Morgan Stanley shareholders allow Gorman to slide by, but he may not be so lucky next year

May 14, 2013
May 14, 2013

Despite some grumblings, Morgan Stanley shareholders approved the pay package for CEO James Gorman and other executives during the bank’s annual meeting today. But the proposal got the support of about 86% of investors, compared to the almost 95% who backed a similar measure last year. That means Gorman is still under pressure to speed up the overhaul of Morgan Stanley.

Usually votes on compensation receive almost unanimous approval. But big banks’ shareholders have been using their ballots to express unhappiness with a firm’s performance. At Citigroup’s annual meeting last year, shareholders rejected the pay proposal for former CEO Vikram Pandit, who left the bank several months later.

Shareholder votes at Morgan Stanley are also a bit skewed in favor of the bank because Japan’s Mitsubishi UFJ Financial Group owns about a 22% stake in Morgan Stanley. And Mitsubishi usually sides with the American bank on shareholder votes, including on compensation.

Morgan Stanley also cut Gorman’s pay, which helped sway some investors. Gorman received $9.75 million in 2012, which is about a 7% drop from his pay in 2011. Institutional Shareholder Services, the largest proxy advisory firm in the US, said that pay cut reflected Gorman’s performance and recommended bank investors vote for the compensation plan.

Morgan Stanley is the weakest among the major banks. The stock is down almost 20% since Gorman took over in 2010. He has vowed to turn the bank around, setting a 10% return-on-equity goal for 2014, compared to the current ROE of 7.6%. But that’s still modest compared with the ROE at other big banks.

The bank’s first-quarter earnings also disappointed shareholders. Although its wealth-management arm is doing well, its trading revenue fell sharply. If Gorman doesn’t improve things, shareholders may not be as generous next year when it comes to his pay.

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