A New (Pay) Day Is Dawning

Wall Street's newest version of risk management is upon us.

In what's being dubbed in some circles as a "remarkable" move, Morgan Stanley said recently it was instituting a bonus policy that will essentially hold back a piece of an employees' bonus for three years, pending proof the individual didn't engage in conduct detrimental to the firm. It's called a "clawback."

Creative, to be sure, but the remarkable aspect from this vantage point is this: what about the past three years?

I keep reading about how these CEOs of financial-services companies are "forgoing" their bonuses, as if we're supposed to be impressed by their humility, or inspired by their decisive action. Instead we're left shaking our heads.

Executive compensation at Wall Street firms is a bizarre topic, even in normal times. There's a perverse fascination with how much these guys make, and some folks seem genuinely shocked that - surprise! - it's a lot. But when John Mack tells his troops at Morgan Stanley that he has recommended to his compensation committee that he and a few of his underlings will "forgo" a bonus for 2008, I just don't know what to think:

'Tough call, sir. Your stock's only down about 60% this year, and the company you steer only wrote down tens of billions in bad bets 'detrimental' to the firm, and you only made 50 bazillion in the past five years. You sure you want to be so hard on yourself?'

We can all hope that "compensation committees" around the financial-services globe don't have to be told by their CEOs that maybe, just maybe, they didn't earn the extra pay this year. After all, aren't bonuses doled out for good work? The argument you typically hear - with some effect - is that the bonus was for the previous year's work. Well, there's surely not much to merit a performance bonus this year, unless you think it's a right and not a privilege that is to be earned.

One refreshing aspect of the middle-market landscape, besides the fact that dealmaking didn't quite come to the screeching halt it did in bulge-bracket circles, is that this whole issue of wildly excessive pay is, well, not much of an issue. Surely not to the extent that it is at larger shops. Of course, no one here begrudges anyone what they've earned or what they're entitled to, and in some way most of us might prefer that Street execs were still pulling in ungodly bonuses; at least we'd know things were still flush. But don't try to come off as if you're doing us favor by not taking a bonus when in fact you're lucky to still have your job.

Thomas Granahan
thomas.granahan@sourcemedia.com