| Messrs. Bowles and Traquina and Mss. Olayan and Miscik deferred all or a portion of their retainers into Elective Units under DECAP. Mr. Glocer deferred all of his retainers into Elective Units for the 2014 service period and elected to receive all of his cash retainers in shares of common stock for the 2015 service period. Elective Units in lieu of cash retainers earned for the second half of the 2014 service period were granted in arrears on May 19, 2015, and Elective Units or shares of common stock, as applicable, in lieu of cash retainers earned for the first half of the 2015 service period were granted in arrears on November 19, 2015. The number of Elective Units granted on May 19, 2015 was based on $38.6392, and the number of Elective Units and shares of common stock granted on November 19, 2015 was based on $34.2019, which, in each case, represents the volume-weighted average price of the common stock on the grant date. On November 15, 2012, the six-month anniversary of the date of the 2012 annual meeting of shareholders, each of Messrs. Bowles and Sexton and Ms. Olayan were granted a number of Elective Units in lieu of the first 50% of his or her cash retainers earned for the 2012 service period and payable on such date determined by dividing the dollar value of such cash retainers by $16.2427, the volume-weighted average price of the common stock on the grant date.
(3) Represents the aggregate grant date fair value of the annual stock unit award for the 2012 service period and, with respect to Mr. Herz, a prorated initial stock unit award, granted during 2012, determined in accordance with the applicable accounting guidance for equity-based awards. The aggregate grant date fair value of annual stock units granted on May 15, 2012 for the 2012 service period is based on $14.2859, the volume-weighted average price of the common stock on the grant date. The aggregate grant date fair value of the initial stock units granted to Mr. Herz on July 2, 2012 is based on $13.5756, the volume-weighted average price of the common stock on the grant date. For further information on the valuation of these stock units, see notes 2 and 20 to the consolidated financial statements included in the 2012 Form 10-K.
Under DECAP, directors receive an equity award upon initial election to the Board (provided that they are elected to the Board no less than 60 days prior to the annual meeting and are not initially elected at the annual meeting) and an equity award annually thereafter on the date of the annual meeting of shareholders. The grant date fair value of the initial equity award is $250,000, prorated for service until the annual meeting. The grant date fair value of the annual equity award is $250,000. Initial and annual equity awards are granted in the form of 50% stock units that do not become payable until the director retires from the Board (Career Units) and 50% in
17
the form of stock units payable on the first anniversary of grant (Current Units). Initial equity awards are fully vested upon grant. Annual equity awards are subject to monthly vesting until the one-year anniversary of the grant date. On May 15, 2012, the date of the 2012 annual meeting of shareholders, directors received their annual equity awards for the 2012 service period in the form of 17,499.773 stock units (determined by dividing $250,000 by $14.2859), which were allocated 50% to Career Units and 50% to Current Units. With respect to Career Units, directors may elect to extend deferral beyond retirement from the Board, subject to specified limitations. With respect to Current Units, directors may choose to defer receipt of the shares underlying Current Units beyond the anniversary of grant and may choose the form of distribution (lump sum or installment payments).
(4) The following table sets forth the aggregate number of shares underlying DECAP stock units and stock options outstanding at December 31, 2012. The number of units set forth in the following table is rounded to the nearest whole number of units.
| | | | | | | | | | | | | | Name | | | | | | Stock Units (#) | | | Stock Options (#)(a) | | Roy J. Bostock | | | | | 48,753 | | | | — | | Erskine B. Bowles | | | | | 92,400 | | | | — | | Howard J. Davies | | | | | 52,992 | | | | 7,049 | | Robert H. Herz | | | | | 15,393 | | | | — | | C. Robert Kidder | | | | | 63,965 | | | | 21,742 | | Klaus Kleinfeld | | | | | 17,614 | | | | — | | Donald T. Nicolaisen | | | | | 59,204 | | | | — | | Hutham S. Olayan | | | | | 84,978 | | | | — | | James W. Owens | | | | | 30,906 | | | | — | | O. Griffith Sexton | | | | | 84,252 | | | | — | | Laura D. Tyson | | | | | 38,176 | | | | 16,448 | |
| (a) | Directors were awarded stock options annually under DECAP until February 8, 2005, at which point stock option awards were discontinued. As of December 31, 2012, the outstanding stock options had no intrinsic value because the exercise price of each stock option was greater than $19.12, the closing price of the Company’s common stock on December 31, 2012.the grant date.
