Pay the big people, screw the little people

Decorum prohibits us from naming them, but a certain mid-Atlantic investment firm's management team should be ashamed of themselves.

On Tuesday, the firm, once known for its outstanding performance and its collegial, almost familial environment, laid off nearly 300 employees. This isn’t, in and of itself, surprising, as many companies have had to reduce workforce by about 10 percent due to the current economic environment. It probably is in the best long-term interests of its shareholders.

Consider, though, that the firm did this after paying over $25 million in bonuses and stock options to its top five executives (as reported in their most recent proxy statement). This in spite of a 20+ percent drop in earnings per share, a 30+ percent drop in assets under management, and a 40+ percent drop in the firm’s stock price.

The firm’s flagship fund – run by its Chairman and Chief Invetment Officer, who was paid $6.5 million in salary, bonus, and stock options -- is down 40+ percent in the past year, and its compound returns are negative for one, three and five years.

Certainly, most of these results are a consequence of market factors that are beyond management’s control. However, management team exceptionally well compensated for the firm’s performance when they enjoyed the benefits of a bull market.

That they would continue to pay themselves millions and fire their loyal colleagues during a bear market when the company is performing poorly is disappointing beyond words.