Both Goldman Sachs and Morgan Stanley are now saying they will seek to “claw back” or recover pay from any employee whose actions expose the firms to substantial financial or legal repercussions.
“The firms said the policy isn't new, but the disclosure shows the companies won't just go after the excessive risk-takers if bad trades hurt the firms' profits,” the Wall Street Journal reports.
What is new however: The latest disclosures clarify “for the first time” that senior managers are on the line along with traders, according to the Journal.
“The companies disclosed the clawback policies separately in Securities and Exchange Commission filings in late January and early February, in connection with agreements they reached to end proxy fights being waged by the office that runs New York City's pension funds,” says the report.
New York City Comptroller John Liu filed papers last year seeking to force the firms to strengthen their clawback policies, the article states, with Wall Street Journal reporter Liz Moyer observing that the move comes at “a touchy time on Wall Street,” given that pay is in generally in decline even for those with clean records.
At Goldman, for instance, compensation and benefits dropped 21 percent from a year ago to $12.22 billion, taking per capita pay and perks down to $367,000, a level last seen in the financial crisis. The firm cut 2,400 jobs last year, joining roughly two dozen firms around the globe that plan to cut some 100,000 positions combined.
The clawback issue is only gaining prominence now given the light being shed on bank trading risks. UBS AG, Switzerland's largest bank by assets, said Tuesday that it will cut investment bank bonuses 60 percent following a retrenchment that started after a London-based employee made unauthorized trades that cost the bank $2.3 billion, for instance.
Meanwhile, both Goldman and Morgan Stanley are earning kudos with regulators for their latest moves.
"These two firms have set the standard for clawback policies in the banking industry," Liu said in a statement. "We appreciate the dialogue we've had on this issue and will continue to call for them to disclose the amount of clawbacks if forthcoming regulation does not require it."
Goldman Sachs and Morgan Stanley declined to respond to the Journal’s requests for comment.