Squeezing out Costs, before It's Too Late: Schwab, Eschewing Layoffs, Targets Executive Compensation

Article excerpt

It may be the holidays, but some financial services executives are letting the troops know that management does not plan to fiddle, Nero-style, as the equity market burns.

Charles Schwab Corp. is the latest financial services company to announce cost-cutting measures in the face of bloodletting in the stock market and a weakening economy.

But the San Francisco giant is taking a different tack than companies such as First Union Corp. and Bank One Corp., which -- certainly under more duress than Schwab -- have fired thousands and are looking to further trim bloat.

In a memo to employees on Wednesday, Schwab's 13-member executive committee said it is cutting executive salaries temporarily from the top down to "aggressively control expenses during this bear market." The cuts are effective through March 1.

Co-chief executives Charles Schwab and David Pottruck are to take 50% reductions in their base salaries, and the executive committee's other members, as well as executive vice presidents, are scheduled for 20% cuts. Senior vice presidents will take a 10% pay cut, and all other officers will lose 5%.

All first-quarter bonuses will be paid in stock options rather than cash, the memo said.

Schwab executives also announced a salary freeze and a cutback on overtime, along with other measures, until further notice.

Financial services companies have been hit hard by the recent downturn in the financial markets, which just a year ago were booming amid a seemingly endless bull run. Executives at Morgan Stanley Dean Witter & Co. said the effects of a decline in market activity was worsened by a spike in compensation costs -- the product of fierce competition for talent earlier in the year -- and a fourth-quarter profit decline was the result.

First Union, another company looking at ways to achieve efficiencies in the current market environment, slashed its dividend in half Wednesday to conserve $1 billion of cash annually. The Wall Street Journal reported that the company also sent its employees a memo outlining policies aimed at saving another $377 million.

Though declining to comment on savings goals, a spokeswoman said the company's latest cost-reduction moves -- such as a mandate to book travel through a designated online service that looks for the cheapest fares -- are "pretty basic financial discipline. …