“Morgan Stanley, buffeted by a shaky stock market, launched a pay plan that will reduce the size of employees’ cash bonuses and could help bolster the big securities company’s bottom line,” writes Charles Gasparino in today’s Wall Street Journal.

“In a May 30 internal memorandum, Morgan Stanley said executives receiving bonuses above $5 million could receive half their year-end bonus in company stock or options, while those on the lower end, earning bonuses below $250,000, will receive 10% of their bonus in stock or options. The change takes effect in the company’s fiscal year ending in November; Morgan declined to spell out previous ratios but confirmed that more cash was used during the past. The memorandum said final terms of the plan are subject to the approval of the Morgan board’s compensation committee.”

“Some Morgan executives privately have criticized the new compensation formula; they believe it could amount to a pay cut because of Morgan’s stock performance this year. The executives’ pay also could increase if Morgan stock stages a strong rebound. Judy Hitchen, a Morgan spokeswoman, denied that the plan amounts to a pay cut and said: ‘We’ve actually had very few complaints.’ “

“The Morgan shift comes as a number of major Wall Street firms have moved during the past several years to paying employees less in cash and more in stock and options. This allows securities companies to more closely align the performance of their employees with that of the firm, particularly in an industry that typically pays staff a good chunk of revenue in compensation and benefits.”

“Analysts say the Morgan change also reflects the difficult operating environment for much of Wall Street. By substituting stock for cash, Morgan will bolster the company’s income because the company can ‘defer’ more of its compensation costs to future years. ‘This will make the bottom line look better than it would have’ this year, said Amy Butte, a securities-industry analyst for Bear Stearns Cos.”

“It is difficult to quantify by how much. Morgan officials say they are merely substituting stock for cash to help employees benefit from the company’s long-term success. The old system, where more cash was given for bonuses, made it easier for competitors ‘to raid us, than for us to raid them,’ Ms. Hitchen, the spokeswoman, said. When stock or options are involved in compensation it becomes trickier for rival firms to match or exceed pay packages.”

“The new plan, she added, ‘would not change the absolute value of the bonus,’ and will have only a ‘marginal’ effect on the company’s bottom line.”

“Ms. Hitchen said the language in the memo is a bit confusing because Morgan Stanley will employ a ‘sliding scale’ in determining how much of a bonus is composed of stock. For example, options and stock will be issued in certain increments of pay; highly paid executives will receive 50% stock and options on the portion of the bonus exceeding $5 million. That means, she said, highly paid executives will receive somewhat less than 50% of their bonuses in stock. She also said stock awards will be given with a 25% discount and that stock and options will be granted on a tax-deferred basis.”