Charlie Gasparino at Fox Business News is reporting that Morgan Stanley capped its cash bonus payouts at $125,000 for 2011 because of pressure from a federal regulator, citing sources within the firm.
The need to slash compensation not only arose from a turbulent year in businesses, but from concerns noted under the Dodd-Frank financial reform law. According to Fox Business News:
Under the Dodd Frank financial reform law passed in 2010, Wall Street compensation has become a key issue among securities regulators who believed large compensation packages led to the excessive risk taking that caused the 2008 financial collapse. One key regulator, the Securities and Exchange Commission, now requires firms to maintain compensation procedures that prevent “inappropriate risk-taking.”
The Wall Street Journal broke the news last week that bonuses—which make up a major portion of a banker’s yearly pay—were going to limited at Morgan Stanley. In addition, Gasparino noted that Morgan Stanley has the highest compensation-to-revenue ratio out of the five major U.S. banks. For 2011, Morgan Stanley had a a compensation ratio of 52%, followed by Goldman Sachs at 42%, Citigroup at 39%, Bank of America at 33% and JPMorgan at 30%.