If I’m getting this right, Morgan Stanley is the first of surely many who will be making changes to their compensation scheme after Congress has decided to set limits on executives’ bonuses. First to the details before my view on this. From the FT:
The base salary of John Mack, Morgan Stanley’s chief executive, will remain at $800,000 per year. But the base for his two co-presidents – James Gorman and Walid Chammah – will jump to $800,000. A year ago, the base salary for the position was $300,000.
The firm’s CFO, managing directors, and VPs would all see increases in their base salaries. From about 15 to 20 percent of overall compensation, this will rise to 25 to 30 percent; this increase is at 35 to 40 percent for executives.
I am not against high pays or bonuses for as long as they are tied to performance. While this moves does not come as a surprise in any way, I believe this is something Congress should have thought of as an unintended consequence. Probably worse than not setting a cap on bonuses at all.
Point 1: salaries, unlike bonuses, are not tied to performance so between the two, higher salaries is probably even harder to justify than higher bonuses.
Point 2: Bankers will now be at better liberty to take bigger risks knowing that bonuses would hardly be affected regardless of the outcome of their performance. Of course, unless Congress similarly decides to set a cap on salaries, which if that happens would mark the official death of American capitalism.
Point 3: This only highlights the unintelligent, anti-free market, political moves of the politicians, which to say the least is a shame. And they thought something so good was going to come out of their politicking without complete regard for the deeper grave they’re digging.