Goldman Sachs 2000 Annual Report Download - page 36

assets managed. In 1999, approximately 55% of the increase
in assets under management was attributable to net asset
inflows, with the remaining 45% reflecting market apprecia-
tion. Securities Services net revenues increased 6%, due to
higher average customer balances in our securities lending
and margin lending, partially offset by reduced spreads in our
fixed income matched book. Commissions rose by 11% as
fees earned on higher transaction volumes in global equity
markets were partially offset by a reduction in our increased
share of gains from our merchant banking funds.
Operating Expenses
In recent years, our operating expenses have increased as
a result of numerous factors, including higher levels of
employment and compensation, increased worldwide
activities, greater levels of business complexity, and addi-
tional systems and consulting costs relating to various
technology initiatives.
34 Goldman Sachs Annual Report 2000
The following table sets forth our operating expenses and number of employees:
Operating Expenses and Employees
Year Ended November
($ in millions) 2000 1999 1998
Compensation and benefits $ 7,773 $ 6,459 $3,838
Nonrecurring employee initial public
offering and acquisition awards 290 2,257 —
Amortization of employee initial public
offering and acquisition awards 428 268 —
Brokerage, clearing and exchange fees 573 446 424
Market development 506 364 287
Communications and technology 435 306 265
Depreciation and amortization 486 337 242
Occupancy 440 314 207
Professional services and other 639 402 336
Charitable contribution —200 —
Total operating expenses $11,570 $11,353 $5,599
Employees at year end(1) 22,627(2) 15,361 13,033
(1) Excludes employees of Goldman Sachs’ property management subsidiaries. Substantially all of the costs of these employees are reimbursed
to Goldman Sachs by the real estate investment funds to which these companies provide property management services.
(2) Includes 2,600 employees related to the combination with SLK.
2000 versus 1999. Operating expenses in 2000 were
$11.57 billion compared with $11.35 billion in 1999.
Excluding the charge related to our combination with SLK in
2000 and the nonrecurring charges associated with our ini-
tial public offering in 1999, operating expenses increased
27%. This growth was primarily due to increased compensa-
tion commensurate with higher net revenues as well as the
incremental costs associated with global expansion, higher
employment levels and increased business activity.
Compensation and benefits expense was $7.77 billion, an
increase of 20% over 1999, primarily due to higher head-
count and compensation. While total compensation and ben-
efits increased compared with 1999, the ratio of compensation
and benefits to net revenues decreased to 47% from 48% in
1999. Employee compensation for 2000 included both
restricted stock units and stock options. Employment levels
increased during the year due to growth in our core busi-
nesses and our combination with SLK. Expenses associated
with our temporary staff and consultants were $680 million
in 2000, an increase of 58% compared with 1999, reflecting
greater business activity, global expansion and consulting
costs associated with various technology initiatives.
Brokerage, clearing and exchange fees increased 28%, pri-
marily due to higher transaction volumes in equity deriva-
tives and U.S. and European equities. Market development
expenses increased 39%, reflecting higher travel and