Goldman’s Top Leaders Set to Score More Than $500 Million With Special Bonus

0:02 Bloomberg Audio Studios.

0:04 Podcasts.

0:05 Radio.

0:06 News.

0:09 You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube.

0:24 You ready to talk, Goldman Sachs?

0:25 Let's get into it.

0:26 Yeah, all right.

0:26 We got a big story here.

0:28 Headline on the Bloomberg, Goldman's special bonus for top brass set to exceed $ 500 million. CEO David Solomon could see more than $ 100 million. And joining us now, Chief Wall Street Correspondent Sree Natarajan.

0:42 Sree, welcome.

0:43 Those are big numbers. How many people are in the pool and how many ways is this going to be divvied up?

0:48 Charlie, it's most certainly a big number.

0:50 This is about 20 folks who will be in line to receive these payouts that will be finalized at the end of the month. So you still have two weeks to go. There's still a lot of room for the stock to move either way. If it goes up, the reward size will obviously go up. But if it doesn't, it's going to be a big deal. moves the wrong direction, the total price could come down. But what is interesting about this is just the breadth of this award. We have seen the biggest financial firms, the private equity firms and everyone else dole out long-term incentive packages for their top executive, for their top two or three executives. And that was how it was supposed to play out at Goldman Sachs as well when these awards were first announced

1:27 in 2021. It was only supposed to be for its CEO, David Solomon, and his deputy, President John Waldron. But at that time, there was some level of pushback from shareholders. Employees were annoyed as to why only those two executives were getting that award, especially considering that it was coming months after that same Goldman Sachs board had docked the CEO's pay over the bank's role in the loot of the Malaysian investment fund, 1MDB. What resulted from that pushback was the board agreed to broaden it, rope in more executives, expand the awards to the management committee. And suddenly you had roughly 20, 25 people who got these awards. And five years later, with about 20 of them still at the bank, the total payout is going to be one

2:14 pretty number.

2:16 That is definitely one pretty number.

2:18 And even split between 20, 25 people, incredibly sizable. Does this put then more pressure on expanding that group even further, rewarding the next tier of talent?

2:28 That's going to be very interesting.

2:30 Again, remember, after the 2008 financial crisis, we haven't even heard of these long-term incentive packages at banks for many years after the crisis. The idea that you would have the temerity to go to the board and say, we deserve long-term incentive packages, that was a complete no-no.

2:44 It was.

2:46 There was no chance that was happening.

2:47 It wasn't until 2020, 2021, the floodgates really started opening at that time after a bull run for the private equity industry. And you could see the kind of numbers that the private equity titans were raking, the hundreds and hundreds of millions of dollars that you could feel some of the big bank bosses feeling left behind and their desire and their hope. want to see some of these packages or as was a famous phrase back then the war for talent would mean that they would go on to greener pastures it wasn't going to be your banking seat anymore you would much rather go to a hedge fund or a private equity firm anywhere else where you will be paid a lot more if not even if you don't have the same prestige of say a Goldman

3:29 Sachs CEO. That started changing in 2021. We saw some packages. Then in 2024, again, we saw the banks dole out some packages for some of these senior executives. Again, those are some good numbers there. David Solomon has one more on standby on top of this package that we're talking about. That incentive award is roughly $ 80 million. No threshold need to be met. He just has to be at the, you know, tied to Goldman Sachs for another five years and he will get that reward.

3:54 So the mood has certainly shifted.

3:56 Yeah.

3:57 The banks have been in the driving seat and it's also clearly visible in their performance. The last five years have been a terrific run for the banks and especially for one like Goldman Sachs. When you've seen the activity in capital markets, the deal making, the trading bonanza, they're in a sweet spot.

4:13 All right. You mentioned the last five years. I want to focus on the last 12 months, actually the last 10 months. Year to date, how have shares of Goldman Sachs performed? One of your jobs as CEO certainly is to keep an eye on what's going on with the share price. But how have Goldman Sachs shares performed this year compared to the S & P 500 index?

4:33 Short answer, not great. Long answer, not great.

