An interesting article crossed my desk this morning. Turns out Fidelity Investments may cut bonuses and profit-sharing this year, if the recession continues. Fidelity's president, Rodger Lawson broke this news to his employees in a memo. That said, Fidelity spokeswoman Anne Crowley noted that merit-pay increases may be limited to low- and mid-level employees -- which is actually good news for the little guy for once.
Since October, the company cut roughly 7 percent of its workforce, which is more than any other U.S. fund manager. My guess is that these cuts haven't come from the top excutives on the job heap. These cuts were made amid the S&P 500 Index's drop of 39 percent, which came during a time when shareholders withdrew $34.2 billion from the company's stock funds. So of course, the company made sure the little guy was the one laid off; you know that he makes all the financial decisions, right? Of course, that is the Don Quixote in me, always tilting at some sort of windmill.
In doing so, I have lost sight of the fact that some (including Jim Lowell from Adviser Investments) believe Fidelity's move was "measured, reasonable, and even responsible to make." In fact, it almost seems as if Fidelity is actually trying to reward those who do their jobs by keeping in place a long-term plan that compensates top performers accordingly while cutting a dividend-sharing program that pays the entire staff.
According to The Wall Street Journal, Fidelity is considering limiting merit increases in July to employees with bonus opportunities of 15 percent or less, which includes all nonexempt employees. Fidelity is also tinkering with the idea that bonus funding may be lower at the end of the year if business results are worse than a year ago. Ladies and gents, while this thinking may seem revolutionary, it isn't. Fidelity's plan wants to make sure that it rewards those that do their jobs, while also making sure the company makes money.
What some may find a bit discouraging is the fact that the company is tempering what seems to be rampant enthusiasm on the Street. It seems every day that the talking heads on the many financial news shows want to make it appear that the markets have hit the bottom and are going to rally. Fidelity notes that it doesn't know when the economy will turn around.
I do know this: quite a few businesses would do well to follow Fidelity's decision here: "we will continue to recognize and reward the contributions that each individual and business unit makes." Perhaps this is advice we could all follow. Talk about revolutionary ... let's pay the individual what he or she is worth. That's a business practice that is not followed any more.
My question is, would we be in this financial mess if the big banks paid their higher-ups what they were really worth rather than what they thought they were worth? I know that there are many variables in the current economic crisis, but my guess is we wouldn't have the outrage over executive pay if the heads of investment banks were paid for the work they actually did.