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Morgan Stanley Said to Limit Cash Bonuses, Increase Deferrals

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Morgan Stanley CEO James Gorman
James Gorman, chief executive officer of Morgan Stanley. Photographer: Scott Eells/Bloomberg

Jan. 17 (Bloomberg) -- Morgan Stanley, owner of the world’s biggest brokerage, is capping immediate cash bonuses at $125,000 as the firm curtails pay and defers more compensation for senior executives, according to a person briefed on the plans.

Members of the company’s operating committee, led by Chief Executive Officer James Gorman, 53, won’t get any immediate cash, said the person, who declined to be identified because the plan hasn’t been made public. Mark Lake, a spokesman for the New York-based bank, declined to comment.

The decision comes after a fourth quarter that some analysts predicted was the worst for trading and investment-banking revenue since the financial crisis. Increased salaries and previous moves toward deferring more pay have limited investment banks’ flexibility to cut compensation costs, analysts including Atlantic Equities’ Richard Staite have said.

Morgan Stanley’s decision will increase the average amount of pay deferred to about 75 percent, the person said. The firm deferred an average of 60 percent in 2010 and 40 percent in 2009. Deferred cash for 2011 performance will be paid out in two equal installments in the final month of 2012 and 2013, a change from the previous deferral plan that paid out in thirds over 18 months, the person said.

Details about the compensation plan were reported earlier by the Wall Street Journal.

Morgan Stanley’s investment-banking unit set aside $5.74 billion for pay in the first nine months of 2011, an 8 percent increase from a year earlier. Companywide compensation and benefits rose 6 percent to $12.7 billion as revenue climbed 13 percent.

Junior Employees

The amount deferred for junior employees won’t exceed 25 percent of their bonuses, and those who are paid less than $250,000 annually won’t have any cash deferred, the person said. Some of Wall Street’s biggest firms are considering freezing pay levels for some junior bankers, people familiar with the deliberations said earlier this month.

Credit Suisse Group AG is likely to suspend its practice, an industry norm, of boosting pay automatically each year for analysts, associates and vice presidents within the investment-banking division, a person with direct knowledge of the decision said. While those employees will get their regular annual salary increases, bonuses probably will be lowered to keep total pay flat from a year earlier, the person said.

To contact the reporter on this story: 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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