Morgan Stanley Cuts Investment Bank Pay Costs 7.6% for 2012Michael J. Moore and Christine Harper
Morgan Stanley, the bank that’s deferring all bonuses for top earners, set aside $6.65 billion in 2012 to pay investment-bank employees, a 7.6 percent decline from a year earlier.
The ratio of compensation to revenue in the unit fell to 44 percent from 53 percent in 2011, when excluding accounting gains and losses related to the firm’s debt prices, according to figures posted today on the company’s website. The bank doesn’t disclose how many people work in the division.
Morgan Stanley joins Goldman Sachs Group Inc. and JPMorgan Chase & Co.’s corporate and investment bank in setting aside a smaller portion of revenue for pay as the world’s biggest banks seek to pare costs. New York-based Morgan Stanley is cutting 1,600 jobs in its investment bank, a person with direct knowledge of the matter said last week.
“We have to balance, as everybody does, between what our shareholders are getting and what we are paying ourselves,” Chairman and Chief Executive Officer James Gorman, 54, said in an interview with CNBC today. “We had to adjust to the environment we are in right now.”
The firm also is deferring all pay for employees who have both total pay of more than $350,000 and bonuses of at least $50,000, a person briefed on the matter said earlier this week.
About 80 percent of employees won’t be affected by the deferral plan after the firm raised the compensation threshold, Chief Financial Officer Ruth Porat said today in an interview. Deferral costs in future years will continue to decline after Gorman said they peaked in 2011, she said.
“We’re not adding to deferrals in outer years, it’s on a declining scope,” said Porat, 55. The firm has more flexibility after cutting about 6,000 positions, she said.
Compensation expenses, which include salaries, bonuses, benefits and the cost of deferred pay, totaled $15.6 billion companywide for the year, down 4.4 percent. Morgan Stanley has 55,358 employees after the latest cuts, the bank said in a presentation today. That’s down 10 percent from the end of 2011.
Companywide compensation, the largest expense, was enough to pay each Morgan Stanley employee $273,777 in 2012, according to figures released today. That compares with an average of $265,378 for each of the 61,546 people who worked at the firm at the end of 2011.
Morgan Stanley’s brokerage division, which employed 16,780 financial advisers at the end of December, set aside $8.13 billion for pay, down 1.9 percent from a year earlier. The unit’s compensation cost, which is set by a fixed grid for some employees, was 60 percent of the division’s revenue, down from 62 percent last year.
JPMorgan’s corporate and investment bank cut employee compensation costs 3 percent in 2012 to $11.3 billion as the division generated 1 percent more revenue. The expense was enough to give each of the unit’s 52,151 employees $216,928 on average.
Goldman Sachs set aside $12.9 billion to pay employees in 2012, up 6 percent from 2011 as revenue climbed 19 percent. The cost amounted to 38 percent of revenue, compared with 42 percent a year earlier. The pay expense averages $399,506 per employee, up from $367,057 in 2011.
Wall Street firms typically reserve a portion of revenue throughout the year for employees. Average pay per worker doesn’t reflect the amount of money employees actually receive. Top executives and revenue producers sometimes get multimillion-dollar awards, while clerical workers are paid smaller salaries.