Morgan Stanley Chief Executive John Mack is forgoing a year-end bonus for the third straight year, he said in a memo obtained by Reuters, putting pressure on other Wall Street CEOs to follow suit.

Mack is the second bank chief executive not to receive a bonus, but the first to forgo it voluntarily.

Rising bonuses have drawn criticism from politicians and others, who complain Wall Street's losses seem to be socialized while its profits are privatized.

Mack seemed to acknowledge that criticism in his memo: Given this unprecedented environment and the extraordinary financial support governments provided to our industry ... I recommended to the Compensation Committee of the Board last week that I receive no year-end bonus, the memo said.

Investors said other bank chief executives are likely to follow Mack's lead in the coming weeks.

It's good PR -- a lot of constituencies are very sensitive to the amount of money that the industry lost and the fact that the whole industry was bailed out, said Thomas Russo, partner and portfolio manager at Gardner Russo & Gardner.

Mack said Wall Street must recognize that the world has changed since the financial crisis began in 2007 and triggered more than $1 trillion of credit losses and writedowns globally.

Some old ways of doing business cannot continue, Mack wrote.

Larry Summers, U.S. President Barack Obama's top economic adviser, said all financial firms owe their survival to taxpayers for the bailout.

There is no financial institution that exists today that is not the direct or indirect beneficiary of trillions of dollars of taxpayer support for the financial system, Summers said while speaking at a financial markets conference in New York.

A senior official at the U.S. Treasury applauded the decision on Mack's bonus.

We welcome concrete action that acknowledges the significant role that government and taxpayers played in stabilizing the markets and the banks, the official said.

Mack is stepping down as CEO at the end of the year, but will remain chairman. James Gorman will take over as CEO at the start of next year.

The last bonus granted to Mack was in 2006, when he was given restricted shares that at the time were worth about $36.2 million.

Wall Street bonuses are broadly expected to rise about 40 percent in 2009, according to recruiting firm Options Group, as trading revenues approach record levels.

Morgan Stanley is continuing to change its methods for determining compensation, including paying sales and trading teams based in part on the risk they took on, Mack said in his note to employees.

Morgan Stanley has set aside $10.87 billion for compensation and benefits for the first three quarters of 2009, down from $11.97 billion in the same period last year.

That amounts to an average of roughly $175,000 per employee, about a third as much as Goldman Sachs has set aside.

Mack also called for reforms to the financial system, including centrally clearing or reporting derivatives positions, and regulators having the authority to wind down a firm that mismanages its risk.

CNBC reported that Morgan Stanley's board had wanted to give Mack a bonus.

Mack's announcement that he is forgoing a bonus comes after Goldman Sachs Group Inc said it planned to pay top managers their bonuses in stock rather than cash.

Bank of America Corp's departing chief executive, Kenneth Lewis, was slated to receive a $1.5 million salary for 2009, but at the request of U.S. pay czar Kenneth Feinberg, he will receive neither a salary nor a bonus for this year.

(Reporting by Dan Wilchins. Additional reporting by Steve Eder in New York and David Lawder in Washington; editing by Lisa Von Ahn, Phil Berlowitz and Steve Orlofsky)

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