Like other Wall Street firms, Lehman Brothers (LEH) pays employees partially in stock: anywhere from 10%-60% of annual compensation comes in the form of shares and/or options. Now that Lehman’s stock has dropped to its lowest level in more than 10 years (with a drop the rest of the way possible), most of the value in those equity grants has disappeared.
The Wall Street Journal estimates, in fact, that Lehman’s employees have collectively lost $10 billion. This is painful. What makes it even more painful is that most Lehman employees had absolutely nothing to do with it. As at Bear Stearns, Lehman’s implosion was the fault of a tiny group of folks:
- Senior managers–especially Dick Fuld
- Risk managers
That’s it. Everyone else at the firm did their jobs.
The small group of employees that destroyed the firm basically made two mistakes:
- They took way too much risk (loading the balance sheet up with assets that have since plunged in value–and borrowing too much money to buy them)
- They were way to slow to respond to the downturn.
These mistakes sank the Lehman ship. Those who made the mistakes are paying a huge price (Dick Fuld, for example, has lost about $650 million). But unlike the rest of the firm’s employees, they could have headed off the disaster. They didn’t, though–and now, 24,000 other employees are going down with them.