Goldman Sachs 2012 Annual Report Download - page 51

Management’s Discussion and Analysis
2012 versus 2011. Operating expenses on the consolidated
statements of earnings were $22.96 billion for 2012,
essentially unchanged compared with 2011. Compensation
and benefits expenses on the consolidated statements of
earnings were $12.94 billion for 2012, 6% higher
compared with $12.22 billion for 2011. The ratio of
compensation and benefits to net revenues for 2012 was
37.9%, compared with 42.4% for 2011. Total staff
decreased 3% during 2012.
Non-compensation expenses on the consolidated
statements of earnings were $10.01 billion for 2012, 4%
lower compared with 2011. The decrease compared with
2011 primarily reflected the impact of expense reduction
initiatives, lower brokerage, clearing, exchange and
distribution fees, lower occupancy expenses and lower
impairment charges. These decreases were partially offset
by higher other expenses and increased reserves related to
our reinsurance business. The increase in other expenses
compared with 2011 primarily reflected higher net
provisions for litigation and regulatory proceedings and
higher charitable contributions. Net provisions for
litigation and regulatory proceedings were $448 million
during 2012 (including a settlement with the Board of
Governors of the Federal Reserve System (Federal Reserve
Board) regarding the independent foreclosure review).
Charitable contributions were $225 million during 2012,
including $159 million to Goldman Sachs Gives, our
donor-advised fund, and $10 million to The Goldman
Sachs Foundation. Compensation was reduced to fund the
charitable contribution to Goldman Sachs Gives. The firm
asks its participating managing directors to make
recommendations regarding potential charitable recipients
for this contribution.
2011 versus 2010. Operating expenses on the consolidated
statements of earnings were $22.64 billion for 2011, 14%
lower than 2010. Compensation and benefits expenses on
the consolidated statements of earnings were $12.22 billion
for 2011, a 21% decline compared with $15.38 billion for
2010. The ratio of compensation and benefits to net
revenues for 2011 was 42.4%, compared with 39.3% 1
(which excludes the impact of the U.K. bank payroll tax)
for 2010. Operating expenses for 2010 included
$465 million related to the U.K. bank payroll tax. Total
staff decreased 7% during 2011.
Non-compensation expenses on the consolidated
statements of earnings were $10.42 billion for 2011,
essentially unchanged compared with 2010. Non-
compensation expenses for 2011 included higher
brokerage, clearing, exchange and distribution fees,
increased reserves related to our reinsurance business and
higher market development expenses compared with 2010.
These increases were offset by lower other expenses during
2011. The decrease in other expenses primarily reflected
lower net provisions for litigation and regulatory
proceedings (2010 included $550 million related to a
settlement with the SEC). In addition, non-compensation
expenses during 2011 included impairment charges of
approximately $440 million, primarily related to
consolidated investments and Litton Loan Servicing LP.
Charitable contributions were $163 million during 2011,
including $78 million to Goldman Sachs Gives and
$25 million to The Goldman Sachs Foundation.
Compensation was reduced to fund the charitable
contribution to Goldman Sachs Gives. The firm asks its
participating managing directors to make
recommendations regarding potential charitable recipients
for this contribution.
1. We believe that presenting our ratio of compensation and benefits to net revenues excluding the impact of the $465 million U.K. bank payroll tax is meaningful, as
excluding it increases the comparability of period-to-period results. The ratio of compensation and benefits to net revenues excluding the impact of this item is a
non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies. The table below presents the calculation of the ratio of
compensation and benefits to net revenues including and excluding the impact of this item.
$ in millions
Year Ended
December 2010
Compensation and benefits (which excludes the impact of the $465 million U.K. bank payroll tax) $15,376
Ratio of compensation and benefits to net revenues 39.3%
Compensation and benefits, including the impact of the $465 million U.K. bank payroll tax $15,841
Ratio of compensation and benefits to net revenues, including the impact of the $465 million U.K. bank payroll tax 40.5%
Goldman Sachs 2012 Annual Report 49