Squeezing out Costs, before It's Too Late: Schwab, Eschewing Layoffs, Targets Executive Compensation
Ring, Niamh, American Banker
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. …