The chart which shows why excitement over higher pay at Morgan Stanley is misplaced

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Morgan Stanley has increased the amount it pays its investment bankers! Cue dancing in the streets, the deification of James Gorman, celebratory trips to Starbucks etc. etc.

Except...Morgan Stanley's Stanley's apparent pay rise is illusory. Those poor, beleaguered, underpaid (compared to rivals at Goldman Sachs) Morgan Stanley bankers aren't getting paid more after all. They're getting paid the same - maybe even a little bit less.

It's all down to structure. At face value, today's 4th quarter results from Morgan Stanley suggest that compensation spending in Morgan Stanley's Institutional Securities Group rose by 14% last year compared to 2013. Even better, they suggest that spending on pay rose by 57% in the final three months of the year. A gigantic increase in Morgan Stanley bonuses would seem to be on the way. Actually, Morgan Stanley has merely altered the way its bonuses are paid.

The chart below (from Morgan Stanley's earnings release) helps explain the situation. In the fourth quarter of 2014, Morgan Stanley changed the way it structures its bonuses. Until then, an average of 74% of bonuses were deferred. However, as of Q4, only 50% of bonuses are deferred and Morgan Stanley's bankers can get the cash component of their bonuses more quickly. Pay costs at the bank have risen simply because more of them were booked in the fourth quarter of 2014, instead of spread over time.

When these changes are eliminated, the chart shows that Morgan Stanley actually set aside $6,882m to pay its institutional securities professionals in 2014 - only ever so slightly more than the $6,823m it paid them a year earlier.

None of this is to say that Morgan Stanley's pay changes are bad. Its investment bankers will undoubtedly welcome getting more of their pay in cash, particularly as the bank's shares - which more than doubled in the three years to January, have been falling ever since. Overall, however, their pay isn't up.

On a per-head basis, Morgan Stanley's investment bankers may even be worse off - in the UK, at least, the bank increased its headcount of FCA registered individuals in 2014. And unless revenues increase soon, pay cuts seem to be coming next. In the presentation accompanying today's results, Morgan Stanley declared a target compensation ratio of 39% in its Institutional Securities Group. In 2014 the ratio was 46%.

What really happened to pay for Morgan Stanley's investment bankers

Morgan Stanley pay changes

Source: Morgan Stanley 

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