Bankers at Morgan Stanley may have less of a reason to pop the champagne cork this year.
The firm says it is expanding its list of events that can trigger a bonus pay "clawback," in which bankers are forced to give back a portion of their deferred bonus. Triggers for such clawbacks can now include "restatements," when a bank’s earnings on a given deal end up lower than originally thought. Violation of the bank’s risk policies and standards can also result in clawbacks, Bloomberg reports.
Other examples include "poor risk outcomes, significant losses and improper employee behavior," according to Morgan Stanley. The new rules can reportedly also apply to some lower-level, non-executive employees.
Morgan Stanley noted in its proxy statement that a "significantly greater portion of total compensation" is now subject to potential clawbacks, and argued that the move will enhance the company in the long term.
Clawbacks have become a heated topic of debate among bank regulators and finance executives in the wake of the financial crisis. By tying executive compensation to performance, and to the performance of the firm as a whole at the upper-most levels, employees and executives will be less inclined to make short-sighted and risky bets, the theory goes. That theoretically would help to stabilize trading operations.
The U.S. Securities and Exchange Commission could soon codify clawbacks into law for the first time ever, as noted by Bloomberg.
In the meantime, while other firms have unveiled varying types of clawback provisions, Morgan Stanley appears near the front of the pack. Already this year, Morgan Stanley announced it would cap last year's upfront bonus pay at $125,000, and, along with Goldman Sachs, announced it would be tying executive pay to performance.
Morgan Stanley CEO James Gorman, who made $13 million last year, told employees earlier this year that they should "just leave" if they're unhappy with their job.