I've looked through the archives of the New York Times back through 1981 and I can't find a period when Wall Street CEOs decided not to take a bonus. But that's what's happening today, as Bear Stearns Companies (NYSE: BSC) James Cayne and other top execs and Morgan Stanley Inc. (NYSE: MS) CEO John Mack are foregoing bonuses for 2007. The only exception is that in 2003, Citigroup Inc. (NYSE: C)'s then-CEO Sanford Weill took his bonus in options on 1.5 million shares of Citigroup stock instead of cash after Citigroup paid $300 million in fines. But Cayne and Mack are getting no bonus, period.
Why are they doing this? Because it's going to make it easier for them to stiff lots of employees who they don't think will be essential to making a profit in 2008 and 2009. Investment banks have less bonus money to go around and they will try hard to pay enough to their top performers to keep them from jumping ship. If they can keep these top performers around, then they will be able to reap the rewards in the future. In the meantime, those no-bonus CEOs will need to make do with the hundreds of millions they've gotten in the last few years.
Meanwhile, my brief stroll through Wall Street's recent history reveals previous periods of bonus pain -- none as bad as 2007 though. Not surprisingly, these bonus cuts happened in years when Wall Street got in trouble: 1987, and 1994 to name a couple. Here are some details.
- 1987. According to the New York Times, the now defunct junk bond king, Drexel Burnham cut its bonuses from 35% of pay to 7.5% and then-private Goldman Sachs Group (NYSE: GS) cut bonuses from 25% to 22% of base pay.
- 1994. According to the New York Times, then Salomon Brothers chairman Warren Buffett decided that since the bond firm, now part of Citigroup, had lost $1 billion, all but a few of the its 200 managing directors would be guaranteed a salary of $400,000, but they would receive a bonus only if Salomon hit its profit target. Since this didn't happen they didn't get their bonuses -- prompting at least 25 to leave.
I could not find any previous periods where prominent Wall Street CEOs have gone without bonuses. If you can, please comment below. I guess things are pretty bad down there.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns Citigroup stock and has no financial interest in the other securities mentioned.
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Reader Comments (Page 1 of 1)
12-19-2007 @ 11:26PM
BamBam said...
I believe that the top several hundred executives at Citi, including board member Bob Rubin, should receive a zero bonus this year.
12-21-2007 @ 6:25PM
bruce said...
that's more generous than they deserve
12-20-2007 @ 11:04AM
JJC said...
In addition to having been fired, can Prince of Citigroup be sued for stupidity??? He clearly was at sea on management and risk issues. He, along with Al Dunlap and Eugene Kahn (of May Dept. Stores debacle), may be the dumbest CEO's in the last 20 yrs.