WALL STREET'S BONUS BABIES

By JOHN ROTHCHILD

Baseball and investment banking have a lot in common. in both places, the players are never satisfied, no matter how many millions they take home. Over on Wall Street, two dozen honchos in pinstripes have grabbed their briefcases and walked out of Salomon Brothers. They've switched to other teams where the owners are waving more cash their way.

At Salomon Brothers, the base salary is $150,000 a year, and at other investment houses it ranges as high as $450,000, far less than the average player in baseball gets. But that's only the subsistence wage, to tide people over so they can put squab on the table and pay the housekeepers until the real money is doled out in annual bonuses. These bonuses run into seven figures, and if you've had a great year at the computer terminal, you could take home twice as much as Barry Bonds. And, as in baseball, you get paid on your own performance, whether the team has a good record or a bad one.

The Wall Street players will tell you they deserve big rewards for having to work 14-hour days and eating Chinese takeout from cartons. Wall Street has a lot of tradition, just like baseball used to, before they canceled the season. One of the longest-standing traditions is that if you make money for the firm, you get to keep a huge chunk of the profits yourself, but if you lose money for the firm, the firm covers the losses. For instance, Salomon Brothers lost $399 million last year, the banking version of finishing in the cellar, yet not a single banker or trader offered to help Salomon by reaching into his or her own pocket, which had been stuffed with bonuses in the past.

In fact, it's a dispute over bonuses that caused the recent walkout. Salomon's principal owner, Warren Buffett, dared to break with tradition and challenge the pay system, the way baseball owners have. Being a no-nonsense businessman from the Midwest and also a team player, Buffett introduced the notion that since Salomon was a business as well as a team, the players shouldn't expect bonuses if the team screwed up. This did not go over well in the clubhouse.

Here's a difference between baseball and Wall Street. Most baseball teams are owned by rich guys like Buffett, and who cares if they lose money? But Buffett is hardly the only owner at Salomon. Since Salomon is a public company, anybody can own a piece of it, and unfortunately a lot of people do. It's been a lousy stock for many years, and one reason is that the top players have siphoned off the profits. It used to be that all the major investment banks were private partnerships a la Goldman Sachs, but others besides Salomon (such as Merrill Lynch, Morgan Stanley and Bear Stearns) have gone public. Morgan Stanley's shares have tripled in value in less than 10 years, but the other two have turned in a mediocre performance, and the bonus system is partly to blame.

It's curious that more shareholders of investment banks haven't rallied to Buffett's side because this is one labor dispute where it's worth it to root for the owners-especially if you're one of them. Without the benefit of such solidarity, Salomon Brothers last month announced that it was backing down on the reform of the bonus system, so Buffett may have lost this battle. Salomon is beginning to resemble the Pittsburgh Pirates, with the high-priced talent going elsewhere. Again, it's like baseball, with the rival owners hoping that Buffett somehow succeeds so they can rein in the salaries of their players, but still paying Salomon's defectors everything they want. The system needs reform, and we haven't heard the end of this.

COLOR ILLUSTRATION: ROSS MACDONALD FOR TIME [man is kneeling on a window ledge, while another man is descending outside the window with a parachute]