Executives at Mellon Bank Corp. paid the price for last year's losses in a securities lending business through substantial cuts in their bonuses, according to the bank's proxy statement.

Compensation for Frank Cahouet, who is chairman, president, and chief executive of the Pittsburgh-based bank, dipped 5% last year, to $3.7 million, because of a 26.6% cut in his bonus.

Mr. Cahouet's bonus, $625,000 in 1993 - all cash - dropped to $458,563 in 1994, of which $322,500 was cash. The rest came through $136,063 of restricted stock awards.

Using stock instead of cash for bonuses is "a way of tying management's fortunes to the stock price," said Donaldson, Lufkin & Jenrette analyst Frank Desantis.

Vice chairman W. Keith Smith, the company's second-highest paid officer, also took a hit.

Mr. Smith's 1994 bonus was cut 46% to $149,706. Included in his bonus was $44,706 in restricted stock awards.

Mr. Smith also serves as chairman and chief executive of the Boston Co., the Mellon subsidiary that runs the securities lending business. Mr. Smith's overall compensation of $1.24 million actually increased by about $20,000 from 1993.

Mellon took a $200 million pretax charge in the fourth quarter to repair the Boston Co.'s securities lending portfolio. That unit has now been folded into similar operations in Pittsburgh, where it will receive greater oversight, the bank said.

The proxy statement said several other senior managers also suffered bonus reductions.

Wheat First Butcher & Singer analyst Merrill Ross said she thought the cuts made sense. "It should come from the top," she said.

Analysts said executives at other banks damaged by interest rate hikes and trading-related losses are also likely to see cuts in pay.

For example, the overall pay package for Bankers Trust chairman and CEO Charles S. Sanford Jr. was cut in half after sharp downturns in that bank's trading and derivatives businesses.

Analysts are waiting to see what will happen to Thomas O'Brien, chairman, president, and chief executive of PNC Bank Corp.

Poor performance in PNC's securities portfolio forced the bank to sell $1.8 billion of bonds, which resulted in a $79 million loss in the fourth quarter.

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