Morgan Stanley Reins In Bonuses

Without any prompting, apparently, too

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Last month, Morgan Stanley CEO James Gorman said that Wall Street needs to create a compensation system that changes the perception that "it's the individual that's the hero" in order to fix a culture that created the financial crisis. His company appears to be following through--in some form at least--on that promise. As reported by The Wall Street Journal's Aaron Lucchetti, the firm will be doling out 10% to 25% less for bonuses to some of its senior executives this year in response to "turbulent" market conditions and corporate restructuring. The move is part of a larger effort to rebuild and trim its "bloated" compensation levels. The pay cuts will help stave off layoffs in a company that last year paid twenty-five of its biggest earners seven- or eight-figure pay packages, according to New York Post sources. Business pundits digest, and dissect, the news:

  • Why We Might Never See Goldman-Style Bonuses Again  Going from a "boom-and-bust" firm to steady brokerage business would be Gorman's goal at least, figures Shira Ovide at The Wall Street Journal. The firm has been "very active" in compensation reform in recent years, overhauling the bonus system, emphasizing salaries for its senior officers and making pay subject to "clawbacks" in the event that "the company's profits later proved ephemeral." But this won't be the end of Washington's "spotlight" on executive pay, and "all that means we may never see again the $69 million lofty level that Goldman Sachs CEO Lloyd Blankfein received for 2007, the biggest ever payday for someone in a Wall Street corner office. Blankfein's record seems safe. Or at least until people forget about that little financial crisis."
  • This Might Be a One-Off Thing   Susanne Craig, writing at The New York Times' Deal Book, notes that the Gorman believes "selective, short-term pain on compensation will give the firm credibility with shareholders and help the firm in the long term" (Gorman used the words "the year of differentiation"--i.e. this year is exceptional). Morgan Stanley will pay out 50.4 percent of its net revenue in compensation and benefits and employees who "did well" this year will get paid competitively. Craig reports: "Divisions like equities, which includes stock trading, and investment banking performed well in 2010, and those employees can expect decent bonuses, these people said. But traders in the firm's fixed-income department, which did not have a great year, may see smaller pay packages, these people say."
  • Morgan Stanley Isn't Alone In This Restructuring   "The cut in investment bank bonuses may not be unique to Morgan Stanley," reports Bloomberg's Michael J. Moore, who speaks with Michael Karp, a CEO of an executive search and compensation consultant firm. "This is going to be Street-wide, not just one firm," Karp was quoted saying. "The revenue hasn’t been as great as last year, and coupled with a tough regulatory environment and banks being closely watched by governments globally, it’s not an easy pay environment." Moore also notes that compensation expenses at Goldman Sachs Group in the first nine months of this year are down 21 percent from last year.
  • This May Be More Practical Than Moral  Financial Times staff reporters note that there is still "no momentum" behind a deal to limit the sizes of bonuses in the us, where the Federal Reserve has opted for a "principles-based approach." European policies on the other hand, "have introduced numerical rules, requiring at least 40 per cent of a bonus to be deferred for at least three years." The reason why bonuses are expected to be lower this year--by as much as 20 percent--are a result of "weaker revenues rather than self-restraint." They conclude, based on statements by senior bankers, that "it is increasingly apparent that global investment banks will have to pay their staff differently across the leading financial centres of London, New York and Hong Kong."

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