The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [369]
The executives of Salomon had previously felt, as one underling put it, that “God forbid they should ever lift anything but a fork.” Behavior by their new billionaire chairman that would seem normal on Main Street shocked Salomon’s employees. On the way to play bridge one night, Buffett asked his Salomon driver to stop the car. He climbed out and walked into a nearby store, then returned a few minutes later as the driver watched, mouth agape. The chairman was carrying huge bags full of ham sandwiches and Coca-Cola.50 This was the new Salomon.
But it was the battle over pay that became the watershed. Early in the fall, Buffett had told the staff that he would be slashing $110 million from the year-end bonus pool. “Employees producing mediocre returns for their owners should expect their pay to reflect this shortfall,” he wrote.51 That seemed simple and obvious to him. Businesses and people that were producing should be paid. Those that weren’t should not. Maughan agreed with Buffett that the culture of entitlement had to go. People were not entitled to millions just because they owned three houses and were supporting two ex-wives.52 But for once Buffett had miscalculated the limits of human nature. The formerly enriched employees, used to being showered with money on bonus day, now knew that they were about to be gouged.
Buffett’s reasoning that employees should not take home all the spoils and the shareholders none was lost on them. Indeed, they believed the opposite, since they had been taking home the spoils for years. A decrease from last year was outrageous. They felt that Buffett was trying to transfer some of the guilt from Mozer’s misdeeds to them by making an issue out of the bonuses. They had not caused Salomon’s woes. Rather, they had stayed out of loyalty and were enduring humiliation and misery in its aftermath. They were sweeping up behind the elephant. They felt that they deserved combat pay. It wasn’t their fault that their businesses weren’t performing. How could they sell an investment-banking deal while the firm was under threat of indictment? Didn’t Buffett understand that? They were up against the fact that everybody on Wall Street knew that Buffett thought investment bankers were nothing but useless stuffed shirts with fancy cuff links. Meanwhile, despite its problems, Salomon was actually having a decent year financially. They resented being called greedy once again by an avaricious billionaire.
The deprived traders, sales force, and bankers had to hang around until year-end, the traditional time for quitting, after individual bonuses were paid and the smaller but nevertheless multimillion-dollar deferred bonus pool was scheduled to cash out.
When the bonus pool was divvied up around the holidays, the battle over pay reached epic scale. The top thirteen executives saw their bonuses slashed by half. As soon as the numbers were announced, Salomon’s hallways and trading floor erupted in open revolt. With budgets and bonuses gutted, traders and bankers fled. Half the equity department—home of the investment bankers—ran out the door. The rest of the trading floor went on a temporary strike.
One day, Buffett walked a couple of blocks over to American Express to have lunch with its CEO, Jim Robinson. “Jim,” he said, “I didn’t think it was possible, but I just paid out nine hundred million dollars in bonuses.” Yet he felt that everybody, other than Maughan and one or two people he had brought in to fix the place, was mad at him.53
“They took the money and ran. Everybody just peeled off.
“It was just so apparent that the whole thing was being run for the employees.54 The investment bankers didn’t make any money, but they felt they were the aristocracy. And they hated the traders, partly because the traders made the money and therefore had more muscle.”
He had just saved Salomon and had thought that that would matter to the employees. But no, “We were grateful for about five