January 17, 2012

It's easy to snicker for the poor traders at Morgan Stanley; after all they might be getting an overdue lesson in fairness. The Wall Street Journal and other news agencies report that the brokerage is capping bonuses for employees at $125,000 but not for senior execs.

Check out Advanced Trading's Top 10 Occupy Wall Street Signs from this summer.

Now, one-eightth of a million dollars might seem like a good way to celebrate a year's work but this is Wall Street: This is an almost entry-level bonus amount. This means that not much will be left over after the convertible Audi and the timeshare in Bermuda. Honey, we may have to cut back on the Botox and helicopter allowance.

The Morgan Stanley missions are not alone. According to reports, CEO James Gorman won't be getting any extra money this year. Whether this is based on the firm's rough year -- even Goldman Sachs wasn't as battered as old MS -- or until new figures are available has not been made clear.

Why the bad news? According to Bloomberg:

The decision comes after a fourth quarter that some analysts predicted was the worst for trading and investment-banking revenue since the financial crisis. Increased salaries and previous moves toward deferring more pay have limited investment banks' flexibility to cut compensation costs, analysts including Atlantic Equities' Richard Staite have said.

Morgan Stanley's decision will increase the average amount of pay deferred to about 75 percent, the person said. The firm deferred an average of 60 percent in 2010 and 40 percent in 2009. Deferred cash for 2011 performance will be paid out in two equal installments in the final month of 2012 and 2013, a change from the previous deferral plan that paid out in thirds over 18 months, the person said.

This is serious news. While to everyone else, Morgan Stanley's decision might seem sober and responsible in the worst fiscal crisis since the 1930s. But there will be an aftershock: Morgan Stanley might see a brain drain as young talent take their quant skills and move to other firms, start their own funds or, in a real sign of times, walk over to Google and Facebook.

These bonuses are outrageous but they do serve a purpose: It makes the financial sector attractive to new talent and keeps people working 60 to 80 hours a week at their desk. At $125,000, some might wonder: "What's the point?"

ABOUT THE AUTHOR
Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining ...