Up and down Wall Street yesterday, traders and investment bankers were discreetly celebrating the demise of efforts by Salomon Brothers to challenge the way they are paid, by more closely tying salaries to overall company results.
All eyes have been on Salomon since October, when management announced a new pay plan designed to rein in some of the extravagance. If successful, it would almost certainly have been emulated by other securities firms equally anxious to cut costs by trimming salaries and the huge bonuses that often go with them.
But while the proposal was popular with the bank's shareholders and supported by the board, it infuriated Salomon's senior traders, some of whom will see their basic pay cut by almost two-thirds this year compared with 1994. The controversy triggered a damaging exodus from the company which in recent weeks has lost more than two dozen directors and traders.
In an apparent effort to staunch the losses, Robert Denham, chairman, sent a brief memo to staff at the end of last week, saying the board had decided "the compensation system employed for managing directors at Salomon for 1996 will be changed so as to be based on performance and market compensation levels".
Traditionally, securities firms have supplemented the basic pay of their workforces by paying often stellar bonuses from a central bonus pool. The level of bonuses was tied to the performance of individuals and often their departments. The doomed Salomon plan would have tied pay directly to the return on equity for the whole customer-service side of the bank.
The retreat is extremely embarrassing for Salomon, which in recent weeks has been bruised by avalanches of bad publicity over larges losses in fixed-income trading last year. The brunt of the criticism has been borne by Deryck Maughan, appointed chief executive in 1991 by Warren Buffett. Even his wife, Va Maughan, has not been spared the poisoned ink with references to an allegedly domineering personality.
At Salomon, officials offered no comment on the Denham memo. They indicated that a replacement pay system had not yet been fully devised. It remains possible the company will attempt some reform in its pay policy but of a kind that can be implemented more gently.