Posted by: John Gilmore | September 16, 2006

Lehman Employees and the Wall Street Compensation Model

I would like for us all to stop and really think a minute about what is happening on Wall Street. Bear Sterns has collapsed and Lehman Brothers will soon follow. I have written a couple of prior articles on greed and Wall Street and what the Bible has to say about focusing your life on wealth – and where this leads. I believe it’s important that we all get a firm grasp on what is happening – because it’s going to affect all of us in very big ways – and soon.

Wall Street recorded record profits from 2004-2007. Everything seemed to be going gangbusters – and greed blinded almost everyone to the warning signs. We now see that these record profits have come at a very high cost – Wall St. loses are now exceeding those profits and stock prices of financial firms are plummeting. The housing market continues to decline and the overall stock market is extremely volatile. We have explored in a blog post what is happening to our economy – it’s collapsing. It doesn’t take a PhD in Economics to see this – only an understanding of basic mathematics. Our monetary system requires infinite growth in a finite world – the math simply doesn’t work. What happens to infinite systems in a finite world? At some point – they will collapse. I have listened to many people (Economists included) who have said that the current economic imbalances present in the world economy cannot continue forever – but will correct themselves at some point before things get completely out of hand. This is based on the flawed assumption that the authorities in charge (political and financial leaders) would never let the world’s economy collapse. It’s a very big assumption – and it’s wrong. Things are going to get worse – much worse.

Again, from the world’s perspective – we can come up with many reasons why all of this is happening – our monetary system, ‘credit crunch’, very poor decisions by people in power, etc. It takes a true child of God – someone who can hear His voice – to truly understand what is happening. Our nation has become squarely focused on money and wealth – it permeates our entire society. It’s really just a symptom of what has really happened to us – we have turned away from God and His ways and have decided to follow the world and its ruler. Wealth is only one symptom – there are many. We live in the most violent society on earth. We are the most incarcerated nation on earth (#1 by a long shot). We allow and even promote abortion and celebrate homosexuality. There are now only a few in the world today who will call this what it is – an utter and complete rejection of God and His laws. We like to tell the world we are a Christian nation – we are not. Let’s stop living in denial and face the truth. There is a remnant of true believers in this country – but they are few. Through them – will we listen to God and turn away from the path we’re on?

Ladies and Gentlemen, in the coming months, the United States of America will watch its wealth evaporate. What was once the world’s richest, most powerful nation – will be plunged into financial ruin. The world will be amazed at how quickly this happens. All of us will see the Lord’s promises put into practice – walk away from Him and you become naked and blind – and think that you’re on top of the world. Wealth will not be the end of this. If we remain on this evil path – expect famine and continued harsh weather patterns (droughts, floods, hurricanes, wildfires). Also remember, we have many enemies in this world who will laugh at our predicament – they will try to exploit our weakness. This is the way of the world – it offers no protection. We thought we had real power and security and could fight off any enemy – and learned that it wasn’t our power that gave us protection. We have learned that the Lord has removed His hand of protection and the devil has taken us over from within. Why use brute force when you can infiltrate and deceive and gain the same results? We cannot take him on alone.

We must get on our knees and return to the Lord – or the United States of America will cease to exist as a sovereign nation in the very near future. I give us maybe 20 years if we remain on this path. There will be no freedom in this world.

I recommend that we all read Ezekiel chapter 14 until we completely understand. It’s time to believe the truth and reject the lies. It’s time to take a stand and fight – according to God’s will – using His weapons. The political ‘beast’ will not gain control of the world without a fight – even if there are only a few of the Lord’s warriors in the world who are on the field of battle.

September 12, 2008, 5:29 pm
Lehman Employees and the Wall Street Compensation Model
Posted by Heidi N. Moore
Wall St. Journal
Lehman Brothers Holdings has so much phone volume right now that callers are being warned to prepare for long delays. The same goes for many of the securities firm’s 24,000 employees, whose hard work the past five years is being wiped out by Lehman’s plummeting stock price.

That is because Lehman, like many other investment banks, lavished stock on its employees for two reasons: to align employees’ interests with those of other shareholders and to keep them in their seats while paying less cash, which would deplete balance sheets. (Compensation is by far the biggest cost for Wall Street firms, typically 45% to 55% of revenue).

Most of Lehman’s top bankers receive their stock in restricted stock units, about one-third of which vest after three years and two-thirds of which cliff-vest after five years. For 10 years, such RSUs have helped build and preserve Lehman’s tight-knit culture of employee ownership–they hold roughly 30% of the company’s stock. A headhunter said a few years ago: “Anyone who has been at Lehman since at least 1998 is basically unhireable by another firm, because they have something like $20 million in stock.” As Lehman itself pointed out in this filing: “The vesting provisions….mean that a Managing Director at Lehman Brothers, on average, holds more than two times their annual total compensation in the form of equity at any point in time. This creates a strong incentive for the firm’s employees to preserve and grow shareholder value.”

But now, Lehman’s plunging stock price is wiping out a fairly large part of the pay employees got for the record profits earned in the boom years of 2004-2007. Then again, the record losses being posted now have wiped out those boom-year profits and then some.

It is the same across Wall Street. Bear Stearns’ bankers and traders had their net worth slashed by the plunging stock price of their firm. Bankers at Merrill Lynch and Morgan Stanley bemoan the falling value of their company’s stock, too. At J.P. Morgan Chase and Citigroup, the highest-earning bankers received 5% to 10% more of their pay in stock this year than last year. That means a J.P. Morgan banker earning $1.5 million will receive 60% of his pay in cash and 40% in stock this year. J.P. Morgan’s stock packages for its top bankers call for half to vest after two years and the remainder after three years. Merrill Lynch, which used to pay bonuses to investment bankers that were about 75% cash and 25% stock, this year paid 60% cash and 40% stock.

Paying large amounts of employee bonuses in stock is based on the idea that employees would refrain from taking oversize risks if their own net worth was tied up in long-term stock. But, as the credit crunch shows, that alignment hasn’t exactly worked. Some employees, particularly those involved in mortgage securities, took huge risks that have weighed down Lehman.

In the end, there is the irony of a Wall Street that preaches diversification to its clients, but whose employees are concentrated in a single stock.


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