MS Morgan Stanley

Some Morgan Stanley brokers will see pay cuts next year unless they boost the fees and commissions they collect, a move that comes as part of the bank's broader efforts to rein in costs.

Starting in January, Morgan Stanley will raise some compensation-grid thresholds it uses to pay brokers by about 10% to incentivize them to produce more revenue, a person with knowledge of the matter said. The vast majority of a broker's pay is based on the amount of fees and commissions they bring in each year, with bigger producers keeping a larger percentage of the revenue they generate.

Morgan Stanley Chief Executive James Gorman has been pushing the entire bank to cut $1 billion in annual costs through an initiative dubbed "Project Streamline" that was started earlier this year. In wealth management specifically, Mr. Gorman wants to tamp down how much it spends on broker pay, which can reach seven figures for top brokers.

Many of Morgan Stanley's more than 15,000 brokers won't see any substantial change to their pay next year under the plan. However, those who fall on the edges of the grid's thresholds will have to generate more revenue to hit the higher hurdles.

A broker who generates $220,000 next year, for example, will get paid 28% of that revenue under the 2017 compensation plan, the lowest hurdle. This year, $220,000 in revenue would have netted the same broker a 32% payout. If the broker wants to maintain his 32% payout in 2017, he would need to produce an additional $22,000 in fees and commissions.

Bigger producers will be affected, too. Brokers aiming for 49% to 53% revenue payouts will need to generate at least $3.3 million in fees and commissions next year, up from $3 million in 2016. The grid's biggest hurdle, 51.5% to 55.5%, which depends on the broker's length of service, remains unchanged at $5 million.

The move is similar to changes enacted by Bank of America's Merrill Lynch this year. Some Merrill brokers saw their base pay fall by 2% to 8% in 2016 unless they produced more revenue to hit higher hurdles.

Morgan Stanley will continue to offer bonuses to brokers who sell debt products such as securities-backed loans and mortgages, as well as for getting clients to use banking products—two incentives the bank is using to increase its loans and deposits.

UBS Group AG is the only other major bank to detail its broker compensation plans for 2017 so far. The Swiss bank in June introduced a simplified pay plan for its U.S. brokers that increased cash payouts mostly for teams that generate $1 million or more in revenue, while dropping the number of deferred bonuses they can earn to focus specifically on length of service and new assets gained.

UBS brokers are expected to generally receive more cash under the compensation plan next year, executives at the firm previously told The Wall Street Journal. The firm pulled back from recruiting and eliminated some middle-management and support staff to cover the higher compensation costs.

AdvisorHub earlier reported Morgan Stanley's compensation plans.

Write to Michael Wursthorn at Michael.Wursthorn@wsj.com

(END) Dow Jones Newswires

December 02, 2016 17:55 ET (22:55 GMT)

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