New chief executives at two of Wall Street's biggest firms promised to reform bankers' pay, with more bonus money being deferred and subject to clawbacks should trading bets go wrong.
But both James Gorman, newly installed boss at Morgan Stanley, and Brian Moynihan, at Bank of America, which owns the historic investment bank Merrill Lynch, revealed increases in bonus payments to staff for 2009.
And Morgan Stanley set aside a greater percentage of its revenues to pay staff than it has done at any time in a decade, saying that there continues to be tough competition for talented employees and it has to make up for lower revenue growth than its rivals. Its full-year earnings, released yesterday, missed expectations because of a disappointing end to the year in its equities and bond trading business.
"Year-end compensation for Morgan Stanley employees is now paid in a mix of components," Mr Gorman said, "including three-year performance stock units for senior executives, equity subject to market risk that vests over three years and deferred awards subject to clawback. That puts a significant portion of total compensation at risk and tied to long-term firm performance."
Some 62 per cent of Morgan Stanley's 2009 revenues went towards compensation, including salaries, bonuses and benefits, totalling $14.4bn. That was up 31 per cent, although the average per employee fell as a result of 15,000 new staff taken on with the acquisition of the Smith Barney stockbroking business. Morgan Stanley operates a network of small town stockbrokers and wealth managers, as well as its powerhouse investment bank, where pay accounted for 40 per cent of revenues last year, at the low end of a range typical for Wall Street in recent years.
John Mack, who relinquished the chief executive job but remains chairman, will receive no bonus in 2009, "given the unique operating environment and government support for the industry this past year", the company said. Mr Gorman will be paid no cash bonus, but may be paid a deferred bonus in company stock.
Bankers at Merrill Lynch, meanwhile, were told that they would be forced to defer a greater proportion of their pay in future, as had long been typical at Bank of America's own operations. BofA acquired Merrill at the start of last year, after sealing a deal on the tumultuous weekend in 2008 when Lehman Brothers went bankrupt. Ken Lewis was forced into retirement after a decade as chief executive because of shareholder anger at the deal.
Mr Moynihan, who took over this month, told Bloomberg News: "The amount of deferral [of pay] is going to be consistent with both companies. There will be a heavier deferral of stock, subject to clawbacks."
Adding in the highly paid Merrill Lynch employees for the first time, BofA said its overall personnel costs had increased to $31.5bn from $18.4bn – 71 per cent – while staff numbers increased from 240,000 to 283,000 – 18 per cent.
Overall, both Morgan Stanley and BofA disappointed the stock market with their results yesterday. Morgan Stanley's total net income improved from a loss of $246m in 2008 to a profit of $1.3bn last year, but was shy of analysts' forecasts. Integrating Smith Barney cost about $280m last year, and will cost a further $450m in 2010, the company said. At BofA, bad loans at its retail bank continue to be a problem. It raised its provision for credit losses to $10.1bn in the fourth quarter, from $8.5bn a year earlier.