When Morgan Stanley’s share price fell to $20 in 2011, the bank’s chief executive, James P. Gorman, and several of his top lieutenants tried to encourage investors by buying up stock with their own money. Now, that put-your-money-where-your-mouth-is approach appears to have paid off.
Mr. Gorman purchased 100,000 shares for about $2 million in August 2011. With the stock price on Friday at $29.51, Mr. Gorman has netted nearly $1 million on his investment on paper.
Ruth Porat, the bank’s chief financial officer, and Paul J. Taubman, then one of the co-heads of the bank’s securities arm, bought more than $1.5 million worth of shares at the same time Mr. Gorman did. Today, those shares would be worth more than $2.2 million, assuming they have not yet been sold.
Mr. Gorman, like other bank chief executives, receives stock as part of his annual compensation. His equity award nearly doubled, in fact, in 2013. But it is rare for the head of a bank to purchase shares in his or her own company.
“It’s rare, but it’s viewed as a signal of confidence,†said Alan Johnson, the managing director of Johnson Associates, which monitors Wall Street compensation.
Stocks of Wall Street were on fire in 2013. And the Standard & Poor’s 500-stock index rose nearly 30 percent last year, its best advance since 1997.
The roaring markets finally brought some good news for bank employees. Bonuses have increasingly been paid in restricted stock, which typically vests over a period of three years, and bank stocks have had a choppy ride since the financial crisis.
“It’s been quite volatile and it had been depressed for several years,†Mr. Johnson said. “We’re certainly more optimistic than we were a year ago.â€
Assuming a three-year vesting plan and no declines in share price, the value of restricted stock awarded to employees at Bank of America Merrill Lynch, JPMorgan, Citigroup, Morgan Stanley and Goldman Sachs in 2012 will rise 72 percent, the first increase since 2009, according to data from Johnson Associates.
After the financial crisis, regulators and lawmakers criticized what they saw as Wall Street’s outsize compensation as having incentivized the kind of risk-taking that led to the mortgage crisis and the economic collapse in 2008.
In response, many of the banks began to defer larger amounts of bonuses, which would theoretically align employee interest more with the longer-term health of the firm. That wasn’t good news for employees at Wall Street’s biggest financial banks, who saw the value of their restricted stock units plummet after the financial crisis.
Morgan Stanley deferred up to 75 percent of bonuses in 2011, up from 40 percent in 2009. The bank promoted its pay-later plan as a new model for Wall Street, even as some critics said the firm just wasn’t doing well enough to pay more compensation upfront.
Mr. Gorman rode Morgan Stanley’s stock all the way down to $12 a share at one point in 2012. That would have meant a net loss to the chief executive of $700,000 if he would have sold then.
But investors have been bolstered by the bank’s move away from its riskier trading businesses as it has shifted focus to growing its relatively safer wealth management unit.
