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On Wall Street, the era of hero bankers may be coming to a close.
At least that’s the harsh reality with which Morgan Stanley boss James Gorman plans to confront top-paid bankers as the firm prepares to dole out multimillion-dollar bonuses in the weeks ahead.
Gorman plans on playing “hardball” with bonuses this year and is bracing to have some “difficult conversations” with bankers about scaling back their fat-cat bonuses, and perhaps their egos as well, according to people familiar with his plans.
Along with many banks on Wall Street, Morgan Stanley is expecting bonuses to drop this year, in part because of uncertainty about the economic recovery.
Compensation at the firm could be off by as much as 23 percent with rival Goldman Sachs down by nearly 40 percent, according to estimates from Barclays Capital.
What’s more, the overall shifting investment banking landscape and financial regulatory reform under the Dodd-Frank Act have made it more challenging for firms to ring up rich profits.
Morgan Stanley, in particular, has been angling to retool a compensation system that has spawned a generation of high rollers.
At least 25 of its biggest earners pulled in seven- or eight-figure pay packages last year, according to one personal familiar with the matter.
“That’s a lot of money when you add it up,” the person said.
“Morgan Stanley knows that it has to cut pay and the easiest way to do that is at the upper ranks,” said another industry source. “It’s the easiest way to keep the compensation ratio down.”
Sources said Gorman isn’t afraid to rattle his more richly rewarded ranks because he believes the firm’s bench is deep enough to replace high-salaried staffers with able talent.
“He’s going to be very focused on productivity,” said one source, adding “he has to, as he’s running a business and revenues haven’t been great.” A company spokesman declined to comment.
Morgan Stanley’s moves follow public comments Gorman made at a conference in November, when he ripped into Wall Street’s “hero” culture.
According to Gorman, “Creating a compensation system that better aligns or balances shareholders’ interests and the broader society’s interests with the individual’s interests, and changing the perception that it’s the individual that’s the hero” is the best way to change Wall Street.
“As an industry, we can have larger-than-life personalities, but individuals don’t make institutions.”
For Gorman’s part, he was paid $15.1 million in salary and bonus last year — much of which can be clawed back under certain conditions.
Gorman officially took the reins earlier this year from John Mack, who declined to take a bonus in 2008.