Morgan Stanley to Slash Executive Pay

In addition to the standard yuletide revelry, December is a time for fatter wallets on Wall Street since firms typically reward employees with hard-earned bonuses at year's end.

But amid a shareholder outcry that surely echoes the populist rage on recession-weary Main Streets across the U.S., Morgan Stanley Chief Executive James Gorman is reportedly taking a different tack this year.

The firm is crafting a plan to reduce the pay of some of its senior executives, The New York Times reported, citing sources familiar with Gorman's plan. Faced with little revenue growth, Morgan Stanley is instead looking to reign in employee expenses minus layoffs.

From The New York Times:

In response to shareholder complaints about the high employee expenses, Mr. Gorman publicly vowed in February to reduce the firm's payout. Now, instead of layoffs, Morgan Stanley is planning to cut the pay of many top executives, typically the top earners, the people with knowledge of the plan said, in order to get its compensation levels down.

Recently, Mr. Gorman has been telling employees that the selective, short-term pain on compensation will give the firm credibility with shareholders and help the firm in the long term. Mr. Gorman has told employees that 2010 is "the year of differentiation," these people say, speaking only on the condition of anonymity.

This means employees who did well will get paid competitively. The rest will see their compensation fall. Divisions like equities, which includes stock trading, and investment banking performed well in 2010, and those employees can expect decent bonuses, these people said. But traders in the firm's fixed-income department, which did not have a great year, may see smaller pay packages, these people say.

The pain apparently doesn't stop there. Bloomberg reported that the firm's bonus pool may sink as much as 30 percent.

Perhaps it won't be long before Morgan Stanley's competitors swoop in and poach their top talent.