Responding to a difficult environment for Wall Street, Morgan Stanley plans to tell employees this week that bonuses will drop sharply, with cash payouts capped at $125,000, according to people familiar with the matter.
Some top executives will receive nothing now, deferring their 2011 payouts until the end of this year.
The New York-based bank, run by Chief Executive James Gorman, will defer the portion of any bonus past $125,000 until December 2012 and December 2013, according to one of the people familiar with the matter. Gorman and the other nine members of Morgan Stanley's operating committee, the firm's ruling body, will defer their entire bonuses for the year, this person said, collecting them later.
The decision, approved by the firm's compensation committee last week, marks the latest move by a Wall Street bank to keep costs down in an environment of increasing regulatory pressure and challenged revenues.
Deferring bonuses has become a frequent occurrence at Morgan Stanley and other Wall Street fir Regulators often prefer banks to defer bonuses for their employees. They believe it discourages the kind of excessive risk-taking that helped bring about the 2008 financial crisis. Deferring part of an employee's pay, either in stock or cash, can also ease pressure on a firm's compensation expenses, making it a popular move in a bad market environment.
As banks report fourth-quarter results this month and make bonus decisions for 2011, total compensation is likely to be the lowest since 2008, The Wall Street Journal reported last week. After a brief respite in 2009 and 2010, when pay practices returned to earlier levels in some respects, a year filled with macroeconomic scares in 2011 has pushed Wall Street to act cautiously again.
At Goldman Sachs Group Inc., which, like Morgan Stanley, reports earnings this week, many of the roughly 400 partners can expect to see their 2011 pay cut at least in half from 2010, according to people familiar with the situation. Pay for some employees in the New York company's fixed-income trading business will shrink by 60%, with some workers getting no bonus, these people said.
Morgan Stanley is likely to cut compensation by 30% to 40% for many of its traders and bankers, especially those who focus on fixed income. Stock trading and parts of investment banking will likely be spared from pay cuts, though they are liable to have bonuses deferred.
Senior employees across the board will be affected by the changes in the makeup of the bonus, which for a Morgan Stanley or Goldman Sachs trader can often outpace the continuing salary, according to the people familiar with the situation. The roughly 40 people on Morgan Stanley's management committee will see 85% of their bonuses deferred, a person familiar with the matter said.
The average of pay deferred, for all employees to whom it applies, will rise to about 75% from about 65% in recent years, this person said.
The firm is taking a different approach with more-junior employees, or those without titles like managing director, executive director or vice president. Those employees, who often use their bonus money for day-to-day living expenses, will see only 25% or less of their overall bonuses deferred. Those employees who are paid less than $250,000 in overall pay won't have deferrals applied to their bonuses.
Of course, Wall Street workers may get paychecks this year from previous deferred bonuses. That will soften the blow somewhat from lower bonuses in early 2012. Morgan Stanley executives and many employees also receive part of their compensation in deferred stock.
This story first appeared on WSJ.com.
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