Clawback: Morgan Stanley Ups the Ante

10 December 2008

1 minute read

Do you think Morgan Stanley and other banks that adopt wide-ranging bonus clawback provisions are setting themselves up as lawsuit-bait?

If your employer adopted such a system, would it make your own compensation prospects appear siginficantly less attractive? If so, what action might you take?

Where bonus clawbacks are concerned, the writing is on the wall. First UBS, now Morgan Stanley have overhauled their bonus plans by adding three-year clawback provisions - not just for senior executives, but for many traders and bankers.

Make that "most," in the case of Morgan Stanley. Its new bonus system, in which an unspecified but presumably major portion of year-end compensation is deferred and can be taken back later, reportedly covers some 7,000 employees.

Clawback can be triggered if an empoyee is deemed responsible for "a restatement of results, a significant financial loss or other reputational harm to the Firm or one of its businesses," according to a memo from Chief Executive John Mack. The new scheme takes effect starting with this year's bonuses.

It's a lay-up that most other top-tier institutions will follow suit in one form or another.

So, where does that leave you? Post your thoughts below.

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Insider Comment

3 comments

pa
pauloesco
26 March 2009
Actually, in my experience, many def.comp programs are like this already. Company's give you some cash now, some cash for next year and some stock vesting over the next 3-5 years. What's the diff? But, that's when it's the company's discretionary bonus to you. And i think that's different than when you volunteer to defer some compensation until a later year. (And, Mr. PRUDENTGUY, you might want to check your def.comp plan docs... in most cases voluntary deferred comp is held in a CORPORATE trust with outside institutions all right, but it doesn't mean the trust isn't subject to corporate creditors in the case of bancruptcy!! (Def.Comp are not ERISA plans, but generally 409A plans!!!)
my 2 cents
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an
anonymous
15 December 2008
My understanding is that clawback is more about accountability, not deferring payment. Would payments subject to clawback provisions really be held by an employer, and if so until when? Is there a timeframe attached to clawback liability?
I think the real issue would be how well the terms defined the circumstances under which clawback could be exercised. Clawback provisions aren't new, but are rarely exercised, probably because of the legal hassle involved. (http://www.treasuryandrisk....
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pr
prudentguy
11 December 2008
If a big chunk of my pay each year is to be deferred, they'd better hold all the funds not just in an escrow account, but in an outside institution and in the name of a bankruptcy-remote trust. I may work as a banker, BUT I'M NOT MY EMPLOYER'S BANKER - and I'm nobody's sugar daddy. I'm not in the business of lending to my employer for 3 to 5-year periods (and be at risk of losing pay I'd already earned if the employer goes under through no fault of mine). My own financial health is already too much tethered to the firm's as it is.
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