Pension Funds Accuse Morgan Stanley of Overpaying Employees

February 12, 2010 (PLANSPONSOR.com) – Two pension funds have filed a lawsuit accusing Morgan Stanley of overpaying its employees, calling the pay "unjust enrichment."

The New York Times reports that the lawsuit, filed on behalf of the Security Police and Fire Professionals of America Retirement Fund and the Central Laborers’ Pension Fund, accuses Morgan Stanley and its directors of breaching their fiduciary duties to shareholders by setting aside 62% of its net 2009 revenue for employee compensation. The suit, filed by the law firm Grant & Eisenhofer, also contends that incentive payments made by the company in 2006 and 2007 should be repaid because they were based on financial results that were later proven worthless, according to the Times.

Among the defendants named in the suit are Morgan Stanley’s chairman, John J. Mack, and the chief executive, James P. Gorman, who succeeded Mack at the beginning of the year. The suit demands that the defendants repay Morgan Stanley for breaches of fiduciary duties and that the firm take action to reform its pay practices.

The complaint notes that the firm received a $10 billion government bailout and argues that “Morgan Stanley’s 2009 performance is attributable to the assistance and intervention of the federal government,” the news report said.

A Morgan Stanley spokesman declined to comment to Reuters and Bloomberg News, and said the company had not yet been served with the complaint.

Last week, Gorman said he would reduce Morgan Stanley’s compensation ratio, which was inflated in 2009 because of the improving value of the firm’s debt and pay stemming from the Morgan Stanley Smith Barney joint venture, Reuters reports, according to the Times.

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