June 27 (Bloomberg) -- Lehman Brothers Holdings Inc. Chief Executive Officer Richard Fuld and President Herbert ``Bart'' McDade will forgo 2008 bonuses, the biggest chunk of their pay, after the fourth-largest U.S. securities firm reported its first quarterly loss since going public.

Fuld and McDade told managing directors of their decision earlier this week, said two people with knowledge of the matter, who declined to be more specific because the discussions were private. Lehman slumped 71 percent in New York Stock Exchange composite trading during the past 12 months, the second-worst performance in the 11-member Amex Securities Broker/Dealer Index after E*Trade Financial Corp.

``I'd be surprised if other CEOs didn't give up their bonuses this year,'' said Jeanne Branthover, the New York-based head of the financial-services practice at Boyden Global Executive Search. ``Fuld is preparing his guys for what's coming for them. He's setting an example because the troops will also get shrunk bonuses.''

Fuld, 62, was paid $40 million last year when New York-based Lehman posted record earnings, and about 98 percent of his compensation was in a bonus. By contrast, John Mack, Morgan Stanley's CEO, received only a salary of $800,000 last year after earnings at the second-largest U.S. securities firm by market value plunged 57 percent and all the members of Bear Stearns Cos.' executive committee gave up their bonuses.

Fuld's 2007 compensation included a $4.3 million cash bonus, $35 million in restricted stock and $750,000 in salary. He got $40.5 million in 2006.

Shares Fall

Lehman fell 36 cents to $22.25 at 4:12 p.m. in composite trading on the New York Stock Exchange. The New York Times reported the decision on bonuses earlier this week on its Web site.

Fuld promoted McDade, 49, to president earlier this month to help shore up investor confidence about the firm's prospects. McDade, the former head of equities who had also supervised fixed income, will work with Fuld to rebuild Lehman after mortgage- related writedowns led to the $2.8 billion second-quarter loss, the first loss since the company was spun off from American Express Co. in 1994. His pay and bonus weren't itemized last year in Lehman's corporate filings.

McDade has brought back two former associates, Michael Gelband and Alex Kirk, giving them expanded roles. Gelband, 49, who was ousted last year as head of fixed income, was named chief of the firm's capital markets businesses, a new post that encompasses equities and fixed income. Kirk, 48, who left in February as head of credit products, was picked to oversee Lehman's investments.

Mounting Losses

Lehman may report a loss of more than $700 million in fiscal 2008 after earnings rose 5 percent last year to $4.2 billion as so-called hedges on its mortgage holdings staved off losses, according to a survey of 18 analysts by Bloomberg. Losses at Lehman surged in the second quarter when the hedges didn't work.

Richard Bove, an analyst at Ladenburg Thalmann & Co., lowered his 2008 estimate for Lehman to a loss of $3.66 a share from a previous loss estimate of $3.19. He reduced his share- price target to $27 from $30, according to a note Ladenburg Thalmann published today.

To contact the reporter on this story: Yalman Onaran in New York at yonaran@bloomberg.net.

Last Updated: June 27, 2008 16:13 EDT