4:36 I mean, this year you could see it's not just Goldman Sachs across the banking sector. The big banks have significantly underperformed the broader indices, the S & P 500 or any other major index that you want to pick. And that's in line with what we've seen across the space, right? When we talk about the strength in the equity market, we're really talking about it being held up on the shoulders of, say, the Mach 7, some of the big hyperscalers and some of the big technology names. There hasn't been this broadening trade. So you could play both sides of the trade. You could actually say the future outlook might not be that good. The next five years might not be that good for a bank like Goldman Sachs

5:10 as the last five years have been for them.

5:12 Or if you're in the.

5:13 Other camp, and you expect a broadening of this rally, and you expect to see this growth backdrop that hasn't really weakened, and you expect to see that continue, then there is an argument to be made that some of these bank stocks may have been oversold and there might be room to run.

5:30 Very quickly, Shree, walk us through how we arrived at this payout figure.

5:36 So there were really two key thresholds for the bank to meet, to make sure that they got them, they hit all the maximum triggers on the award. One was just absolute return. They had certain benchmarks. The stock had to perform really well to hit the maximum levels there. And the stock did do really well. When these awards were put in place, the stock was around $ 400. Now it's around $ 900 a share. So that was an easy one to meet. The other one was the relative benchmark.

5:59 Goldman identified a group of six peers and And it had to be at the 80th percentile or above relative to its peers to hit the maximum threshold on that part of the grant. Even there, the bank has done really well. Last five years, the returns have been about 150 percent. The only one name in their peer group that has done better is Bank of New York Mellon, which is at 175 percent.

6:20 Very, very, very briefly, 10 seconds or less. Is this going to be a topic of conversation on the earnings call next week?

6:26 I think the topic of conversation on the earnings call will certainly be the next year and the next two years and not the last five years, so perhaps not.

6:34 Stay with us. More from Bloomberg Intelligence coming up after this.

6:41 You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.

6:55 Let's talk about PepsiCo.

6:57 The snack and soda company reported quarterly results this morning. Ken Shea is our go-to guy on snacks and soda. He is our senior consumer goods analyst for Bloomberg Intelligence. And Ken, the takeaway here from Pepsi's latest results is that the company has sounded the alarm over its North American soda business, but this is a situation where its snack sales have not been doing great either. So this doesn't sound good for PepsiCo.

7:26 Hi, Scarlett. Well, today's results, as you mentioned, it may be good and bad. It was good and bad. On a positive note, and one of the shares are probably up today, is that they beat on the top line and bottom line by a little bit. The concern, though, is that the success was skewed very much towards international. International, they've been investing heavily over the years to build scale in emerging markets and many markets around the world. It's now 45% of their business. I don't think a lot of people realize how big it is, and it's doing really well. Organic sales grew 8%. The problem with the company right now is North America. As you alluded to, both beverages and food grew a little more slowly than

8:06 they would like. On the food side, about a third of their business, margins were down pretty significantly. They're noting continued upward trends in input costs. And I think some of the concerns among investors is that they're citing that a lot of these hedges to a And so they lowered guidance today, mindful of that, mostly from a margin perspective.

8:31 And so that was kind of a mixed bag today with PepsiCo.

8:35 I'm just going to jump in because we have a red head, a hot head.

8:38 That means important breaking news happening. And across the Bloomberg terminal, there's a headline here that the U.S. is suspending an immigration program for multiple tech firms. It is suspending an immigration program for more IT companies for Cognizant, Infosys, and Tata. These are the Indian infotech companies. There's a lot of outsourcing taking place there. There was a lot of allegations that perhaps they were gaming the lottery system for H-1B visas.

9:04 So we'll keep you posted on further developments. But again, the headline here is that the U.S. is suspending an immigration program.

9:12 For multiple tech firms. Let's go back to Ken Shea to talk more about PepsiCo.

9:17 Emma?

9:17 Ken, so tell us a little bit about what's going on with the snack situation. Why are people not as into salty snacks?

9:26 Yeah, I am. Well, since earlier this year, PepsiCo said they wanted to revamp its snack business that you're alluding to here. And that is take a lot of the artificial colors and flavors out of Lay's and Doritos. with an overlay of things that are appealing to consumers today, like more protein and more fiber and things like that.

