Goldman Sachs 2015 Annual Report Download - page 52

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Derivative contracts and other transactions, including
secondary bank loan purchases and sales, entered into with
third parties are not always confirmed by the counterparties
or settled on a timely basis. While the transaction remains
unconfirmed or during any delay in settlement, we are
subject to heightened credit and operational risk and in the
event of a default may find it more difficult to enforce our
rights. In addition, as new complex derivative products are
created, covering a wider array of underlying credit and
other instruments, disputes about the terms of the
underlying contracts could arise, which could impair our
ability to effectively manage our risk exposures from these
products and subject us to increased costs. The provisions
of the Dodd-Frank Act requiring central clearing of credit
derivatives and other OTC derivatives, or a market shift
toward standardized derivatives, could reduce the risk
associated with such transactions, but under certain
circumstances could also limit our ability to develop
derivatives that best suit the needs of our clients and to
hedge our own risks, and could adversely affect our
profitability and increase our credit exposure to such
platform.
Our businesses may be adversely affected if we are
unable to hire and retain qualified employees.
Our performance is largely dependent on the talents and
efforts of highly skilled individuals; therefore, our
continued ability to compete effectively in our businesses,
to manage our businesses effectively and to expand into
new businesses and geographic areas depends on our ability
to attract new talented and diverse employees and to retain
and motivate our existing employees. Factors that affect
our ability to attract and retain such employees include our
compensation and benefits, and our reputation as a
successful business with a culture of fairly hiring, training
and promoting qualified employees. As a significant
portion of the compensation that we pay to our employees
is paid in the form of year-end discretionary compensation,
a significant portion of which is in the form of deferred
equity-related awards, declines in our profitability, or in the
outlook for our future profitability, as well as regulatory
limitations on compensation levels and terms, can
negatively impact our ability to hire and retain highly
qualified employees.
Competition from within the financial services industry and
from businesses outside the financial services industry for
qualified employees has often been intense. Recently, we
have experienced increased competition in hiring and
retaining employees to address the demands of new
regulatory requirements. This is also the case in emerging
and growth markets, where we are often competing for
qualified employees with entities that have a significantly
greater presence or more extensive experience in the region.
Changes in law or regulation in jurisdictions in which our
operations are located that affect taxes on our employees’
income, or the amount or composition of compensation,
may also adversely affect our ability to hire and retain
qualified employees in those jurisdictions.
As described further in “Business — Regulation —
Compensation Practices” in Part I, Item 1 of the 2015
Form 10-K, our compensation practices are subject to
review by, and the standards of, the Federal Reserve Board.
As a large global financial and banking institution, we are
subject to limitations on compensation practices (which
may or may not affect our competitors) by the Federal
Reserve Board, the PRA, the FCA, the FDIC and other
regulators worldwide. These limitations, including any
imposed by or as a result of future legislation or regulation,
may require us to alter our compensation practices in ways
that could adversely affect our ability to attract and retain
talented employees.
We may be adversely affected by increased
governmental and regulatory scrutiny or negative
publicity.
Governmental scrutiny from regulators, legislative bodies
and law enforcement agencies with respect to matters
relating to compensation, our business practices, our past
actions and other matters has increased dramatically in the
past several years. The financial crisis and the current
political and public sentiment regarding financial
institutions has resulted in a significant amount of adverse
press coverage, as well as adverse statements or charges by
regulators or other government officials. Press coverage and
other public statements that assert some form of
wrongdoing often result in some type of investigation by
regulators, legislators and law enforcement officials or in
lawsuits.
40 Goldman Sachs 2015 Form 10-K