eFC Briefing: Bonus Clawback Plan

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Morgan Stanley ups the ante on permanent compensation reform. Financial services layoffs are broadening and in some cases accelerating, based on December job-cut announcements and the latest U.S. Labor Department data.

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Morgan Stanley's bonus overhaul outlined Monday applies clawbacks both more broadly and more aggressively than a similar plan unveiled by UBS three weeks ago. The new Morgan Stanley program starts with this year's bonuses and covers all bonus-eligible employees. In contrast, the UBS reforms begin next year and is limited to corporate executives, division leaders and designated "risk takers" who trade significant amounts of the bank's capital.

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. Meanwhile, Morgan Stanley's chief executive John Mack decided not to take a bonus for the second year in a row.

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Financial services layoffs are continuing apace, with a wide range of firms making moves early in December. They include substantial workforce reductions at Credit Suisse (affecting mostly investment bankers), State Street Corp., the combined Nomura/Lehman Brothers operation in London, and Washington Mutual's former headquarters in Seattle. Also hit: hundreds of commodity traders at Constellation Energy, and recruiting positions at global headhunter Michael Page International.

In the last three months, the U.S. securities industry shed a net 17,600 jobs - close to its fastest pace of decline in at least a decade. As a percentage of the industry work force, employment in securities is shrinking at roughly twice the pace of U.S. employment as a whole, and almost twice as fast as the broad finance sector (which also encompasses bank lending, insurance and real estate).

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Top-tier private equity firm the Carlyle Group is laying off about 100 people, or 10 percent of its workforce, and closing at least two offices. The victims range from back-office staff to some of the firm's dealmakers, Investment Dealers' Digest reports. Carlyle also is closing an office in Menlo Park, Calif., recently closed a 10-person Warsaw office, and terminated a seven-member Asian leveraged finance group. A number of big hedge funds are cutting staff too, says a separate IDD story.

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While financial layoffs in Asia have yet to approach the massive numbers being seen in Europe and the U.S., the vulnerability of jobs there is increasingly apparent. Chicago-based Citadel Investment Group and Japan's Nomura Holdings became the latest institutions reportedly planning staff cuts in Hong Kong as well as Japan.

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Layoff announcements notwithstanding, financial services executives profess an appetite for opportunistic hiring and also voice greater optimism about acquisitions and capital investment than their counterparts in other industries, according to McKinsey & Co.. A McKinsey survey last month found that "Just over a fifth (21%) in financial services said they were keen to hire talent that otherwise would have been unavailable, compared to 20% in professional services, 16% in high-tech and 10% in manufacturing," reports Financial News.

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The financial crisis and its consequent layoffs will make it increasingly easier for businesses to find quality workers for financial technology and Web work, Informationweek reports. The supply/demand balance has shifted in favor of employers, with more IT financial technologists looking for work but fewer jobs for them to fill - at least in the U.S. New York, Seattle and Charlotte, N.C., where Wachovia is located, are expected to lose the most financial technology jobs.

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American International Group, kept alive by more than $100 billion in credit from the U.S. government, reportedly plans sizable cash "retention payments" for 130 executives and other employees. According to Bloomberg News, AIG is gearing up to dole out special cash awards of 100 - 300 percent of salary for senior executives and up to 100 percent of salary for another group of employees not as high in the corporate hierarchy. And most of the 130 executives also will receive 2008 bonuses next March.

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