Succession Rumors Fly at Morgan Stanley After One ‘Special’ Bonus

A mysterious “special” bonus given to a senior executive at Morgan Stanley (NYSE:MS) has officials at the Wall Street investment bank wondering whether chief executive James Gorman has chosen a new favorite to be his successor, the FOX Business Network has learned.

The thinking inside the firm has been wealth management chief Greg Fleming was the odds-on favorite to be named president of the bank and Gorman’s successor because of the outsized importance of the firm’s brokerage unit to Gorman’s growth strategy. Morgan’s wealth management unit has flourished under Fleming, exceeding revenue and profitability benchmarks, while the firm’s institutional business that involves trading and banking has largely lagged in recent years.

But Morgan recently announced that institutional chief Colm Kelleher received what firm officials are calling a “special bonus” of $2 million for his work in 2014. The bonus makes him the second highest paid senior executive at the firm other than CEO Gorman. As a result, Kelleher earned $18 million in compensation for 2014, compared to Fleming’s $16 million. Gorman earned $23 million, according to the firm’s recently released proxy statement.

The special bonus caught many senior executives inside Morgan Stanley by surprise; some are even speculating Gorman may now be ready to name Kelleher as his official No. 2.

“Can you imagine what Fleming must be thinking when the guy runs a business that does worse than his gets paid more money,” one insider said.

Morgan Stanley spokeswoman Michele Davis described the $2 million payday as nothing more than “a one-time recognition” of how well Kelleher managed “a variety of jurisdictions” at Morgan Stanley, particularly as they relate to the various regulatory schemes the bank has to comply with in the US and in Europe following the 2008 financial crisis.

“It’s a challenge to manage all these different jurisdictions,” she said.

According to the firm’s recently released proxy statement, the additional money given to Kelleher is “in recognition of his continued contributions and commitment to the company during 2014, as demonstrated in his successful execution of his global role, management of global regulatory obligations, and regular client interactions across many jurisdictions.”

Still, executives inside Morgan Stanley point out that the firm has had a long history of paying people such bonuses based purely on performance, and that the move to give Kelleher $2 million for his “commitment” to the company is both unprecedented and may signal that a management change is in the works.

As of last week, Morgan Stanley had three senior executives reporting to Gorman: Kelleher, Fleming and Chief Financial Officer Ruth Porat.  But after Porat’s departure from the firm to join Google (NASDAQ:GOOGL) in the same role, now only Fleming and Kelleher are considered internal contenders to replace Gorman when he retires.

Conceptualizing a Succession Plan

To be sure, the Morgan CEO’s retirement is years away. Gorman is 56; Kelleher meanwhile is 57 and Fleming is 52. Fleming’s age and his role running the firm’s most profitable unit, wealth management, had made him odds-on favorite in succession speculation.

Gorman, so far, has resisted any move to name a singular No. 2 executive out of fear that such a move would alienate the other executive and cause a management exodus.

But now he not have much choice.

Fleming, for instance, often comes up at the top of the list when executive recruiting firms search for CEO candidates; in recent weeks, his name has surfaced as a possible successor for Gerald Hassell, the CEO of BNY Mellon (NYSE:BK).

With that, Gorman and the Morgan Stanley board may be signaling they are moving toward making Kelleher the firm’s president if and when Fleming jumps ship.

Another theory inside Morgan Stanley: Kelleher received the $2 million bonus to soften the blow when Fleming is named president to keep him at the firm.

Either way, senior executives inside Morgan are confused.

“On its face, giving Colm $2 million for his commitment just makes no sense,” another firm executive said.