Feb. 1 (Bloomberg) -- Morgan Stanley reduced pay by 7.1 percent for Chairman and Chief Executive Officer James Gorman, giving him a $9.75 million package that included a $3.75 million long-term incentive award.
The bank almost doubled Gorman’s base salary to $1.5 million from $800,000, according to a regulatory filing yesterday by Morgan Stanley. The incentive award will be based on the firm’s performance over the next three years. If the bank exceeds its targets, which weren’t disclosed, Gorman could receive twice the current value, according to the filing.
Morgan Stanley shares climbed 26 percent last year, after tumbling 44 percent in 2011. The New York-based bank’s 2012 return on equity was 5 percent, below Gorman’s goal of 15 percent, leading him to lay out a plan last month to double the firm’s ROE even without an improvement in markets.
Last year “was a transition year for Morgan Stanley, and management along with much of the organization saw reduced compensation,” Robert Kidder, the company’s lead independent director, said in the filing. The awards reflect that “the board is confident of the strategic decisions taken by senior management,” he said.
The board of directors decided to award the new incentive in place of performance stock units that comprised $1.94 million of Gorman’s pay last year, meaning a greater proportion of his compensation is tied to the firm’s results. Excluding those performance-based awards, the drop in Gorman’s pay was 30 percent.
Morgan Stanley’s decision to separate Gorman’s award based on future performance targets from year-end pay brings the plan in line with New York-based Goldman Sachs Group Inc., which gave CEO Lloyd C. Blankfein an incentive valued at $3 million last year and a $7 million award the previous year.
The incentive awards will convert into shares in 2016, based on meeting targets related to ROE and relative total shareholder return, according to the filing. Last year’s performance stock units will pay out fully if the bank earns a 10 percent average ROE over three years and matches the performance of the 80-company Standard & Poor’s 500 Financials Index.
Gorman missed out on performance stock units granted as part of his 2009 pay after the firm didn’t meet the targets attached to those awards in the three years ended in 2012. Those PSUs were valued at $2.9 million when he received them.
As part of his 2012 pay, Gorman got stock options valued at $2.6 million, according to a filing last week. He also received a $2.6 million deferred cash bonus and his $800,000 salary, a person briefed on the decision has said.
Gorman, 54, who previously received the lowest base salary among CEOs of the six largest U.S. banks, now gets the same as JPMorgan Chase & Co. CEO Jamie Dimon, 56, and Citigroup Inc.’s Michael Corbat, 52.
Morgan Stanley also gave long-term awards valued at $3 million to Greg Fleming, who oversees the bank’s wealth and asset-management units, and Colm Kelleher, who leads the trading and investment banking division. Chief Financial Officer Ruth Porat was granted an incentive worth $2.75 million.
The bank raised the base salaries for all members of its operating committee to $1 million, or the equivalent amount in their local currency, according to the filing. Fleming, Kelleher and Porat were included in those raises.
--Editors: Rick Green, Peter Eichenbaum