Tuesday, December 9, 2014

Time to Ban Mandatory Deferred Compensation - Morgan Stanley Admits It Uses Employee Funds For Its Own Benefit

Morgan Stanley is not the only one who does it - almost all of the larger brokerage firms require large producers and executives to take their compensation on a deferred basis - often up to 50% of regular compensation and 80% of bonuses.
English: Morgan Stanley - logo
Like most of these types of policies, the firms attempt to convince employees that the deferral is for the benefit of the employee - deferred taxes and all of that nonsense. However, employees are well aware that deferred comp is simply a way to keep employees from leaving - imagine a system where your boss holds a portion of your pay, and you can only get it if you stay at the firm for another three years.
Welcome to the world of deferred compensation.

But there is another side of the issue - by delaying payment of salary, commissions and bonuses, the firms save a significant amount of money in that fiscal year, and they do it to shore up their balance sheets, not because they are trying to help their employees.

Morgan Stanley said on Friday it will pay more of its bonuses to employees upfront and defer less, because the bank is on a better financial footing and can move its pay practices more in line with those of competitors.

The firm admitted that it will be paying out an additional 1.2 BILLION DOLLARS by decreasing the amount of required deferral. Flip that around. The firm was saving something on the magnitude of a billion dollars a year by forcing its employees into a deferred compensation arrangement.

The firms also take the position that you don't get your pay, which you earned, but has been deferred, if you leave, or get fired, before it vests.

That figure alone demonstrates the significance of deferred compensation, the reality is that it is a way for the firms to save money by withholding compensation, and why Congress should ban the practice of mandatory deferred compensation.

Original Article: Morgan Stanley to defer less of employees' future bonuses

--- The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including employment contracts, promissory notes and employment litigation, nationwide. For more information call 212-509-6544 or send an email.
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