The departing Morgan Stanley chief skips a bonus for 2009, citing extraordinary taxpayer help
By Michael J. Moore and Christine Harper
(Bloomberg) — John Mack, Morgan Stanley's chairman and chief executive officer, won't accept a bonus for a third straight year amid predictions his bank will report an annual loss and public pressure to rein in Wall Street pay.
Mack, who will hand off his CEO job to James Gorman at the end of the year, cited "this unprecedented environment" in a memo to employees today that was confirmed by spokesman Mark Lake. Mack gave up his bonus in 2007 after the firm's first quarterly loss as a public company, and in 2008, when Morgan Stanley took a $10 billion taxpayer bailout.
Year-end bonuses are under scrutiny by lawmakers and regulators after the government stepped in to prop up firms following the collapse of Lehman Brothers Holdings Inc. last year. Mack, who in June repaid the money Morgan Stanley received under the Troubled Asset Relief Program, is the first head of a major financial firm to voluntarily forgo his bonus this year.
"It's going to be the trend," said Jeanne Branthover, head of financial services at New York-based Boyden Global Executive Search. "The top echelon is going to either forgo bonuses or take them in a non-cash way, deferring them. That is going to be very much the standard for this year because of everything that happened."
The board was willing to pay Mack a bonus, according to a person briefed on the matter who declined to be named because the talks were private.
Morgan Stanley (MS) is expected to report an annual loss of 49 cents per share in 2009, according to the average estimate of nine analysts surveyed by Bloomberg.
Shares of the company are still 22 percent below their level when Lehman collapsed, compared with Goldman Sachs Group Inc. (GS) shares, which are up 4.5 percent in the same period. Morgan Stanley, which has surged 81 percent this year, fell 11 cents to $29.01 in composite trading on the New York Stock Exchange at 11:49 a.m.
Mack, who gets an $800,000 salary and was awarded a $40 million stock bonus in 2006, wrote in the memo that Morgan Stanley is increasing deferral rates of compensation for all employees and strengthening so-called claw-back provisions, which allow payments to be recouped if long-term performance measures deteriorate. The firm will also factor risk measures into pay decisions for sales and trading employees, following recent guidelines from the Federal Reserve.
"We recognize the environment in which we are operating and the economic challenges facing so many countries," Mack wrote in the memo. "Given this unprecedented environment and the extraordinary financial support governments provided to our industry, as the leader of this firm I recommended to the compensation committee of the board last week that I receive no year-end bonus."
Bank of America Corp. (BAC) CEO Kenneth Lewis announced in October that he won't receive a salary or bonus for 2009, a decision based on advice from U.S. government pay supervisor Kenneth Feinberg.
Goldman Sachs said last week that its top 30 executives, including CEO Lloyd Blankfein and Chief Financial Officer David Viniar, will get year-end bonuses in stock they can't sell for five years.
"I also believe the scrutiny facing our industry right now ultimately can be a positive, if it leads to constructive changes in how firms operate, promotes greater discipline and transparency, and spurs sound regulatory reform," Mack wrote in the memo. "But our industry must first acknowledge the extraordinary events of the past year and recognize that some old ways of doing business cannot continue."
To contact the reporters on this story: Michael J. Moore in New York at firstname.lastname@example.org; Christine Harper in New York at email@example.com.