Morgan Stanley is taking three years to pay out 2012 bonuses to high-earning employees, three sources familiar with the situation said on Tuesday, a step that will better align incentives with shareholder interests and make it harder for employees to leave.
Banks globally are rethinking compensation as trading volumes sag, tighter regulations cut into profit, and revenues grow slowly, if at all. Barclays and Deutsche Bank are cutting 2012 bonuses for investment bankers by up to 20 percent.
Morgan Stanley is deferring bonuses for all employees who make more than $350,000 annually and whose bonuses are at least $50,000, one of the sources said. The source said the deferral does not apply to retail brokers.
The long deferral in cash payouts for high earners is unusual, but more banks will likely follow suit, said Joe Sorrentino, managing director of Steven Hall & Partners, a New York-based executive compensation firm.
"Many investors should be pleased by this, but employees might not be." Sorrentino said.
Deferring compensation can ensure that bankers and traders do not receive high pay for transactions that generate near-term profits and longer-term headaches. Morgan Stanley Chief Executive James Gorman said in June that the bank wants to reward employees in a way that helps bank shareholders.
Investors have been pressing Morgan Stanley to rethink its compensation practices for years. A Wall Street Journal report on Tuesday said that a hedge fund that invests in Morgan Stanley was focusing on executive pay at the bank.
Details about 2012 bonuses will be communicated to employees on Thursday, the day before the bank posts fourth quarter earnings, said the sources, who asked not to be named because the matter is not public.
Mark Lake, a Morgan Stanley spokesman, declined to comment.
The new bonus plan will paid out half in cash and half in stock. High earners will receive 25 percent of their cash bonus in May, another 25 percent in December, another 25 percent in December 2014, and the final 25 percent in December 2015, according to two of the sources.
For the stock portion, 25 percent of the equity award will be paid out at the end of this year, 25 percent at the end of 2014, and the final half at the end of 2015, the sources said.
Employees who make less than $350,000 annually and whose bonuses total less than $50,000 will receive their full cash bonuses in February, one of the sources said.
Morgan Stanley and other