9:44 And they're doing that. I guess the problem is, though, since then, there's a lot of international events here that are raising prices on gasoline and interest rates and everything else, and consumers feel a little pinched. And so while these are pretty products and fit a lot of their needs, nevertheless, there is some economizing going out. So those are the cross currents right now where Pesco is in a situation where costs are rising and they don't want to raise prices, but they feel they may have to going forward.

10:17 Didn't they just cut prices on a bunch of products not so long ago?

10:22 They did. And they attributed that program to balance the volumes with the pricing. You know, since the pandemic, Scarlett, the company has been relying heavily on effective price increases to grow its top line at the expense of volumes. Only a year ago, volumes were trending negatively. So today, the food, today's quarter, the Pepsi Food North America's volumes are up 0.5 percent. Nothing to write home about, but nevertheless, still an improvement. And they've attributed some of that to the lower prices. But as I mentioned, with costs continuing to rise, it's really going to put them in a box.

10:59 You know, what do they do going forward?

11:02 The company's been struggling with various freight and logistics issues. Do we have a sense of how they might think to tackle that moving forward?

11:11 I'm sorry, did you say logistic costs?

11:12 Logistics and freights, yeah.

11:15 Yeah, logistics. I mean, the company has got a big direct store delivery routing system. It's one of their strongest competitive advantages. But in periods where diesel gas prices are rising, that's going to put a big pressure on their margins. And so, you know, that's going to weigh on them. A question was raised during the call about to what extent do you want to, you know, re-franchise some of the business to make it a little more asset light, to be less exposed to some of these commodities? And they just said, you know, you know, we're looking at all areas for reducing costs. So we'll see how they address that going forward.

11:53 Ken, is PepsiCo a company that's vulnerable to tariffs? Nathan Dean, our senior U.S. policy analyst at Bloomberg Intelligence, was saying that next year will be the year of tariffs in 2027 because President Trump, as a lame duck leader, will really be pushing forward on that, especially because a lot of those investigations were begun this year.

12:13 Well, they certainly would be exposed. We saw that, you know, earlier in the year. when the tariffs were working against them. Since then, as you know, they've been deemed illegal or whatever. And they've booked some refunds, even in this third quarter, which helped their costs a little bit. Those are running off.

12:32 And so in a period without new tariffs, that's great. But you're right. If they were to be reinstated, PepsiCo, like many other consumer product companies, would definitely feel a pinch.

12:46 Stay with us. More from Bloomberg Intelligence coming up after this.

12:52 You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.

13:07 We are in earnings season.

13:08 We haven't really hit the thick of it because that begins in earnest next Tuesday, Hema, when the big banks really report. I think four banks report all at once, but we're getting bits and pieces along the way right now.

13:18 Yes.

13:19 A lot of more data coming along as we expect.

13:22 Yeah.

13:22 And of course, a lot of questions over what the economy really looks like from the vantage point of companies.

13:28 So speaking of companies, let's dig into Levi Strauss.

13:31 We're joined by Lily Meyer, Bloomberg's Retail reporter Levi Stries posted the slowest growth in this direct-to-consumer channel since late 2022, in part because of marketing.

13:43 Lily, tell us what's going on.

13:44 Yeah, so direct-to-consumer has been a big push for Levi's CEO, Michelle Goss. And so it's notable that that channel struggled this quarter. But one thing that really stood out to me that was interesting was she had said that Part of the reason was this back-to-school campaign. So in the campaign, they really focused on loose jeans and missed the mark on low-rise jeans, which are more popular with consumers right now.

14:10 Are both 90s trends or is one more 90s trend than the other? Because they're really riding this 90s nostalgia wave, aren't they?

14:17 Yeah.

14:18 I mean, I would say low rise is like iconic 90s. Like Britney Spears era, right?

14:23 Exactly.

14:24 Exactly.

14:24 So that misstep in kind of not reading the trends right did hurt them this quarter. But they did mention that they're reorienting their marketing. They re-merchandise products. part of the store to really kind of focus on on that low-rise trend.

14:39 Were they not paying attention to the right consumer or the right age demographic how does one miss a trend like that when the focus of the whole company is frankly young people into their jeans.

14:49 Yeah i mean it's a it's a really good question i think i know they were selling low-rise jeans but i think in the marketing, they just kind of miss that moment. Okay.

