The Lurches of Lehman

Lehman Brothers, a firm with a storied past but an uncertain present, has turned into Wall Street's latest drama -- a modern-day financial version of "The Perils of Pauline," the famous damsel-in-distress flick. At this point in the Lurches of Lehman, we aren't certain whether chief executive Dick Fuld will become Wall Street's latest human sacrifice or whether the firm will survive or in what form. But even with the drama still ongoing, here are a few things to think about the Lehman mess.

· The rich get richer, no matter what. When you look at Fuld's compensation package, you have to laugh at the idea that giving top executives big slugs of equity aligns their interests with those of regular shareholders. Lehman's stock was down 65 percent for the year, but Fuld hasn't been asked to return a single penny that he made from selling stock he received as compensation.

By Fortune's count, Fuld, a bond trader turned chief executive, has realized almost half a billion dollars from cashing in stock options and restricted stock awards since Lehman went public in 1994. (I'm mentioning his stock swag but not his salary or bonus to show how stock compensation can work out great for the Fulds of the world but not so great for shareholders.) By our calculation, which Lehman declined to discuss, Fuld has knocked down $489.7 million (before taxes) from selling 14.4 million optioned and restricted shares. (He seems to have kept 2.7 million shares.) His best year was 2001, when he collected more than $100 million. Last year, when Lehman stock fell 16 percent as the debt markets seized up in the summer, he still realized $53 million. You can find the juicy year-by-year totals, compiled by my colleague Doris Burke, at http://www.fortune.com/sloan.

Even by Wall Street standards, this is serious money. To be sure, Fuld is a Lehman lifer and has gotten a lot of credit -- and money -- for supposedly doing a good job over the years. As his stock sales show, though, none of us need cry for him if he now pays the price for failure.

· Lehman won't fail, but its stock ain't necessarily a bargain. Lots of players, including the Federal Reserve Board and most of us ordinary people, have a stake in Lehman's not collapsing. (So does my employer, Time Inc., which sublet 10 floors in the Time-Life Building to Lehman near the height of Manhattan's commercial property boom.) The Fed's concern is global: that a Lehman collapse, following so closely on the Bear Stearns implosion in March, would undermine faith in the world financial system. Without faith, the system won't work. You know, of course, that shortly after the Fed orchestrated the sale of Bear Stearns to J.P. Morgan Chase, it set up a facility to make virtually unlimited amounts of money available to the likes of Lehman. (The timing was intentional.) Unless short-sellers and hedge funds can somehow overwhelm the Fed, it won't let Lehman fail.

That doesn't mean Lehman's stock price will rise or the Fed won't force a sale on terms that shareholders won't like. The Fed cares about Lehman's survival but not about its stock price. In fact, one reason the stock has fallen so much is that under Fed pressure, Lehman this month raised $6 billion on terms that sent its share price plunging.

· Size doesn't matter -- competence does. Lehman is the smallest of the Big Four investment banks. But it's not in trouble because it's too small, which many people seem to think. As Fortune.com's Roddy Boyd has pointed out, Lehman got itself in trouble because it overreached, straining its balance sheet and playing unsuccessful games in the commercial property and residential real estate businesses.

Some giant so-called universal banks like Citigroup, UBS and Wachovia, far larger than Lehman, are horribly messed up -- their size didn't save them. This isn't basketball, where a good big man will almost always beat a good small man, head to head. It's finance. Will that particular lesson ever be learned, considering Wall Street's current woes? No way. Pass the options, please.

Allan Sloan is Fortune magazine's senior editor at large. His e-mail address isasloan@fortunemail.com.