If you put together the latest news out of Morgan Stanley that senior bankers and traders will have compensation cut by 20-30% with the previously reported story that cash bonuses would be limited to $125,000, you get a pretty clear picture of Morgan Stanley CEO James Gorman’s strategy to cut pay.
At its core, it’s this: make banker’s an offer most won’t refuse and don’t care too much if a few (or a lot) do refuse it and quit.
Senior management at Morgan Stanley know that their employees have few options. Other banks aren’t hiring. Chances of landing a job at a hedge fund or private equity firm are slim.
Most senior Morgan Stanley employee’s will likely be left with these two choices: 1) take a pay cut at Morgan Stanley or 2) quit and take a pay cut somewhere else.
So while there is an element of these actions that amount to a quiet downsizing but that may be only half of it.
Gorman’s actions also amount to calling his employees bluff: Yes, I am cutting your pay? What are you going to do about it? Quit? I’m fine with both.
After all, each option helps him rein in compensation costs, one is just more extreme than the other.