Goldman Sachs Group Inc (NYSE:GS) managed to beat analysts expectations on earnings in the September quarter. The firm delivered its third quarter earnings report before the market opened on Thursday, and showed lower than expected revenue on better earnings.

Goldman Sachs

Despite the problems hitting banks like Citigroup Inc (NYSE:C) and JPMorgan Chase & Co (NYSE:JPM) in the same period. Citigroup earnings came in below expected in the period, and JPMorgan lost money for the first time in years in the fourth quarter. The secret of Goldman Sachs Group Inc (NYSE:GS) success is in its handling of compensation.

Goldman Sachs cost cuts

In a report on the Goldman Sachs Group Inc (NYSE:GS) earnings report, Brennan Hawken of UBS AG (NYSE:UBS) refers to the investment bank’s “remarkably flexible expense base.” Goldman Sachs used the flexibility of its cost base to earn above expectations despite the losses in revenue in the company’s FICC, or Fixed Income Clearing Corporation, business.

According to Morgan Stanley analysts Betsy L. Graseck and Michael J. Cyprys, Goldman Sachs has a tradition of keeping its compensation ratio steady through the third quarter, and adjusting it in the last quarter of every year. The firm changed that tradition this time around to deal with the lower than expected revenue.

The Goldman Sachs Group Inc (NYSE:GS) comp ratio came in at 35.4%, far below the expectations of analysts. Morgan Stanley (NYSE:MS) was looking for a ratio of around 43%, the number that the firm had been running at for the first two quarters of the year. It is the ability of Goldman to adjust this ratio quickly and effectively that allowed it to make a healthy profit in the third quarter, and that ability is not going away.

Goldman Sachs 2013 earnings

According to the Morgan Stanley report, the Goldman Sachs Group Inc (NYSE:GS) comp ratio will likely come in below the expected 38% in the fourth quarter. UBS AG (NYSE:UBS) reckons the company will make use of its flexibility on costs to deliver double-digit return on equity for shareholders.

Banks like Citigroup Inc (NYSE:C) and JPMorgan Chase & Co. (NYSE:JPM) are less flexible with their cost base, and that means their earnings numbers are more likely to suffer when revenues are down. Goldman Sachs Group Inc (NYSE:GS) has the benefit of flexibility, and that makes it more valuable today.