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Morgan Stanley told its executives to prepare to budget between 10% to 25% less for bonuses this year, the Wall Street Journal reported.The cuts will likely affect traders, back-office staff and other bank employees, but strong performers in the i-banking division and in equity capital markets might be exempt.
Apparently high-ranking executives might also be pressured to slash their own compensation.
Morgan Stanley officials have been told to make tentative plans for a bonus pool that in some cases is down by 10% to 25% by department. If revenues surge in the last few weeks of December, bonus reductions might be smaller than currently expected.
“All indications are that pay will be down. Gorman has been pretty articulate about that,” one Morgan Stanley official said, referring to Chief Executive James Gorman.
Gorman has been vocal about the fact that bonuses haven’t correlated to actual performance in the past, and said last month that that it’s not right that “pretty average employees were making four, five, 10 times what somebody in any other industry would be making.”
One of the reasons for the decrease is probably because shareholders have not been pleased with the bank having hired 2,000 people in the last year that has not seriously impacted revenue growth.
In response to grievances about high employee expenses, Gorman publicly vowed in February to reduce the firm’s payout.
Dozens of managing directors have been told of the estimates, but employees won’t know how much they’re getting until January.
Bonuses are expected to be down across the industry this year, not just at Morgan Stanley.
Ken Feinberg, Obama’s former “pay czar” and the man who set the pay for executives at bailed out U.S companies, thinks that’s a good thing.
“Now the question is how much are you paying people?” [Feinberg] asked. “If you say ‘look . . . we’re going to pay only 10 per cent in cash’ . . . but if that cash is $5m, that’s too much. Whether executives want to hide behind antitrust or other alleged legal obstacles as a reason not to promote a more realistic performance-based reasonable pay structure – I’m not convinced.”
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