There’s a price to be paid for having Wall Street’s new thundering herd.
That’s the lesson new Morgan Stanley CEO James Gorman is learning after having to goose pay in order to keep its army of some 19,000 MorganStanley Smith Barney brokers happy.
The company doled out $14.4 billion in compensation for 2009, compared to a profit of $1.41 billion.
Typically, Wall Street firms carve out about half of what they generate in revenues for bonuses, salaries and other employee benefits . So it stunned many observers that Morgan was looking to pay out as much as 62 percent of its revenues — its highest comp ratio since 1997, when Morgan Stanley merged with Dean Witter — so soon after Wall Street’s financial crisis.
Goldman Sachs ended up doling out 36 percent of its compensation, or roughly $16.2 billion, to staffers after getting slammed by the public.
Morgan has argued that it has less flexibility to reduce pay because of its wealth management unit, which contains the company’s Morgan Stanley Smith Barney venture and accounted for $6.11 billion of its pay increase.
Morgan was eager to make the combination of its brokerage firm and Citigroup’s crown jewel Smith Barney work last year, and the move transformed its wealth management platform from an also-ran to larger than Merrill Lynch’s original thundering herd of brokers.
Gorman vowed last week to bring the firm’s ratio down substantially amid investor push back. However, the new CEO might find that difficult — unless he plans on upsetting many of his brokers.
The Morgan pay issue is somewhat ironic for Gorman, who has tied the firm’s successes more closely to its wealth management unit, which provides a steadier stream of income and less to its risky trading business.
Meanwhile, Gorman’s own compensation, at $8.6 million, is lower than Goldman CEO Lloyd Blankfein’s at roughly $9 million and JPMorgan Chase boss Jamie Dimon’s, who is being paid $17 million.
Update: In a defense of Morgan Stanley’s lofty comp-to-revenue ratio, one source tells The Post that the bank’s ratios were so high because of a funky accounting charge.
The bank took a $5.5 billion write down tied to so-called debt valuation adjustments as its own debt spreads began to improve. “Excluding that charge, our ratios would have been much lower,” the source says. The bank says its actual comp ratio would be less than 50 percent.
