American Express Financial Advisors, American Express Co.'s Minneapolis financial planning unit, is the latest financial services company to freeze salaries as it weathers a slowing economy and continuing market volatility.
In a four-page memo to employees, James M. Cracchiolo, group president of Amex's Global Financial Services unit, said that financial planning unit will freeze executive pay and reduce the raises given to other salaried employees.
The memo, which was sent to employees last week, came on the heels of Amex's fourth-quarter earnings announcement. The financial planning unit trailed the broader company, posting a meager 2% profit gain, to $242 million, as customer assets fell 7%, to $273 billion. By comparison, profits of the broader company, which includes the Amex charge card business, grew 12%, to $677 million.
"Clearly, our fourth-quarter financial results are disappointing," Mr. Cracchiolo wrote in the memo. "We must change how we operate. We will be very aggressive in managing expenses."
With that in mind, Mr. Cracchiolo said, the company will freeze the salaries for its 12 senior vice presidents for the rest of the year. Salary increases for 278 employees at the vice president level will be limited to 2%; the remaining 12,000-plus American Express Financial Advisor employees will be eligible for 3% increases.
A spokesman for American Express said that the company usually offers annual raises of 3% to 5%, though they can be bigger in a good year. The salary restrictions are in effect for the year but are subject to review, he said.
Amex and other companies that benefited from the stampede of retail investors pouring money into stocks during the bull market have had a harsh reality check in recent months as those investors' attitudes toward the equity market have cooled.
The San Francisco brokerage giant Charles Schwab Corp., which saw its first profit decline in three years during the fourth quarter because of a slowdown in retail trading, has halved the salaries of its two chief executives. The company has also trimmed the salaries of other top managers and told all nonessential employees to take vacation on three designated Fridays so that it can save money by removing the vacation accrual from its books.
"Cost control is going to be important at American Express and everywhere else this year," said Kenneth A. Posner, an equity analyst at Morgan Stanley Dean Witter & Co. in New York. "But the senior management has stressed the importance as part of its ongoing reengineering initiative," he said.
Still, to meet Morgan Stanley's growth target of $2.33 per share, Amex has more cost-cutting to do. "We need them to cut a couple of hundred million to meet our target," he said.