What Did Morgan Stanley’s (NYSE:MS) CEO Take Home Last Year?

Leading Morgan Stanley (NYSE:MS) as the CEO, James Gorman took the company to a valuation of US$97.15B. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. Today we will assess Gorman’s pay and compare this to the company’s performance over the same period, as well as measure it against other US CEOs leading companies of similar size and profitability. See our latest analysis for Morgan Stanley

What has been the trend in MS’s earnings?

Profitability of a company is a strong indication of MS’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Gorman’s performance. Over the last year MS delivered an earnings of US$6.32B , which is an increase of 0.17% from its previous year’s earnings of US$6.31B. This is an encouraging signal that MS aims to sustain a strong track record of generating profits regardless of the challenges. Given earnings are moving the right way, CEO pay should mirror Gorman’s valued-adding activities. Over the same period Gorman’s total remuneration grew by 15.58% to US$24.51M. Moreover, Gorman’s pay is also made up of 38.58% non-cash elements, which means that fluctuations in MS’s share price can affect the true level of what the CEO actually receives.
NYSE:MS Past Future Earnings May 24th 18
NYSE:MS Past Future Earnings May 24th 18

Is MS’s CEO overpaid relative to the market?

Even though one size does not fit all, since compensation should account for specific factors of the company and market, we can evaluate a high-level benchmark to see if MS is an outlier. This outcome helps investors ask the right question about Gorman’s incentive alignment. Normally, a US large-cap is worth around $64.9B, generates earnings of $3.6B and remunerates its CEO circa $12.2M per year. Accounting for the size of MS in terms of market cap, as well as its performance, using earnings as a proxy, it seems that Gorman is compensated similar to other US CEOs of large-caps, on average. This indicates that Gorman’s pay is fair.

Next Steps:

My conclusion is that Gorman is not being overpaid. But your role as a shareholder should not end here. As above, this is a relatively simplistic calculation using high-level benchmarket. Proactive shareholders should question their representatives (i.e. the board of directors) how they think about the CEO’s incentive alignment with shareholders and how they balance this with retention and reward. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

  1. Governance: To find out more about MS’s governance, look through our infographic report of the company’s board and management.
  2. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of MS? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!