Guest comment: Cuts will come at the top

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Brad Hintz, analyst at Sanford Bernstein, says junior bankers need not fear redundancy - top staff will be first to go.

Wall Street isn't a kind place - we shoot our wounded and we eat our young. And if today's difficult credit conditions continue, there will likely be cuts in 2007. But this year doesn't look like the 2002 downturn; right now it looks like any cuts will be done with a scalpel rather than an axe. And with M&A backlogs and equity calendars still strong, managing directors will likely bear the brunt of any cuts.

Wall Street doesn't cut from the bottom. The scalpel is most likely to be used at the top, because that's where the bulk of the compensation expense is. For vice presidents and associates, cuts can therefore be a good thing - they get promoted faster.

The lifespan of a typical MD is around five years and that means that virtually none will get a gold watch at retirement. There is a sound reason for this: Wall Street wants the MD rank to represent to its junior employees a very large compensation carrot at the end of a relatively short - nine to eleven years - stick. The only way to keep the stick short is to continuously move current MDs off the carrot.

A great statistic to note: I worked at Morgan Stanley Group for 10 years. When I joined in 1985 my employee number was 32,363. That is, I was the 32,263rd person who worked at the firm since it was founded fifty years earlier. When I left in 1996, the numbers being assigned to new MS employees were over the 45,000 mark. How many full-service managing director and principal retirees did the firm have when I left? A mere 360. If you want a secure job through retirement, join the Post Office.

· Brad Hintz is the former CFO of Lehman and treasurer of Morgan Stanley

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