Why Is Goldman Sachs Fast-Tracking Junior Bankers?

Published: Nov 09, 2015

About 16 months ago, I posted a blog entitled, An Open Letter to Wall Street Recruiters: What Junior Bankers Really Want. In it, I suggested that investment banks, in their efforts to better their offerings to entry-level employees, shouldn't focus on increasing salaries and bonuses as much as on increasing job responsibilities, including:

More deal experience and better deal experience. More senior-level work (or at least higher-level work). More fast-track promotions. More internal mobility. More international work placements. More interaction with your C-suite. More interesting work. More challenging work. More work that could be used no matter where (and to which industries) the future might take you.

Apparently, someone was reading or, more likely, came to the same conclusion, because last week Goldman Sachs unveiled a new fast track promotion policy for those in its junior ranks. And it's a policy that other banks (Goldman's competitors) are going to be hard-pressed not to follow. (The same thing happened a couple years ago when Goldman unveiled its Protected Saturdays policy; soon after, other Wall Street firms were forced to follow and announced similar policies of their own.)

In any case, Goldman's new policy now gives analysts, after their second year, an automatic third year as an associate. And during that third associate year, they'll be offered a rotation in an international location such as Hong Kong if they were working in New York, or offered a post with a different unit of the bank such as merchant banking if they were working in M&A.

The policy also aims to minimize the so-called analyst grunt work, which mainly consists of putting together endless pitch books, glorified marketing documents given to potential new clients that require endless hours of soul-crushing work, which can be extra soul crushing when your fellow analysts are working on high-profile live deals, gaining experience and war stories they can talk about in future interviews.

In addition, the policy offers the best and brightest young bankers the chance to reach the VP level in just five years, down from six. And, in effect, removes the need of an MBA if investment banking is indeed where you know you want to work for the first part of your career. (An interesting aside: a Bloomberg columnist points out that Goldman's new policy could "de-value the MBA, at least at banks.").

Yes, all of the above policy changes will result in fatter paychecks, but most important is the fact that they all point to more responsibility and more challenges earlier in one's career. Because it is this, and not necessarily money, that young jobseekers, the so-called millennials, want most. And this is what other industries such as technology have been giving them for the past five to 10 years. Here's the Wall Street Journal on the subject:

Goldman’s new effort is perhaps the most significant sign to date that banks are making big changes to accommodate the professional desires of the millennial generation, which increasingly sees Silicon Valley or other corners of Wall Street as equally prestigious career options.

“This generation is different,” said Jeanne Branthover, head of the global financial-services practice at Boyden, an executive-search firm. “They want and are serious about having a work-life balance. Most are saying `I know this looks good on a résumé, so I’ll do this for two years. But I’m using this to go somewhere else.”

The millennial generation—those roughly 18 to 34 years old—now makes up the largest share of the U.S. workforce, about 34%, outnumbering Generation Xers and baby boomers, who account for about 32% and 31%, respectively, according to the Bureau of Labor Statistics.

As the Journal points out, along with the reason of trying to better compete with technology firms for millennial talent, Goldman is also trying to better compete with other financial firms. Goldman is likely (and rightly so) fed up with firms on the buy side (private equity firms, hedge funds, and other investment management firms) poaching their young employees after Goldman has spent considerable time and money on training them, and training them very well. Of course, it's not just Goldman that's tired of spending time and money on training junior employees only to see them poached by the buy side. Other top banks are tired of this as well.

As an example, a few weeks ago, I was speaking with the head of PR at another prestigious Wall Street firm (not Goldman), and the topic went to PE recruiting, and specifically to the fact that PE firms are recruiting investment banking analysts earlier and earlier, well before their first years on the job are up. He told me, "They don't even know where the rest room is and they're already getting buy-side offers."

In other words, it's Goldman's hope that analysts will choose to stay at the firm as associates and rise to VP, rather than joining the KKRs and TPGs of the world, and then going back to HBS or MIT.

But will it work? Will Goldman's new policy result in more of its analysts choosing to rise its ranks rather than leaving the firm and, perhaps, the banking industry as well?

I don't know. But what I do know is this: I don't like to bet against Goldman.

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