Morgan Stanley Plan Aims at Retention

Morgan Stanley's new incentive plan is meant to attract new talent and discourage the firm's bankers and traders from jumping to rivals. It's the latest move by Chief Executive John Mack to counter the sense the bank's compensation lags its competitors.

According to media reports, the new plan allows staff who earn at least $500,000 to invest part of their annual bonus in Morgan Stanley funds of hedge funds and private equity funds. A banking source familiar with the plans told Financial News the allowed investment would be a "small percentage" of a staff member's bonus.

In addition, the bank will lend qualified employees $2 for every $1 they invest in the funds. If the investments drop in value to the point where equity is wiped out, the loans would be forgivable. The bank is also loosening the rules on restricted stock awards, allowing employees to sell their shares after three years instead of five.

With bonus season approaching, the new plan could help induce staff to stay with Morgan Stanley. Low bonuses often spur bankers and traders to jump to other firms.