Thursday, July 3, 2008

Lehman Celebrates Banner First Half By Awarding Bonuses

Lehman Brothers has opted to issue shares to all employees representing 20% of their equity compensation for the year.  According to the Financial Times: "The early partial payment of annual bonuses follows demands from employees who believe the stock, hammered this year during the credit crunch, is likely to rise significantly in value."  Let me get this straight.  Employees think the stock is too low, they are mad, so they asked to be paid bonuses right now.  The company, who worries about "talent" fleeing to competitors, decided to pay its employees part of their bonuses now, rather than waiting until the end of the year.  Do I have that right?  A few minor facts seem to be missing from the above interpretation, the most important being that the company is losing buckets of money and suffering from a major crisis of confidence.  I have a much better idea.  How about awarding bonuses after the company has dug itself out of the hole?  After all, bonuses are discretionary (although rare instances of guarantees exist).  Everyone gets a nice fat salary.  Nobody is going to starve without a bonus.  Furthermore, anyone out there that can name a single investment bank that is hiring more employees than it is sacking gets a gold star.
I understand that Lehman has a serious morale problem.  I certainly get that employees are really angry, particularly those that were going about their business slaving away in departments unrelated to the mortgage crisis.  However, that is one of the risks of choosing a career in investment banking, as opposed to something a bit more stable.  The money is good in good years because banks make oodles of cash.  In bad years, you should expect to get paid less and possibly lose your job during a big downsizing.  It happens every six to eight years, so I'm not sure why employees feel they are entitled to a bonus when their employer is getting absolutely annihilated.  If you want a steady, guaranteed income, go work for Proctor and Gamble.  Otherwise, how about socking away money in the good years so that when you think the stock is cheap, you can go buy some.  
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