know existed and if you lost your job and looking for a new one hey maybe you could go into Finance go into Wall Street so we we'll keep doing these kind of shows so that we could help people navigate their careers grow their careers make more money and build a future for themselves that's it for the blind ambition if you enjoyed the show please leave us a festar rating and a review and don't forget to subscribe wherever you get your podcast thanks for listening [Music]