Morgan Stanley to Withhold Bonuses Until Bets Pay Off

Attempting to curb criticism after taking billions in government bailout cash, Morgan Stanley has attached a “claw-back” provision to employee bonuses this year that allows the bank to withhold payouts if employees don’t manage risk properly. The Wall Street behemoth will hold onto a portion of employees’ bonuses for 3 years, paying in full only if strategies prove effective in the long-term, the New York Times reports.

Banks like Merrill Lynch and Goldman Sachs have already cut bonuses for top-level executives this year, but Morgan Stanley’s rule can retract bonuses from some 7,000 employees for “conduct detrimental to the firm.” The move, intended to tie more employees to long-term performance and deflect public ire over short-sighted decisions by bank employees that led to the current credit crisis, could open the bank to lawsuits.