Bonus Update: Merrill Lynch, Morgan Stanley

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Merrill Lynch's average employee bonus is set to drop 50 percent compared with last year.

And Merrill's top five executive asked the board's compensation committee not to pay them any bonus for 2008. Citing unnamed sources, The Wall Street Journal reports late Monday that Chief Executive John Thain backed away from asking the board to pay him as much as $10 million. The paper also reports that Morgan Stanley's chief executive John Mack decided not to take a bonus for the second year in a row. Mack's top two lieutenants won't be getting bonuses either.

According to Bloomberg News, Merrill Lynch division managers were told last week that bonuses will average about half of the 2007 figures, "and some traders and investment bankers will face steeper cuts." Individual amounts will be communicated to employees later this month.

The reduction is roughly in line with industry-wide expectations, which fell throughout 2008 and declined more sharply this quarter after Wall Street's biggest institutions accepted a taxpayer-funded bailout. Merrill Lynch reported net losses of $11.67 billion so far this year. Its revenue collapsed 96 percent in the first nine months compared with the same period a year ago, and its share price is down 73 percent this year. For the first nine months, Merrill set aside $11.2 billion for compensation and benefits - just 3 percent below the year-ago amount.

An unnamed Merrill employee told New Jersey's Trenton Times: "It's pretty disappointing. Most of us aren't big money-makers here. People hear the words Merrill Lynch and they think of big shots who drive luxury cars and make six figures. But the majority of times, that's not the case."

String of CEOs Forego Bonuses

Merrill's compensation committee and full board of directors met Monday to hear Thain's formal bonus bonus recommendations for himself and other senior executives.

According to the Journal, Thain had been lobbying the compensation committee "for months" that he deserved a multi-million dollar bonus for having saved Merrill from collapse by agreeing in September to sell the firm to Bank of America. That deal won approval from both companies' shareholders Friday. But Thain apparently backtracked Monday, when Morgan Stanley's Mack became the latest in a string of big-bank CEOs foregoing bonuses this year. Previously Goldman Sachs, UBS and Deutsche Bank said their top executives won't receive year-end payments.

Thain's annual salary is $750,000. He also received $15 million cash signing bonus upon joining Merrill in late 2007 and a pay package that was valued from about $50 million to $120 million over a number of years, the Journal says. He is set to stay on after the acquisition closes, and will run Bank of America's combined global banking, securities and wealth-management business.

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