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Morgan Stanley Trims Investment Bank’s Compensation Pool 14%

Morgan Stanley (MS), owner of the world’s biggest brokerage, set aside $1.89 billion to pay employees at its investment-banking and trading division in the first quarter, 14 percent less than a year earlier.

Compensation at the institutional-securities unit, which includes salaries, bonuses and the cost of previous deferred awards, equaled 43 percent of adjusted revenue, little changed from a year earlier, according to figures posted today on the New York-based firm’s website.

The drop was “in part driven by lower headcount,” the company said in a statement. While the firm doesn’t report how many people are employed within the division, its total number of employees fell 6.6 percent from a year earlier.

Morgan Stanley has cut pay and jobs, deferred bonuses and toughened clawback rules as Chief Executive Officer James Gorman, 54, seeks to improve returns amid lower trading revenue and higher capital requirements. The bank deferred all bonuses for employees getting both total pay exceeding $350,000 and incentive compensation of at least $50,000, a person briefed on the matter said in January.

“We are benefiting from the headcount reductions, which obviously reduces base, benefits and above-base comp,” Chief Financial Officer Ruth Porat, 55, said in a telephone interview today, referring to compensation. “We’ve also become more efficient with location sourcing, which helps improve comp efficiency.”

Photographer: Victor J. Blue/Bloomberg

Morgan Stanley has cut pay and jobs, deferred bonuses and toughened clawback rules as Chief Executive Officer James Gorman, 54, seeks to improve returns amid lower trading revenue and higher capital requirements than before the financial crisis. Close

Morgan Stanley has cut pay and jobs, deferred bonuses and toughened clawback rules as... Read More

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Photographer: Victor J. Blue/Bloomberg

Morgan Stanley has cut pay and jobs, deferred bonuses and toughened clawback rules as Chief Executive Officer James Gorman, 54, seeks to improve returns amid lower trading revenue and higher capital requirements than before the financial crisis.

Companywide Compensation

Excluding severance, investment bank compensation was about 40 percent of adjusted revenue in the quarter, a ratio the firm plans to maintain, Porat said.

Companywide compensation and benefits fell 4.8 percent to $4.22 billion as adjusted revenue dropped at the same rate to $8.5 billion. That revenue figure excludes accounting charges known as debt-valuation adjustments. Those changes stem from increases in the value of the company’s debt, under the theory that it would be more expensive to buy back the securities.

The bank’s total compensation cost was enough to pay each of the firm’s 55,289 employees $76,254 on average for the period, more than the $74,831 it set aside for each of the 59,200 employees a year earlier, figures released today show.

Fixed Grid

Morgan Stanley’s brokerage division employed 16,284 financial advisers at the end of March, down from 16,726 a year earlier. It set aside $2.07 billion for pay, up from $2.01 billion in the first quarter of 2012. The unit’s compensation cost, set by a fixed grid for some employees, was 60 percent of its revenue, compared with 61 percent a year earlier.

The unit’s 60 percent ratio was up from 57 percent in the fourth quarter for “seasonal reasons,” and will probably fall in future quarters, Porat said today.

The firm shifted wealth-management advisers who work outside the U.S. into the institutional securities unit. Including those people, the company’s total number of so-called global representatives fell to 16,703 at the end of March from 17,193 a year earlier.

Goldman, JPMorgan

Goldman Sachs Group Inc. (GS) reported earlier this week that it set aside $4.34 billion to pay employees in the first quarter, about 1 percent less than a year earlier, as the firm employed 400 fewer people. The compensation expense equaled 43 percent of revenue, down from 44 percent in 2012.

JPMorgan Chase & Co. (JPM)’s corporate and investment bank set aside 7 percent less money for employee compensation in the first quarter while the division generated 9 percent more revenue. The unit’s $3.38 billion in compensation costs amounted to 34 percent of revenue, excluding accounting adjustments, down from 35 percent a year earlier.

The average compensation figures are derived by dividing the total compensation pool by the number of employees, and they don’t represent individual workers’ actual pay. Investment banks set aside revenue throughout the year for pay and typically decide bonuses at year-end.

To contact the reporters on this story: Christine Harper in New York at charper@bloomberg.net; Michael J. Moore in New York at mmoore55@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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