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Merrill's Thain Backs Off $10M Request

Merrill Lynch Chairman and CEO John Thain's request for as much as a $10 million bonus would have been a 'public relations nightmare,' compensation experts say.

Updated from Monday, Dec. 8

Merrill Lynch

(MER)

Chairman and CEO John Thain and other top company executives requested on Monday that they receive no bonus, as Thain backed off an earlier reported request for as much as $10 million.

Thain, President and COO Greg Fleming, CFO Nelson Chai, President of Global Wealth Management Robert McCann and General Counsel Rosemary Berkery all requested they not receive a bonus from the brokerage, whose shareholders last week approved a deal to sell the firm to

Bank of America

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.

"Mr. Thain and the other executive officers believe this is the appropriate recommendation to the board for the Merrill Lynch shareholders and Merrill Lynch employees given current economic and market conditions," the company said in a statement late Monday.

Thain's $10 million bonus request, reported earlier Monday by

The Wall Street Journal

, had some Wall Street observers confused, and others in an outright uproar.

"It would be a public relations disaster for the company," said John Challenger, CEO of Challenger, Gray & Christmas, an outplacement consulting organization. "CEO pay is under the microscope, and at this time of such intense scrutiny -- especially at banks and especially at former investment banks -- it would have created a firestorm," he said.

Challenger said that the hubbub over Thain's request reflects uncertainty about how CEOs should be compensated following upheaval in the financial-services industry.

"The old standards are being thrown out," he said.

Thain's apparent decision to abandon his bonus request comes as other top Wall Street executives have decided to forego outsized compensation this year. Top executives at

Goldman Sachs

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won't be getting any year-end prizes, and reports indicated Monday that

Morgan Stanley

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CEO

John Mack

is likewise doing without.

The

Journal

had reported that Merrill's compensation committee and full board are scheduled to meet Monday to hear Thain's formal bonus recommendations for himself and other senior executives of the New York company. The committee had been leaning toward denying the executives bonuses for this year, the

Journal

reports.

Thain took over at Merrill in December of 2007, then stewarded the firm into a merger with BofA in September. On Friday, shareholders of Merrill Lynch and BofA separately approved the deal, which would create the nation's largest financial services company.

Once the merger of Bank of America and Merrill is completed, Thain will be in charge of the combined company's global banking, securities and wealth management businesses. He won't be joining BofA's board.

Thain argues he was instrumental in averting what could have been a larger crisis at the firm by contacting Bank of America about a tie-up, the same day

TheStreet Recommends

Lehman Brothers

filed for bankruptcy, the

Journal

reports.

Members of Merrill's compensation committee agree with Thain that the takeover was in shareholders' best interest, according to the

Journal

.

Thain's actions do arguably merit praise, especially viewed in contrast with those of management at the now-defunct Lehman and

Bear Stearns

, which was bought by

JPMorgan Chase

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in a government-backed fire sale earlier this year.

If the alternative was a Merrill bankruptcy, the reasoning goes, Thain's preservation of the company's remaining value in the face of the credit crisis is laudable. Merrill shares have actually gained 21% since the last trading day before the BofA deal was announced, to close at $15.25 Monday.

However, the timing of Thain's request has raised more than a few eyebrows. It comes amid a slew of

layoffs

and bonus reductions for companies across the financial sector. In the past month,

Credit Suisse

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,

Citigroup

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and others have implemented substantial reductions in headcount.

Bank of America

itself is gearing up to shed 30,000 employees as it merges with Merrill, cuts that will likely impact thousands of Merrill workers.

Thain's $10 million request has attracted the attention of many Wall Street observers, including that of New York Attorney General Andrew Cuomo. In a letter sent Monday to Merrill's board, Cuomo called reports of Thain's request "nothing less than shocking."

"He should not get a bonus. None of them should. Full stop," says Carter Burgess, managing director and head of board recruiting practice of RSR Partners, of Thain and other Merrill brass.

Burgess says that former Merrill CEO Stan O'Neal was responsible for much of the firm's current troubles, yet he left with a compensation package worth more than $150 million. He said that the board should be held accountable for its former mistakes, and that he hopes it will deny Thain the bonus.

"He's already rich beyond anybody's imagination," says Burgess. "What is this for?"

Dave Schmidt, senior consultant at James F. Reda, a compensation consulting firm, says he can't think of any top Wall Street execs who deserve bonuses.

"Even if someone did deserve a bonus, the guy on Main Street is not going to get it. Why would you put your company in the public eye unnecessarily?" He says that in light of this, Merrill's board almost had no choice but to refuse Thain's proposal.

As to Thain's argument that he saved the company from more dire consequences, Schmidt points out that "it was in his own self-interest to salvage what he could." Thain's substantial equity position in Merrill -- he held 747,268 shares as of Dec. 1, according to a recent regulatory filing -- could have become worthless if he hadn't struck a deal, says Schmidt.

"I think he did act in the best interest of the shareholders, of which he was one," he says. "So good for him."