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Morgan Stanley Pay Shift May Impact Rivals

Morgan Stanley's decision to increase base compensation for some of its most senior executives could inspire its competitors to do likewise.
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Morgan Stanley's

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decision to increase base compensation for some of its most senior executives could inspire other companies with large investment banking units to behave similarly.

Banks like Morgan Stanley,

JPMorgan Chase

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Goldman Sachs

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and others who have received government equity infusions and whose businesses depend heavily on risk-taking have been scrambling to respond to criticism of their compensation practices.

Fair or not, the image of the free-wheeling trader who bets the house, collects a huge bonus, and then walks away as his bet turns sour is difficult for banks to shake. Banks depend on large bonuses to attract talented executives, but as bonus pay has come under scrutiny, some, such as Morgan Stanley and


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are shifting some of the big bonus pay into standard compensation.

The move seems like a blunt tool at best, as large guaranteed compensation might encourage laziness at the same time as it discourages risk-taking. Spokespeople for Goldman and JPMorgan declined to comment on whether they are considering taking similar steps.

Goldman Chairman and CEO Lloyd Blankfein delivered a lengthy discourse on the issue of compensation at Goldman's annual shareholder meeting earlier this month. He said the principles that are integral to Goldman's compensation include extending equity-related compensation beyond the date when the individual has left the company and making sure executives in risk-taking roles are not paid merely on the basis of their own profits and losses.