Morgan Stanley Executives Ask Dismissal of Shareholder Lawsuit Over Pay

Morgan Stanley Chairman John Mack and Chief Executive Officer James Gorman sought to defeat a shareholder lawsuit over allegedly “unconscionable” compensation paid to employees.

A lawyer for Mack, Gorman and Morgan Stanley executives named in the lawsuit asked New York State Supreme Court Justice Shirley Werner Kornreich to dismiss the complaint at a court hearing today in Manhattan. Morgan Stanley directors also sought to throw out the lawsuit.

“In times of crisis you want the most talented people to stay. You pay them to stay,” said Evan Chesler, who represents Mack, Gorman and the executives. The court, he added, can’t second-guess company decisions over pay for its 60,000 employees.

A group of Morgan Stanley shareholders sued Morgan Stanley executives and directors earlier this year over $45 billion in employee compensation in 2006, 2007 and 2009. In the complaint, it calls the pay “unconscionable” and “staggering” given the company’s performance, including relying on government bailout money in 2009.

Jay Eisenhofer, an attorney for the shareholders, told Kornreich at the hearing that there was “no relationship” between pay and profitability at Morgan Stanley.

“This was done without regard to profitability of the company,” he said.

Suffered Harm

The shareholders who filed the lawsuit are the Security Police and Fire Professionals of America Retirement Fund, the Central Laborers’ Pension Fund, and Arthur Murphy Jr. on behalf of the Jean E. Murphy Revocable Trust.

The complaint alleges shareholders suffered harm from the conduct of the executives and directors. The stockholders “seek to recover billions in compensation,” according to the lawsuit. In an interview after the hearing, Eisenhofer declined to specify the amount.

The case is Security Police and Fire Professional of America Retirement Fund v. John J. Mack, 600359-2010, New York State Supreme Court (Manhattan).

To contact the reporter on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net.

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