Reuters reported on Friday that the Federal Reserve is taking a closer look at precisely how Wall Street CEOs get paid. This week, the SEC released correspondence between itself and Morgan Stanley that sheds some more light on the topic, and suggests that the Fed isn’t the only one questioning how bonuses are calculated. The SEC gets good marks for effort here, but the final result may leave Morgan Stanley shareholders unsatisfied.
The correspondence is pretty jargon-filled so here is a simpler version of what was said, in Unstructured Finance’s own words:
SEC: You say you don’t set any specific targets for bonuses, but then you cut CEO James Gorman’s pay 25 percent because his performance wasn’t up to snuff. So, uh, how do you figure out that math? (June 22, 2012)
Morgan Stanley: Gorman’s pay was cut mostly because our return-on-equity didn’t reach a number we wanted it to reach. But please don’t pay too much attention to that, because we also factor in things like “culture” and “stakeholder engagement.” Have you ever tried to measure stakeholder engagement? They don’t make rulers for that kind of thing. (July 26, 2012)
SEC: Actually, you need to tell shareholders about stuff like that. You said you’d disclose performance targets, so please go ahead and do that. (January 18, 2013)