Morgan Stanley says its board today approved its new senior executive compensation package that more closely aligns compensation with shareholder interests by increasing the equity component.

As part of its annual compensation review, the firm’s compensation committee decided to increase to 65% the equity component of bonuses awarded to members of the firm’s management committee.

In 2004, management committee members received 55% of their bonus in equity, and the chairman and CEO received 65% of his bonus in equity.

Prior to the committee determining executive compensation for the year, chairman and CEO John Mack requested that he be paid a pro rata bonus, reflecting the fact that he served for five months of fiscal year 2005. In assessing his compensation, the committee determined that, based on the strong leadership that he has provided the firm, total annual compensation for 2005 of US$28 million would be appropriate. The committee, however, agreed with his request for a pro rata bonus and therefore determined that his 2005 bonus would total US$11.5 million.

Mack also recommended, prior to the committee’s determination, that his 2005 bonus be paid entirely in equity, to more closely align his compensation with shareholder interests and the long-term performance of the firm. The committee agreed with that recommendation as well and awarded Mack’s 2005 bonus entirely in restricted stock units.

Miles Marsh, the chair of the committee, said, “In awarding senior executive compensation this year, the committee has continued to take steps to further align the interests of the firm’s senior executives with those of our shareholders.”

“Our decisions regarding John Mack’s compensation reflect the committee’s belief that John has provided strong leadership for the firm since becoming chairman and chief executive officer. During the past five months, he has moved rapidly to reinvigorate the franchise and its people; make key strategic decisions; and outline a clear plan to accelerate growth and further improve the firm’s financial performance,” March added. “John’s recommendation that he be paid a pro rata bonus for 2005 and that it be paid entirely in equity reflects his strong commitment to the firm and its shareholders.”