Pay Package Slowdown on Wall Street?

This is a partial transcript from Your World with Neil Cavuto, October 2, 2003, that was edited for clarity.

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NEIL CAVUTO, HOST: It’s not just Dick Grasso getting canned for getting too much. It is smelling like a trend. Goldman Sachs reportedly dumping dozens of high-paid managers in the investing banking department. Is Wall Street ready for a pay package slowdown? Is it a dead end for big money gigs across the board?

Joining me now for some insight, big-time pay packages, all, John Challenger, the CEO of Challenger, Gray & Christmas; Donald Straszheim, the president of Straszheim Global Advisors; Hilary Kramer, the president of A&G; and we’ve got our senior correspondent superstar, Brenda Buttner, host of Bulls & Bears.

John Challenger, to you first. We’re seeing more now on the super high end, these brokerage firms are going after the $5 to $10 million-a-year guys. Many argue, about time.

JOHN CHALLENGER, CEO, CHALLENGER, GRAY & CHRISTMAS: You know the public drumming out of Grasso, the hounding out of office is causing more and more employees and shareholders to look very carefully at all that top rung of people. And the drive to cut costs, the drive for transparency is really changing the environment.

CAVUTO: Donald Straszheim, why didn’t someone come up with this idea before? Obviously, if you get rid of $1 million or $2 million or $10 million-a-year executive, it is a lot easier than getting rid of 100 or 1,000 regular folks.

DONALD STRASZHEIM, STRASZHEIM GLOBAL ADVISORS: Well, Neil, this has been building here for some time. And you have seen an awful lot of it in the last 12 or 18 months. And it is partly cyclical, but it is also, I think, just the pressure of the realities of global competition, of cutting costs wherever you can find them. And its nowhere near over.

CAVUTO: The argument has always been, Brenda, that these high-paid guys, particularly at brokerage houses, are the so-called rainmakers, though they might make, let’s say, $10 million, they might but bring in 50 to half a billion dollars. Is that justified?

BRENDA BUTTNER, FOX SR. BUSINESS CORRESPONDENT: Well, it is very interesting because last year -- and this is in the year of Enron, of WorldCom -- CEO pay actually increased on a median basis by 10 percent even though the market went down. Here’s what I think is going to happen. Boards of directors are going to have to purge from their vocabulary a teenager’s favorite words: "I don’t know."

They can no longer say, I didn’t know that we were giving the guy this much money. They can’t say that any longer. And now, basically they’re going to have to go back to the drawing board and start taking a look at stock options and all the rest. And these big-time pay packages have got to go.

CAVUTO: Hilary, I have a crackpot theory on this, but my crackpot theory is they’re just feeling guilty. I mean, not the people that are getting laid, but the ones that are doing the laying off, because they have gotten a lot of bad press with these excessive pay packages, as Brenda said, and they have to say, all right, here’s our pound of flesh.

HILARY KRAMER, A&G CAPITAL PRESIDENT: Oh, Neil, it’s really about stock price. When it comes to Goldman Sachs or Morgan Stanley, yes, on one hand it’s that. But it’s also making the stock go up. And investors refuse to see the extra fat that is there.

They don’t want it any more. And what is really disappearing are these $1 million, $2 million, $3 million salaries, where these are people that are not producing, that they’re not getting paid from bringing a specific deal in. So we’re going to see them sort of go the way of the wayside.

BUTTNER: Basically, he has to pay for performance now instead of the type of options...

KRAMER: Right. And for the first time we saw at GlaxoSmithKline, we saw over 50 percent of investors, shareholders, say no, we do not agree with the pay package for the CEO. So we’re going to see more and more of that, and investors voting with their hands.

CAVUTO: In that case, they give him the money and drugs -- no, they didn’t do that. Relax, relax.

All right. John Challenger, let me ask you a little bit about this trend. It just seems to be late for me. I mean, isn’t it far better publicity, if nothing else, for your company to say you have gotten rid of a few million-dollar hot shots than to lay off, as we have been hearing so often, for so long, thousands of workers?

CHALLENGER: Well, no question that these are high-profile changes. Companies are trying to demonstrate that in this new environment they can take the kind of action that shows they are really getting something done.

We don’t want to throw the whole baby out with the bath water. Certainly, we are in a system where we want to have high rewards for those people who produce, who really create the high performance that separate their companies out from their competitors. But it just can’t be across the board. And in the late ‘90s, it seemed like everybody got some of all that, and we’re still in the working out phase.

CAVUTO: Don Straszheim, what is the trend here going forward?

STRASZHEIM: Well, let me take it more broadly, Neil. Japan is in trouble as an economy because they are not competitive. Wal-Mart is putting enormous pressure in the entire retail business because of their outsourcing of lower cost product from China and so forth. And that competitive pressure is exactly what is at force in pay packages.

And if you are a high-paid person and you are not pulling your weight, it is going to be over. And that is what is happening.

CAVUTO: But, meanwhile, high pay is everyone’s new definition, right? I mean, we are told that a lot of people aren’t looking it at the same, because it will only pay a couple of million.

BUTTNER: Well, if you are not prepared to have your CEO’s pay in a headline, then you better head back to the drawing board and come up with something else.

CAVUTO: Good point. Brenda Buttner, final word on the subject. Also want to thank John Challenger and Donald Straszheim and, of course, Hilary Kramer.

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