You have to applaud James Gorman for this endeavor. The CEO of Morgan Stanley (NYSE: MS) is taking a stand against overly rich manager pay, a move that will likely please shareholders who have rapped the firm for its pay practices and regulators.

The firm took a big hit earlier this year for its gargantuan payout ratio in 2009. Morgan Stanley paid out a record 62 percent of its net revenue in compensation and benefits that year, according to the New York Times. Wall Street firms typically pay 40 to 45 percent of their revenue in compensation. Rival Goldman Sachs paid out just 36 percent in 2009.

Gorman is determined, it seems, to never let the ratio get that high again. This year, Morgan Stanley "is on track to pay out $15.98 billion, or about 50.4 percent of its net revenue, in compensation and benefits," notes the Times. That compares decently with the average ratio of 43 percent from 2003 to 2006.

Yet, there are some dangers here. Retention is always an issue when you start tinkering with pay on the downside. So, part of Gorman's challenge is to convey that performance in sensitive, hyper-competitive industries will still be rewarded. Bankers and traders have to be reassured they will "get paid" for good performance, while the total pie somehow shrinks. That's a tough balancing act, as there will be losers. Bonuses will decline for many.

We'll have to see how shareholders respond to this, but it's hard to see them not applauding at least this year. What will be interesting is to watch how the payout ratios change over the next several years.

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