It looks like top execs at all the big banks will go bonus-free this year, but there are still regular employee bonuses to be paid out, and even in normal times they usually attract scorn. Post-bailot and mid-recession, the blowback will be worse than usual.
Morgan Stanley (MS) has decided to introduce a clawback mechanism on this year’s and future year bonuses, with the basic mechanism working like this: A portion of bonuses will be paid out over three years, but can be rescinded if an employee’s future performance suffers:
NYT: The so-called claw-back provision is intended to discourage employees from making short-sighted decisions by tying their compensation to the bank’s long-term performance. It was unclear whether other banks would follow suit. But with pay under a microscope and the annual bonus season now at hand, Wall Street is moving to deflect criticism over paying bonuses after many banks, including Morgan Stanley, accepted billions of dollars from the government.
Advocates of compensation reform have been pushing like this for some time, and at this point it’s too early to judge how this will work. For one thing, employees already have an incentive to think long term if they have any stake in the company. You didn’t need a clawback mechanism to penalise Lehman employees for years of bad bets.
…it was Morgan Stanley’s claw-back announcement, which will affect some 7,000 workers, that captured the attention of employment lawyers and recruiters. It is similar to a rule introduced by UBS, the big Swiss bank, in late November, but Morgan’s is far broader in its language. Pay can be retracted from workers who engage in “conduct detrimental to the firm,” according to an internal memorandum announcing the move, or who cause “a restatement of results, a significant financial loss or other reputational harm.”
Morgan Stanley already holds on to 35 to 60 per cent of high earners’ bonuses, but in the past it has held that money entirely in stock and stock options. Now a large portion will be cash, the bank said.
“So if you’re a trader and you’ve had a huge year and you get paid a lot of money and then the following year it turns out you were taking outsize risk, we can go back and ding your pay from the year before,” said Jeanmarie McFadden, a spokeswoman for Morgan Stanley.