Bull Bear Report Dec 09 2010

Morgan Stanley Bonus Cuts Won't Affect Recruiting

By julie steinberg

Morgan Stanley is set to trim its bonus pool by 10% to 30% this year, but that should have little effect on the firm's ability to attract top talent because competitors are also cutting compensation, salary and recruiting experts say.

Total compensation at all big Wall Street banks is expected to be as much as 22% to 28% lower this year, despite higher 2010 base salaries because of bonus cuts, said Michael Karp, managing partner at the Options Group, a global executive search and consulting firm.

"We are in a very tough regulatory environment," he said. "Revenues and volumes were quite down this year, so compensation overall is quite down."

Morgan Stanley's intentions to scale back bonuses were leaked to the press, and, "internally, other firms are saying the same thing," said Alan Johnson, managing director of Johnson Associates, a compensation consulting firm specializing in the financial services industry, leveling the playing field for Morgan Stanley.

Dan Ryan, partner and sector leader for North American investment banking at Heidrick & Struggles, agrees that Morgan Stanley won't be at a disadvantage when recruiting, because "the numbers aren't going to be out of line with the rest of the Street," he said.

Candidates shouldn't make a decision based on general reports of bonus cuts, said Ryan. "There are so many components that go into what a bonus pool looks like," he said. Top performers may still receive major paydays at the expense of the bottom 25%.

Morgan Stanley had set aside $12 billion, or 50% of revenues for compensation through the first nine months of the year, a far cry from last year's 62%, and Chief Executive James Gorman has made clear his intention to lower that ratio further.

Still, the company said it remains committed to recruiting top talent.

"Our long-term success depends on retaining the best people, and we are committed to paying competitively," a Morgan Stanley spokesman has said.

Karp said the reductions this year are not as dramatic as those seen in 2008, which should ensure top talent will still be interested in the firm.

Write to Julie Steinberg

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