Morgan Stanley, coming off a strong year, paid its employees cumulatively more in 2010 than the poster child for top compensation, Goldman Sachs.
The firm paid $16 billion in bonuses and fees to employees for the year, up from $14.4 billion in 2009, and topping Goldman's $15.3 billion in 2010. Morgan Stanley's compensation to net revenue ratio was 51 percent for the year, down from 62 percent in 2009 but far greater than Goldman's 2010 39 percent ratio.
It should be noted that Morgan's compensation does not appear to be as generous for its investment bankers. While Morgan's overall compensation was up, Morgan's institutional securities division was down for the year, dropping 2 percent to $7.1 billion compared with $7.2 billion for the prior year. And while the overall company's compensation ratio was 51 percent, institutional securities (the investment bank) was 43 percent. The high percentage of bonus deferrals was also a factor in deflating banker expectations.
Officials stressed that the compensation increase was partly due a charge of $272 million related to the U.K. payroll tax on 2009 discretionary bonuses, while its compensation-to-revenue ratio was impacted by recent fluctuation in the fair value of Morgan's long-term and short-term borrowings.
However in a conference call, CEO James Gorman admitted that Morgan's relatively strong earnings gave the bank the ability to reward its best performers. All of the firm's major divisions - including institutional securities, asset management and global wealth management - increased net revenues for the year.
"If we didn't have the revenues, we would have adjusted our compensation," Gorman said. "We wouldn't do it at a level where we'd be putting risk into the franchise."
Morgan Stanley also stepped up deferred compensation at the expense of cash bonuses. The average amount of deferred compensation per employee shot up to 60 percent from 40 percent in 2009.
Hiring 'Roughly Flat'
While overall hiring will be "roughly flat," Morgan Stanley plans selective hiring in 2010. Much will be concentrated in fixed income, where it's in the middle of a two-year buildout. Hiring should be in the 7.5 percent to 8.5 percent range in that unit. Hires will also be concentrated in support and lower-ranking staff, as Morgan Stanley digests the pile of managing directors it acquired in 2010. "We want to see some progress from these hires," Gorman said.