Working on its strategy to defer the major part of bonus payment to longer term, Morgan Stanley (MS) on Monday announced its plans to revamp its bonus payout structure for the company’s top executives. The company charted out a compensation plan according to which the top 30 executives would be offered one quarter of their 2009 pay in cash. The rest will be converted to stock currently to defer payment to a future date. However, a final decision is expected as soon as next month.
While the company proposed to postpone a major part of its bonus payments to a future period, it still expects to pay a standard share to its executives, unlike its peers such as Goldman Sachs Group Inc. (GS) who recently publicized its intention of relinquishing cash bonuses for its top 30 executives and paying them entirely in restricted stock. However, Morgan Stanley is also considering a policy by which on the event of any future loss, the top executives might have to renounce about 65% or more of their compensation for payment of company’s liabilities.
Additionally, Morgan Stanley plans to award about 20% of total compensation to executives in shares based on its stock price compared with the share prices of the investment bank’s peers such as Citigroup Inc. (C) and Goldman Sachs. This portion of shares would also be based on Morgan Stanley’s return on equity against predetermined benchmarks set over a three-year period.
We believe that the company’s diversity combined with its leading global equity and advisory franchise bodes well for the long-term growth. Morgan Stanley has one of the cleanest balance sheets in the industry, with an attractive mix of business, ample liquidity and more credibility in the marketplace. The company is expected to deliver substantial growth and return on earnings, given continued momentum in its core institutional securities franchise from a renewed focus on rightsizing the company’s risk appetite and form a healthy investment portfolio.
However, some doubts have been raised with the challenges faced by the retail brokerage and asset management segments due to the general decline in overall seasonal and market factors. Looking ahead, though, we believe that as markets continue to recover, Morgan Stanley is well positioned to realize the full benefits of its strategic initiatives that include the addition of new talent, continued integration of the Morgan Stanley Requires Entitlement joint venture, and the execution of Mitsubishi UFJ (MTU) alliance, thereby restoring investors’ confidence.
On Monday, the shares of Morgan Stanley closed at $29.29, down 1%, on the New York Stock Exchange, indicating no severe reaction on the company’s announcement.
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