May 23 (Bloomberg) -- Merrill Lynch & Co., the world's biggest brokerage, cut the number of sick days employees can take without consequences each year to three from 40 so it can reduce the cost of absences.

Workers out more than three days must discuss the matter with their managers, Merrill said in a memo to employees. Anyone absent four or more days may lose pay, and could face termination at nine days. The rule took effect May 14. Managers have discretion to waive the limits on a case-by-case basis.

``A good attendance record and demonstrated reliability is one attribute of successful performance and is expected of all employees,'' the memo said. The policy applies to all U.S. staff members. Merrill employed 60,300 people worldwide by the end of the first quarter, more than any other U.S.-based brokerage.

Previously, Merrill allowed workers to be absent as many as 10 times for four days each, said spokeswoman Selena Morris. Employees still get four personal days in addition to sick time, she said. Those with extended illnesses can request medical leave. The policy brings the firm in line with rivals, she said.

The sick and personal days come on top of paid vacation time, which is three weeks for employees with fewer than 10 years of service and four weeks for those with more, she said.

Merrill offers generous benefits, Morris said, such as 13 weeks of paid leave for primary caregivers of newborns, including for adoptive parents. The company also offers subsidized day care at its New York headquarters and operations campus in Hopewell, New Jersey.

Average Sick Days

Lehman Brothers Holdings Inc., based in New York, has no official policy on the number of sick days employees can take, spokeswoman Kerrie Cohen said. Spokesmen for Goldman Sachs Group Inc., Morgan Stanley and Bear Stearns Cos., all based in New York, didn't respond to requests for details on their policies.

The average number of days missed each year due to injury or illness among all U.S. workers is seven, according to the latest data from the Labor Department.

The memo was reported yesterday on the New York media-news Web site Gawker. Merrill is a passive, minority investor in Bloomberg LP, the parent of Bloomberg News.

Merrill's first-quarter earnings rose 31 percent to $1.65 billion. Revenue climbed 24 percent, while compensation costs excluding one-time charges climbed 22 percent.

The shares fell 19 cents today to $93.82 in New York Stock Exchange composite trading. They're little changed this year.

Spreading Illness

The limits on sick days may encourage workers to return while they're still contagious and have a ``domino effect'' on the rest of the staff, said Amy Nichols, director of hospital epidemiology and infection control at the University of California-San Francisco Medical Center.

``Coming to work ill puts other workers at risk for becoming ill, and it decreases productivity,'' Nichols said.

A Mercer Human Resource Consulting survey of 611 companies with 100 or more employees published last year found that the median number of sick days offered is seven.

Most employees rarely use more than six days a year, said Ophelia Galindo, national leader for the absence and productivity solutions group with New York-based Buck Consultants Inc.

``The more common reason for going to work sick is not necessarily to save on sick days, but because employers are staffed very leanly and folks don't want the work to pile up while they're gone,'' Galindo said.

Merrill's three sick days, when combined with the four personal days, are comparable to the normal range of seven to nine days, Galindo said. The personal days offer more flexibility than straight sick time, because employees can use them to care for children or parents, Galindo said.

The old policy was ``pretty liberal,'' Galindo said. ``It may seem to the employees that it is draconian, because it's such a big change, but it's not particularly.''

To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net.

Last Updated: May 23, 2007 16:44 EDT