Morning Coffee Jun 14 2011

Layoffs Vs. Pay cuts: How Wall Street May Trim Comp

By kyle stock

Some folks are saying investment bankers are due for a round of major pay cuts.

Return on common equity has fallen at big banks like Goldman Sachs and Morgan Stanley, but compensation-to-revenue ratios haven't budged by much.

If finance executives are going to trim comp, however, odds are good they will do so with layoffs. Bosses have historically preferred to cut jobs, which arguably is less harmful to morale and productivity.

Even in the darkest days of the recent crisis, the companies that trimmed checks had a bit of a one-for-all culture, like FedEx, which gave a 5% haircut to 36,000 workers. Finance, a business where there is often a loser on the other side of every winner, is a bit of a different animal.

And the key to making a pay cut work most efficiently is having it perceived by workers as equal and unilateral. In a recent study on people selling membership cards to German nightclubs, an across-the-board wage cut was met with a 15% reduction in productivity. However, a wage cut to only one worker in a two-person team prompted a 31% to 34% decline in productivity for that unlucky individual while their partner's productivity was unchanged.

In investment banking, a business marked by layers of seniority and a largely fluid practice of doling out the bonus pool, the appearance of even-handedness would be hard to achieve.

In other words, Wall Street may well get the axe out for shareholders, but don't look for it to swing at compensation packages, one of the industry's last sacred cows.

Advertise Yourself on Facebook (FINS)

Some job candidates are buying ads pitching their services directly to prospective employers on Facebook and other social networking sites. Creative or creepy?

Is HBS Cooling on Wall Street? (WSJ)

The share of Harvard Business School entrants with finance experience dropped to 25% from 32% last year. Harvard says it's getting more strong applicants from other industries.

No Experience Necessary (Registered Rep)

With 14% of financial advisors over age 60, Wells Fargo Advisor is trying to lure career changers to the business. Almost two-thirds of the firm's January hires were rookies.

Obama's Street Strategy (NetNet)

NetNet has a playbook on how Obama can mend ties with Wall Street donors. Among other things, it suggests dropping the "fat cats" label and wooing young staffers.

How to Raise an Entrepreneur (WSJ)

Apparently, it goes beyond the lemonade stand. A wide range of experts weigh in on how to cultivate a curious mind (there's a great anecdote about a young Sam Zell peddling Playboys).

...however (Forbes)

Entrepreneurship isn't for everyone. A career coach makes a case for traditional jobs; they don't require as much selling and they often provide a better work/life balance.

Buzz Around the Office

The Muffin Monster at Work (YouTube)

Watching the machine is mesmerizing.

List of the Day: What They Know

Being courteous to the receptionist is as integral to a job candidate as wearing a suit. Here's a list of 10 things these subtle powerbrokers won't tell you.

1. They are more powerful than they seem.

2. It's their job to turn you away.

3. There's a good chance they don't work there.

(Source: FINS)

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