If you work for Morgan Stanley and are fortunate enough to receive a bonus of $250k or more, how much of it will you receive in the form of readily expendable cash? The immediate answer seems to be: not much. While U.S. investment banks like Goldman Sachs and JPMorgan pay most of their bonuses in cash, Morgan Stanley pays most of its bonuses in deferred stock and cash. The good news is that Morgan Stanley's seemingly punitive deferrals are mitigated by generous 'deferred cash' payments made a few months after bonuses are awarded in year one.
The figures behind the charts below have not been confirmed by Morgan Stanley itself. They are, rather, based upon conversations with headhunters, reported information on Morgan Stanley's bonus arrangements for 2013, and the bank's own Proxy Statement.
How a $250k bonus will be structured at Morgan Stanley
While most other U.S. banks pay almost the entirety of bonuses worth $250k in cash, Morgan Stanley typically pays more than 60% of a $250k deferred bonus in a mixture of deferred cash and deferred stock.
Until the 2013 bonus round, Morgan Stanley famously capped its cash bonuses at a (low) $125k. However, it now reportedly defers, "at least half of bonuses for any employees who have both total pay of at least $350,000 and incentive pay of $50,000."
If you earn more than $350k in total at Morgan Stanley and you have a bonus of more than $50k, your bonus will reportedly be structured as follows: 50% of the first $100k will be deferred, followed by 65% of the next $100k, followed by 85% of the next $100k, 90% of the next $100k and 84% of every $100k above that.
This leads to the punitive deferral amounts in the charts above and below. Bonus deferrals at Morgan Stanley are split equally between cash and stock. Deferred stock at Morgan Stanley is typically paid over three years, with 25% vesting in the first year, 25% vesting in the second year, and 50% vesting in year three.
There is, however, some good news. Deferred cash at Morgan Stanley is paid over three years, but it is front-loaded. 25% of the cash deferral becomes available in late May (2014) and 33% becomes available in November 2014. Half of the remaining cash is payable in November 2015, with the final installment payable in November 2016. This front-loading provision is important: it means that while Morgan Stanley's bankers will receive only 37% of their $250k bonus immediately as cash, they will receive another 18% of it in the form of 'deferred cash' before the first year is out. Hence, 55% of a $250k bonus at Morgan Stanley is available as cash in year one.
How a $500k bonus will be structured at Morgan Stanley
As per the schedule above, a large chunk (77%) or Morgan Stanley's $500k bonuses are deferred. Again, however, some leniency is injected into Morgan Stanley's deferrals by its front-loaded deferred cash payments. If you received a $500k MS bonus for 2013, only $115k was available immediately as cash. However, a further $112k will be paid in cash before the end of 2014. Effectively, therefore, 45% of Morgan Stanley's $500k bonuses are paid in cash during the year of their allocation.
How a $1m bonus will be structured at Morgan Stanley
If you for Morgan Stanley, almost all of your $1m bonus will ostensibly be deferred, with just 12.5% paid in cash at the time the bonus is handed out. Thanks to Morgan Stanley's front loaded cash deferrals, however, another $253k will be paid in cash before the end of year one. Effectively, therefore, 39% of Morgan Stanley's $1m bonuses are paid in cash during the first year.
How bonuses of $250k, $500k and $1m are structured at JPMorgan
How bonuses of $250k, $500k and $1m are structured at Goldman Sachs
Come to London and get paid in cash!! EU bank compensation rules backfire horribly