Full of sound and fury, signifying nothing

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expert perspective telescopeExpert Perspective by Grahalls’ OmniMedia Editorial Board
 
It doesn’t take an idiot to tell this tale – or Macbeth – but we’ll take the role. Insignificant, despite the apparent sound and fury, is the issue of $500,000 annual pay increases, which the American Federation of State, County and Municipal Employees (AFSCME) asked Morgan Stanley to reverse. (Cari Tuna, “Union Calls on Morgan to Reverse Raises for Top Earners.” June 24, 2009.)

The report says that “the raises, part of an effort to reduce the importance of annual bonuses, were awarded this year amid executive-pay restrictions” associated with TARP aid. Morgan Stanley recently repaid $10 billion in government bailout funds.

“The raises ‘weakened the link between top executive pay and performance,’ wrote Gerald McEntee, international president of AFSCME in a letter to Morgan Stanley, also provided to The Wall Street Journal. ‘We urge you to return base salaries to their previous levels and … reward executives for long-term value creation, not just showing up for work.’”
Morgan Stanley sees it otherwise, as quoted in the article: “’The salary adjustments for officers firm-wide represent what many public officials and compensation experts have been advocating, de-emphasizing annual bonuses in favor of more fixed compensation.’” Morgan Stanley said in a statement, noting that it had taken other steps to link more of its executives’ pay to the firm’s long-term financial results.

But the annual pay increases aren’t worth the sound and fury. The fact is that the $500,000 annual pay increases pale in significance to the amounts paid to top level executives in the past – and those we may see in the future. It’s a new playing field now. Whether the increases represent only one component of a broader compensation strategy, as Morgan Stanley implies, remains to be seen. Certainly, a carefully thought out compensation strategy would rely on links “to the firm’s long-term financial results.” It would be based on the company business strategy, a product of the kind of rigorous method and analysis that Grahall tries to bring to an often emotional debate.

The interesting question will be answered in time. Will company success in the future be rewarded reasonably or excessively? Will shareholders benefit? How much less will final performance-related pay figures be, in light of the $500,000 annual pay increases? Or are these increases like the “poor player who struts and frets his hour upon the stage and then is heard no more”?

Email Grahall’s Editorial Director at edie.kingston@grahall.com

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