Morgan Stanley will limit upfront cash bonuses to $125,000 this year, spreading the bulk of compensation over more than two years in the latest sign of the lower levels and changed structure of Wall Street pay.

People familiar with the matter said the most cash bankers could expect in their bonus cheque in February would be $125,000, while chief executive James Gorman and other members of the operating committee would receive no immediate cash. Morgan Stanley declined to comment.

Bankers at Morgan Stanley, as with most of their peers, are paid a base salary and a cash bonus as well as deferred cash and stock units. The ceiling on cash payments means that a higher percentage of bonuses will be deferred, though the absolute number is expected to be significantly lower at Morgan Stanley and other banks after a disappointing 2011.

Other than the immediate cash, which remains at relatively modest levels compared with the heights of Wall Street pay in the run-up to the 2008 crisis, compensation will be deferred. Half of cash bonuses will be paid in December 2012 and the remainder at the end of 2013, with “claw back” provisions that can theoretically be activated if, for example, a trader’s short-term gains turn into long-term problems. Meanwhile, stock pay-outs will vest over three years.

In a bid to ease the short-term cash pressures on more junior employees, their deferral rates will be capped at 25 per cent of bonuses after last year’s more draconian percentage caps caused complaints within the rank and file. More senior bankers face higher deferral rates, some of more than 75 per cent, higher than the average 65 per cent that was deferred last year.

The changes to the structure of compensation at Morgan Stanley, which were first reported by the Wall Street Journal, are in line with forthcoming rules on compensation in the US, which will require banks to emphasise clawback provisions and to defer bonuses. However, to the chagrin of some European bankers and regulators, the US rules are less prescriptive than in Europe.

Morgan Stanley is due to announce fourth-quarter results on Thursday for a period where lower capital markets volumes are expected to have hit revenues. JPMorgan Chase said last week that its investment bank compensation for the year would decline slightly to 34 per cent of revenues.

But Howard Chen, analyst at Credit Suisse, predicted last week that there would be a “step up in comp accrual” at both Morgan Stanley and Goldman Sachs. David Viniar, Goldman’s chief financial officer, noted last quarter that the percentage level tends to increase in years where revenues are down.

Mr Chen is expecting that Morgan Stanley will see a quarter-on-quarter decline in both equities and fixed income trading but a year-on-year improvement.

Additional reporting by Anousha Sakoui in London

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