Here’s one way to downsize: Impose an upper limit on immediate cash payouts of 2011 bonuses at $125,000. The remainder of bonus will have to be deferred for a year.

This is exactly what Morgan Stanley has done, and executives tell CNBC that they expect a fair amount of employees in the senior and mid-level manager ranks to leave because of the policy. Indeed, there’s lot of water-cooler speculation that the policy was designed to chase people away. I can’t imagine management being that short-sighted. If they want to downsize, the best place to start is with the poor performers who were always in danger anyway. The last thing you want to do is encourage your most productive performers to hit the road.

My sense is that all this is a prelude to a tough earnings announcement. The company wanted to take their medicine in advance, and what better sign than to tinker with pay. It should be noted members of the management committee will not get a cash bonus at all this year. Depending on what the rules are, this could actually get people to stay, not unlike restricted stock or options that vest over time.

If employees have to give up the deferred portion of their 2011 cash bonuses if they leave, the stay-or-leave decision isn’t cut and dried.

For more:
- here’s the CNBC article

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