Elimination of Bonuses Creates Discontent on Wall Street
Reacting to public pressure and direct governmental influence, UBS AG has decided to eliminate cash bonuses for senior executives of its investment bank, and plans to reduce bonuses firm-wide, according to an article by Carrick Mollenkamp in the February 6, 2009 edition of the Wall Street Journal. The plan calls for UBS to reduce bonuses by a whopping 80%. “Frustrations inside UBS boiled to the surface” over the plan and the potential loss of talent and deleterious effect on the franchise, according to people familiar with the matter.
Due to their receipt of taxpayer bailout money, other firms are being forced to consider similar draconian cuts or even elimination of bonuses. The difficulty is that employees who have worked hard for the benefit of the firm have been led to expect and feel entitled to large bonuses. Such expectations will inevitably lead to similar frustrations between employees and firms boiling to the surface, which may, in turn, lead to departures and claims that promises were reneged on.
The discontent on Wall Street stems, at least in part, from the fact that many employees being deprived of their bonuses did not have a hand in creating the problems that led to pressures to curtail bonuses. Certain segments of the affected firms have seen a disastrous year while other segments may have been much less so or even profitable. This raises questions about the fairness of slashing bonuses firm-wide. Why should all employees suffer because of the mistakes of a few senior managers?
On the other hand, if a Wall Street firm as a whole has failed miserably, should anyone be entitled to bonuses? This issue is particularly problematic when one considers that it is taxpayer money, not corporate money, that has to be used to pay any bonuses. Is it really different than other businesses that don’t pay bonuses, even to exceptional employees, when times are bad?
Still the lack of a cash bonus is likely to create difficult financial situations for employees who depend on the bonuses. At UBS, concern has been expressed by some senior managers that an erosion of confidence in the bank could get out of hand. Questions have arisen over how to respond to clients concerned about news reports that the bank will be downsized. The fight is on internally at UBS to try to prevent this from turning into the proverbial abandonment of a sinking ship. If the top talent flees to greener pastures, employees will need to reassess their situations and take steps to protect their interests.
Page Perry, LLC is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. The firm also has an active practice in representing individuals in employment disputes with brokerage firms. The firm is currently involved in representing several brokers in such disputes. In the past year, the firm has won arbitration award for clients in employment disputes in the amounts of $1.7 and $3.9 million. For further information, please contact www.pageperry.com.
