The top executives at Merrill Lynch and Morgan Stanley, led by their chief executives John Thain and John Mack, will not receive bonuses this year amid growing pressure on Wall Street leaders to share the pain of the financial crisis.
Morgan Stanley also became the first large US bank to announce that employees would be forced to pay back some of their bonuses if they caused significant losses, or reputational harm, to the company.
Mr Thain on Monday told Merrill's board that neither he nor four other top executives, including president Gregory Fleming and chief financial officer Nelson Chai, should receive a bonus, according to people close to the situation.
The move came after The Wall Street Journal reported that Mr Thain had suggested to directors he deserved as much as $10m for his bonus this year. Merrill, which is to be acquired by Bank of America, declined to comment.
Mr Mack wrote in a memorandum to employees that "given the extraordinary challenges facing the financial industry", he and the company's co-presidents, Walid Chammah and James Gorman, would forgo their bonuses. The next tier of executives would see their compensation plummet 75 per cent over 2007, the memo said.
It is the second consecutive year Mr Mack has not received a bonus. His year-end payments for 2005 and 2006 totalled about $54m, but they were all in shares. Morgan Stanley's stock is down more than 70 per cent since those awards.
Under Morgan Stanley's new bonus scheme, part of employees' remuneration will be subject to a three-year "clawback" provision, meaning the company could take back some of a bonus if an employee caused, among other things, "a restatement of results, a significant financial loss or other reputational harm to the firm".
The decisions by Morgan Stanley and Merrill underline the growing scrutiny of Wall Street pay following government capital injections into leading banks.
Regulators and politicians have put pressure on Wall Street chiefs to exercise pay restraint at a time when many banks have beeing propped up by billions of dollars in taxpayers' money.
Andrew Cuomo, New York's attorney-general and a vocal critic of outsized Wall Street compensation, on Monday praised Morgan Stanley's move.
"Morgan Stanley and Mr Mack have taken a smart and prudent first step. American taxpayers have seen their investments crater while simultaneously having to fund the Wall Street bail-out with billions of their tax dollars. This gesture by Morgan Stanley is appropriate, and I hope other firms like Merrill Lynch will take it to heart," Mr Cuomo said in a statement.
Goldman Sachs' top seven executives have said they would forego bonuses and their Citigroup counterparts have told the board about their intention to do so.
Copyright: The Financial Times Limited 2008