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When Jack Grubman was pushed out at Salomon Smith Barney Inc., his $32 million severance package was the most glittering of golden parachutes. But unlike Grubman, most Wall Streeters are being sent away from investment banks with little more than white cotton handkerchiefs to soften their fall. A dismal environment for investment banking has ushered in the era of the incredible shrinking severance package. It has been such a tough year on Wall Street that not only do banks not have the money to pay people, they also barely have the money to fire them. “As fewer deals have been done in the last two years, we have had an equal contraction of the graciousness of severance,” said Joan Zimmerman, an executive recruiter with Rhodes Associates in New York. “With all the restructuring and the thin profit stream, severance packages have become a clear cost center which gain a lot of attention from a control standpoint.” And with that attention comes transparency. Compensation and bonus packages in investment banking have always tended to be standard and predictable — often called “the black box” among Wall Streeters. But severance packages have been notoriously murky, not only among different firms, but even within the same bank, according to headhunters and bankers. Now, Wall Street professionals say, severance packages are leaning towards a single standard. “As cutting becomes consistent, firms will tend to meet at the lowest common denominator,” one M&A chief said. What will that standard be? “The bare minimum they can get away with,” one headhunter said. Today, that seems to be just a couple of weeks pay per year of service — which may or may not include past bonus payments — depending on the banker’s seniority. In its most recent study of investment banking in 2001, outplacement firm Lee Hecht Harrison, which traces severance payments in various industries, found that 35 percent of “senior executives,” a category that includes managing directors, received about two weeks of pay per year of service in severance. A nearly equal amount, or 32 percent, received four weeks’ severance per year of service. But bankers and headhunters said those more generous days are over. “What clearly is happening at this stage of the game is that the percentage of the bonus one will earn will be lower this year from a severance standpoint than earlier in the restructuring,” Zimmerman said. One M&A banker said he doubted that bonuses would be much of a presence in severance calculations at all. He noted that Goldman, Sachs & Co., known for providing soft landings, told many of its managing directors that they would not receive bonuses this year, even if they stayed with the firm. With a rule like that, the banker said, chances are slim that those laid off will see their bonuses figured into severance payments. Goldman is by no means alone. Several firms are considering following Goldman’s lead, headhunters said, if they haven’t already. One firm that has been consistently generous in severance, despite its troubles, is Merrill Lynch & Co. Last year, Merrill offered its employees the chance to take a voluntary severance package of roughly one year’s pay plus a percentage of bonus and the chance to return to the firm in the future. Some young employees are still getting that package, even though they are being cut long after the initial offer, headhunters said. And Bear, Stearns & Co. and Lehman Brothers Inc. have been able to save on severance costs simply because they didn’t staff excessively during the tech boom, headhunters said, so they don’t have to cut as much. Generosity in severance can become a sore point, said employment lawyers, and it may be the cause behind the growth in severance-related lawsuits, said Michael Carlinksy, a partner with Quinn Emanuel Urquhart Oliver & Hedges who works on arbitration cases for several Wall Street investment banks. “In general, there has been a trend downward in the levels of compensation offered to departing employees and there appears to be a corresponding rise in the number of lawsuits filed by departing employees,” Carlinksy said. “In bringing these claims, however, plaintiffs have thrown in a whole host of allegations that appear to be designed to embarrass the firm.” In other words, a stingy severance payment can be enough to get fired employees to fling lawsuits at a bank, using smoke-screen claims to get the severance they feel they deserve. Why all the controversy, then? Why don’t investment banks just standardize severance as much as they standardize pay, and avoid the lawsuits and hard feelings? Zimmerman noted that severance packages are based not only on seniority, but also on the nature of a banker’s perceived contribution, as well as old-fashioned negotiating savvy. That is precisely what has frustrated those laid off. Along with the uncertainty of where and if they will find jobs, they also don’t know if they’re getting a fair package. Alan Johnson, a compensation specialist and founder of Johnson Associates, said he has often encouraged his corporate clients on Wall Street to consider making severance packages more standard. “Why isn’t there more uniformity in this? It’s a question I ask my clients all the time,” Johnson said. “It hurts morale. Why should there be even more uncertainty?”

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