At Goldman, Partners Are Made, and Unmade

On Wall Street, becoming a partner at Goldman Sachs is considered the equivalent of winning the lottery.

This fall, in a secretive process, some 100 executives will be chosen to receive this golden ticket, bestowing rich pay packages and an inside track to the top jobs at the company.

What few outside Goldman know is that this ticket can also be taken away.

As many as 60 Goldman executives could be stripped of their partnerships this year to make way for new blood, people with firsthand knowledge of the process say. Inside the firm, the process is known as “de-partnering.” Goldman does not disclose who is no longer a partner, and many move on to jobs elsewhere; some stay, telling few of their fate.

“I have friends who have been de-partnered who are still there, and most people inside think they are still partners,” said one former Goldman executive, who spoke only on the condition of anonymity. “It is something you just don’t talk about.”

Goldman has roughly 35,000 employees, but only 375 or so partners. The former Treasury Secretaries Henry M. Paulson Jr. and Robert E. Rubin, and former Gov. Jon S. Corzine of New Jersey, now chief executive of financial firm MF Global, were all partners.

It can take years to make partner, and being pushed from the inner circle can be wrenching.

“Being partner at Goldman is the pinnacle of Wall Street; if you make it, you are considered set for life,” said Michael Driscoll, a visiting professor at Adelphi University and a senior managing director at Bear Stearns before that firm collapsed in 2008. “To have it taken away would just be devastating to an individual. There is just no other word for it.”

The financial blow can be substantial as well. Executives stripped of partnership would retain their base salary, roughly $200,000, but their bonuses could be diminished, potentially costing them millions of dollars in a good year.

Goldman weeds out partners because it is worried that if the partnership becomes too big, it will lose its cachet and become less of a motivational tool for talented up-and-comers, people involved in the process say. If too many people stay, it creates a logjam. The average tenure of a partner is about eight years, in part because of natural attrition and retirements. Goldman insiders also note they have what they call an “up-and-out” culture, leading to the active management of the pool.

The process of vetting new candidates for partner and deciding which existing partners must go began in earnest in recent weeks, according to people with knowledge of the process, which takes place every two years. They spoke on the condition of anonymity. The 2010 partners will most likely be announced in November.

Candidates are judged on many qualities, primarily their financial contribution to the firm. But lawyers and risk managers — who are not big revenue producers — can also make it to the inner circle. The executives responsible for running the partner process this year are the vice chairmen, J. Michael Evans, Michael S. Sherwood and John S. Weinberg; the head of human resources, Edith W. Cooper; and the bank’s president, Gary D. Cohn.

Goldman typically removes 30 or so partners every two years, said those people who described the process. The number is expected to be significantly higher this year because fewer senior executives have left the firm as a sluggish economy and uncertain markets limit their opportunities elsewhere.

Removing partners like this is unique to Goldman. When companies go public, they shed the private partnership system, and ownership of the company is transferred to shareholders. Goldman’s ownership was also transferred to shareholders, but it created a hybrid partner model as an incentive for employees.

At most firms, employees aspire to become so-called managing directors, a title that typically bestows higher pay and perks. Goldman also appoints managing directors, but partners are a cut above that — they are called “partner managing directors” — and that selection process is much more elaborate. There are still a handful of smaller, privately held financial companies on Wall Street, and executives can be stripped of their partnerships at those.

Those whom Goldman does not want to keep are likely to be quietly told in the coming weeks. Each situation is handled differently, the people with knowledge of the process say. Some partners are given time to find other jobs outside the firm. Others are told they will not be made partner and are asked to consider what they want to do next within the company.

While Goldman is on track to remove many more executives than usual, the process is in its early stages and no final decisions have been made, these people caution.

A Goldman spokesman declined to comment on how it selects and removes partners.