July 8, 2005

Morgan Stanley CEO gives up $25 mln pay guarantee

By Jonathan Stempel

NEW YORK (Reuters) - John Mack, the new chairman and chief
executive officer of Morgan Stanley, on Friday told employees
he will no longer accept a guaranteed minimum of $25 million a
year of pay, and instead will tie his compensation to the
investment bank's performance.

Mack announced his decision after he had earlier this week
signed a five-year contract that linked his compensation to
that received by CEOs of four big Wall Street rivals.

Under that contract, he would have received a minimum of
$25 million in both 2005 and 2006 had Bear Stearns Cos.' James
Cayne, Goldman Sachs Group Inc.'s Henry Paulson, Lehman
Brothers Holdings Inc.'s Richard Fuld and Merrill Lynch & Co.'s
Stanley O'Neal averaged that much.

"I don't want anyone to think that I am entitled to
something that others are not," Mack said in the letter. "That
is why I have decided ... that I will amend my employment
agreement. No guarantee. No industry benchmark."

Mack, saying he had received questions in the last day
about his own compensation, added: "This business is built on

Reuters obtained a copy of the letter. A spokesman for
Morgan Stanley confirmed the letter's contents.

Mack, named CEO on June 30, is trying to restore morale and
improve performance after his predecessor, Philip Purcell,
announced his retirement under pressure from shareholders, and
amid a wave of defections of senior bankers.

Last year, the four other CEOs averaged about $28.2 million
in compensation, regulatory filings show. Cayne's compensation
totaled $24.7 million, Paulson's $29.8 million, Fuld's $26.3
million, and O'Neal's $32 million, the filings show.

The median U.S. household salary from 2001 to 2003 was
$43,527, according to the U.S. Census Bureau.

"It is not clear whether Morgan Stanley shareholders should
be happy," said Jesse Fried, a law professor at the University
of California at Berkeley and executive compensation expert.

"The devil is in the details," Fried added. "Shareholders
are better off when CEOs are paid $100 of equity instead of
$100 of cash because equity provides better incentives. But
Mack may be giving up $100 of cash for equity compensation that
is worth much, much more, in which case the additional
incentives may come at too high a price."

On Thursday, Morgan Stanley said it had awarded Purcell a
severance package worth more than $113 million. It also said
Stephen Crawford, named co-president in March, would be paid at
least $16 million in each of fiscal 2005 and 2006, or receive
$32 million if he were to resign within the next 30 days.

In his letter, Mack said he would not second-guess
compensation and personnel decisions made by others before he
joined the company.

(Additional reporting by Joseph A. Giannone)