14:58 Speaking of missing the moment, you also cover Lululemon and the company has missed the moment for a number of years now. And of course they had to change their leadership. There's a new CEO at the firm, Heidi O'Neill, who came over from Nike. And the hope is that she will steer Lululemon in the right direction. Athleisure is kind of out right now, you know, More dressy clothing is fashionable, low-rise jeans, as you put it.

15:25 What are we seeing her do so far?

15:27 Yeah, so in addition to the Levi news last night, Lulu announced their first kind of big move under Heidi, which was an appointment of two new executives with two executives leaving.

15:39 So before Heidi.

15:40 Came in, there was a lot of reshuffling of several executives left.

15:44 And so now we're getting.

15:46 Some new ones joining, including Maggie Gauger, who was the CEO of Athleta and before that worked with Heidi for decades at Nike.

15:54 What are the key things they're going to have to focus on fixing in order to take on the competition? Because there are so many of these new brands that are stepping into athleisure, athleisure.

16:05 Aloe, vori.

16:07 What do what is Lulu not doing that they should be doing?

16:10 Yeah, so I think product is a big area for Lulu to focus on. This past year, they had a big product mishap. They had to pull back some of their, some of the new line online for a little while while they fixed a sheerness issue.

16:22 So I think product will be a big piece for Lulu.

16:26 You know, repositioning themselves, getting the trends right. And then, you know, I'm curious to see how they win over new consumers and especially given the competition in this space, how they get consumers to choose them over the newer brands brands that you just mentioned.

16:41 How patient are investors going to be with this new CEO? Because what you just described sounds like a pretty big lift and it's not going to happen immediately.

16:51 It might take a couple of quarters. Yeah, I think that's an interesting thing to watch.

16:55 The market, when Lulu named Heidi, was not overjoyed by that.

17:01 So I think the pressure is on for her.

17:03 One Spot that should be helpful for her is that Lulu, right before she joined, settled with their really outspoken founder, Chip Wilson. And so that will be an interesting area to watch to see, you know, if that settlement holds through the full period. But I think that will be one less obstacle for Heidi to face, at least for now.

17:23 And they have a long way to go.

17:25 The stock price is, what, down 50% so far this year?

17:27 Yeah.

17:29 Yeah, I mean, the.

17:30 Market had been really accustomed to rapid growth at Lulu. I mean, they were posting like quarter after quarter of this really high growth and that slowed down. So that will be another area to watch if they can return to it.

17:44 So I talk a lot about the fact that I have this American Express Platinum card, which I got for the rewards and everything.

17:49 And one of the rewards or.

17:50 The perks is that you get $ 75 a quarter at Lululemon. And it's kind of hard to find something to buy sometimes. I go in there and like, you want to look for something at $ 75?

18:00 That's hard.

18:01 And then even if I'm willing to spend more, I can't really... find something to buy, even with $ 75 of it given to me.

18:08 Yeah, I mean, they've been criticized for some of their recent product. People have said, you know, they had this Disney collection that didn't do super well.

18:16 That's a weird one.

18:16 They leaned a lot into heavily logoed products, which is really a departure from their product in the past, which had that tiny logo in the back of leggings. So it'll be interesting to see how that product... Changes especially under Maggie Gallagher, who just got brought in to lead their product org.

18:33 And they're known for that fabric, right? That really comfortable, cozy fabric.

18:38 Unless it happens to be see-through, in which case, that's no good.

18:42 Have they managed to resolve that problem, the see-through leggings?

18:45 I feel like it happened, then it came back again. Yeah, so with that product, their Get.

18:50 Low line that had the see-through issue earlier this year, they put the product back online, but with the disclaimer that people needed to size up.

18:59 And wear sheer underwear because of the.

19:01 I feel like the person who's working out should not have to... They should wear whatever they're wearing to work out. They should be able to trust that their leggings.

19:10 Do the job. Listener, Lily Meyer is nodding her head.

19:13 LAUGHTER Yeah, I mean, I think they really have to kind of build back some of the trust. But I do think customers, especially customers who love the black leggings, really do trust them for that.

19:27 This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 10 a.m. to noon Eastern, on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.