Morgan Stanley (MS) rolled out its 2013 compensation package, which includes a new stock-ownership plan and cuts to bonuses, last week. The package is generally winning praise from industry experts, though they do point to some limitations in its appeal.
“Morgan Stanley seems to be leading in innovation on compensation plans and other areas,” said Chip Roame, managing partner of the consultancy Tiburon Strategic Advisors, in an interview with AdvisorOne. “Adding a discounted and matching stock-ownership plan in place of a portion of the deferred compensation plan is likely a move that creates loyalty over the medium term.”
The firm, which is led by James Gorman, had 16,829 financial advisors as of Sept.30–down 1% from 16,934 in the second quarter and 5% from 17,661 a year ago. In the third period, it had $7.5 billion of new assets, up 83% from the second quarter and down 23% for a year ago.
In the short term, the compensation changes “may not have much of impact on those waiting to and ready to leave,” said Andy Tasnady, managing partner of Tasnady & Associates, which works on compensation planning, performance measurement and plan design, in an interview. “They are motivated by the cash they can get from upfront deals and upfront rates” at rival firms.
The plan’s capital-accumulation program, for instance, is available to advisors and branch managers who’ve been with Morgan Stanley for at least five years and who had $400,000 or more in fees and commissions in 2012.
The reps can invest up to 25% of pre-tax earnings or $150,000. For every 100 shares purchased, they will receive 20 extra or bonus shares. Those in the firm’s Chairman’s Club need only have been with the wirehouse for three years and can invest up to 25% of pre-tax earnings or $250,000. They will get 25 bonus shares for every 100 purchased. The shares vest immediately and will be distributed on April 15, 2016.
The bonus for total revenue in 2013 will be cut by 2% to cover other adjustments. In 2013, Morgan Stanley will award bonuses ranging from 0.5% to 4.5% on fees & commissions of $750,000 to $5 million. This part of the comp plan includes four-year vesting of stock awards and eight-year vesting of cash awards, which has been the timeline in recent years.
This mix could help the wirehouse keep advisors focused on leaving (or retiring) in several years with as much cash as possible, notes Tasnady. “Also, current and growing star producers–those in the top 40%–may be able to earn back the growth bonus and perhaps get more than before–with the new comp plan, which could protect the better reps who are growing.”
On the other hand, advisors thinking about leaving, who’ve had a good year but aren’t sure they can continue to grow as much in the near future, “may try to move sooner rather than later to sell their highest trailing-12-month production to the highest bidder,” explained Tasnady. “If you’re gonna go, you may need to go now.”