Morgan Stanley Chief Executive Officer James Gorman said banks need to cut staff and compensation as “the industry is still overpaid,” according to an interview with the Financial Times.
“What the Street has historically done is when revenues went up, they kept the comp-to-revenue ratio flat,” Gorman told the newspaper. “When revenues went down, they increased the comp-to-revenue ratio because they said, ‘We might lose all our people. We have to increase it.’”
The failure to reduce pay in hard times has left compensation too high and must be addressed to improve returns for shareholders, said Gorman, 54.
“That’s a classic Wall Street case of ‘Heads I win; tails, you lose,’” he said. “The current Wall Street management is a little tougher-minded about that and shareholders are certainly tougher-minded.”
Morgan Stanley will consider a new round of cost-cutting next year, and that could include lower pay, Gorman told the FT. New York-based Morgan Stanley paid out 51 percent of revenue in 2010 and 2011, Gorman’s first two years as CEO, down from 62 percent in 2009.
He also discussed the gap between the firm’s current return on equity and his previously stated goal of 15 percent, according to the FT report. The firm posted a 4 percent return on equity in 2011, and 1 percent in the first half of this year.
“We’re generating 5 percent, can we get back to 10 percent?” Gorman told the FT. “That’s much more interesting to me than can we get back to 15 percent or will we ever get back to the glory days -- those are completely flawed anyway.”