Morgan Stanley Reducing Senior Pay 20% to 30%

By Ambereen Choudhury and Michael J. Moore - Jan 20, 2012 1:40 AM GMT+0700
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Morgan Stanley headquarters in New York. Photographer: Daniel Acker/Bloomberg

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Jan. 19 (Bloomberg) -- Brad Hintz, an analyst at Sanford C. Bernstein & Co., talks about Morgan Stanley's fourth-quarter loss and outlook. The firm's net loss was $250 million, or 15 cents a share, compared with a profit of $836 million, or 41 cents, a year earlier. Hintz speaks on Bloomberg Television's "InBusiness With Margaret Brennan." (Source: Bloomberg)

Morgan Stanley (MS) is reducing pay for senior investment bankers and traders by an average of 20 percent to 30 percent for 2011 as it seeks to curb mounting compensation costs, people with knowledge of the decision said.

The cuts affect employees on the executive director level and above, one of the people said, declining to be identified because the pay policy isn’t public. Some bankers were informed this week, two of the people said.

Chief Executive Officer James Gorman, 53, vowed after taking over in 2010 to shrink the portion of revenue devoted to paying employees after the ratio reached 62 percent the previous year. Excluding accounting adjustments and one-time items, revenue at the New York-based company’s investment-banking division fell about 2 percent last year.

The unit’s compensation expenses rose 3 percent, according to figures released today. Deferred pay awarded in previous years helped boost costs in 2011, Chief Financial Officer Ruth Porat said in an interview. Mark Lake, a spokesman for the bank, said he couldn’t comment on pay decisions.

Banks worldwide have been cutting and deferring compensation and overhauling policies for clawing back payouts to traders and investment bankers over the past two years as firms succumb to revenue and regulatory pressures in the wake of 2008’s financial crisis. Goldman Sachs Group Inc. (GS) Chief Financial Officer David Viniar said yesterday that discretionary compensation declined “significantly more” than the firm’s annual revenue, which dropped 26 percent.

Deferred Payouts

Bonuses, which are awarded early in the year for the previous year’s performance, make up a large portion of total pay for Wall Street employees.

Morgan Stanley, owner of the world’s largest brokerage, told staff this month that it’s capping immediate cash bonuses at $125,000 as the firm defers a greater share of awards to senior executives, a person briefed on the plans said earlier this week.

That decision will increase the average amount of pay deferred to about 75 percent, the person said. That’s up from an average of 60 percent in 2010 and 40 percent in 2009. Deferred cash for 2011 performance will be paid out in two equal installments in the final month of 2012 and 2013, a change from the previous deferral plan that paid out in thirds over 18 months, the person had said.

Average Payouts

Companywide compensation and benefits at Morgan Stanley rose 3 percent to $16.4 billion as revenue climbed at the same rate. That was enough to pay each of the firm’s 61,899 employees $264,996 on average for the year, more than the $254,596 it set aside for each of the 62,542 employees at the end of 2010, according to figures released today. The bank doesn’t report how many people work in institutional securities.

Goldman Sachs reduced its compensation and benefits expense 21 percent to $12.2 billion in 2011. The expense was enough to provide $367,057 to each of its 33,300 employees, down from $430,700 for each of the 35,700 workers at the end of 2010.

JPMorgan Chase & Co. (JPM), the biggest and most profitable U.S. bank, reported last week that it lowered pay at its investment bank 9 percent in 2011, enough to pay each worker an average $341,552.

Average compensation figures are derived by dividing the overall compensation pool by the number of employees, and they don’t represent individual workers’ actual pay.

To contact the reporters on this story: Ambereen Choudhury in London at achoudhury@bloomberg.net; Michael J. Moore in New York at mmoore55@bloomberg.net

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net; Edward Evans at eevans3@bloomberg.net