| | | | (3) | Represents the aggregate grant date fair value, determined in accordance with the applicable accounting guidance for equity-based awards, of the annual stock unit award for the 2015 service period. The aggregate grant date fair value of annual stock units granted on May 19, 2015 is based on $38.6392, which represents the volume-weighted average price of the common stock on the grant date. For further information on the valuation of these stock units, see notes 2 and 18 to the consolidated financial statements included in the 2015 Form 10-K. | | | | Under DECAP, directors receive an equity award upon initial election to the Board (provided that they are elected to the Board no less than 60 days prior to the annual meeting and are not initially elected at the annual meeting) and an equity award annually thereafter on the date of the annual meeting of shareholders. Initial and annual equity awards are granted 50% in the form of stock units that do not become payable until the director retires from the Board (Career Units) and 50% in the form of stock units payable on the first anniversary of grant (Current Units). The grant date fair value of the initial equity award is $250,000, prorated for service until the annual meeting, and the award is fully vested upon grant. The grant date fair value of the annual equity award is $250,000 and the award is subject to monthly vesting until the one-year anniversary of the grant date. Directors may elect to extend deferral of their Career Units and Current Units beyond the scheduled payment date, subject to specified limitations. | | | | (4) | The following table sets forth the aggregate number of shares underlying DECAP stock units outstanding at December 31, 2015. |
| Name | Stock Units (#) | | Erskine B. Bowles | 131,363 | | Howard J. Davies | 15,314 | | Thomas H. Glocer | 30,999 | | Robert H. Herz | 28,196 | | C. Robert Kidder | — | | Klaus Kleinfeld | 25,133 | | Jami Miscik | 9,314 | | Donald T. Nicolaisen | 82,558 | | Hutham S. Olayan | 121,787 | | James W. Owens | 47,988 | | Perry M. Traquina | 7,767 | | Laura D. Tyson | 46,398 | | Rayford Wilkins, Jr. | 14,393 |
| (5) | At the conclusion of Mr. Kidder’s service on the Board, the Company contributed $22,000 to the C. Robert Kidder and Mary Kidder endowed scholarship for African American students with scholastic merit and financial need at the University of Michigan and presented Mr. Kidder with a gift of nominal value. |
(5)Morgan Stanley 2016 Proxy StatementMr. Sexton was an advisory director of the Company from May 1995 until September 2008 and was a full-time Company employee prior to becoming an advisory director. The Company provides Mr. Sexton with access to medical insurance, for which he pays the full cost.33
CORPORATE GOVERNANCE Related Person Transactions Policy
| Related Person Transactions Policy |
Our Board has adopted a written Related Person Transactions Policy (Policy) requiring the approval or ratification by the Nominating and Governance Committee of transactions (including material amendments or modifications to existing transactions), where the Company is a participant, the transaction exceeds $120,000 and a related person (directors or director nominees, executive officers, 5% shareholders and immediate family members of the foregoing) has a direct or indirect material interest. Under the Policy, in determining whether to approve or ratify such Related Person Transactions, the Nominating and Governance Committee considers all relevant facts and circumstances, including, but not limited to: the terms and commercial reasonableness of the transaction; the size of the transaction; the materiality to, and interest of, the related person and the Company in the transaction; whether the transaction would, or would be perceived to, present an improper conflict of interest for the related person; and, if the related person is an independent director, the impact on the director’s independence. Certain Transactionstransactions are not subject to the Policy, including compensation of executive officers approved by the CMDS Committee and ordinary course commercial or financial services transactions between the Company and an entity in which a related person has an interest if the transaction is made under terms and conditions and under circumstances substantially similar to those prevailing at the time for comparable transactions with unaffiliated third parties and the related person does not otherwise have a direct or indirect material interest in the transaction. 18
Certain Transactions
Our subsidiaries may extend credit in the ordinary course of business to certain of our directors, officers and members of their immediate families. These extensions of credit may be in connection with margin loans, mortgage loans or other extensions of credit by our subsidiaries. These extensions of credit are made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to the lender and do not involve more than the normal risk of collectability or present other unfavorable features. Each of China Investment Corporation (CIC), MUFG, and State Street Corporation (State Street), T. Rowe Price Associates, Inc. (T. Rowe Price) and BlackRock, Inc. (BlackRock) beneficially owns 5% or more of the outstanding shares of Morgan Stanley common stock as reported under “Principal Shareholders.” During 2012,2015, we engaged in transactions in the ordinary course of business with each of CIC, MUFG, and State Street, T. Rowe Price and BlackRock and certain of their respective affiliates, including investment banking, financial advisory, sales and trading, derivatives, investment management, lending, securitization and other financial services transactions. Such transactions were on substantially the same terms as those prevailing at the time for comparable transactions with unrelated third parties. AsIn addition to the transactions described above, as part of the global strategic alliance between MUFG and the Company, on May 1, 2010 the Company and MUFG formed a joint venture in Japan of their respective investment banking and securities businesses by forming two joint venture companies. MUFG contributed the investment banking, wholesale and retail securities businesses conducted in Japan by Mitsubishi UFJ Securities Co., Ltd. into one of the joint venture entities named Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (MUMSS). The Company contributed the investment banking operations conducted in Japan by its subsidiary, Morgan Stanley MUFG Securities Co., Ltd. (MSMS), formerly known as Morgan Stanley Japan Securities Co., Ltd., into MUMSS (MSMS, together with MUMSS, the “Joint Venture”)Joint Venture). MSMS has continued its sales and trading and capital markets business conducted in Japan. The Company owns a 40% economic interest in the Joint Venture and MUFG owns a 60% economic interest in the Joint Venture. The Company holds a 40% voting interest and MUFG holds a 60% voting interest in MUMSS, while the Company holds a 51% voting interest and MUFG holds a 49% voting interest in MSMS. Other initiatives that are part of the Company’s global strategic alliance with MUFG include a loan marketing joint venture in the Americas, business referral arrangements in Asia, Europe, the Middle East and Africa, referral agreements for commodities transactions and a secondment arrangement of personnel between MUFG and the Company for the purpose of sharing best practices and expertise.
34 Morgan Stanley 2016 Proxy Statement
Table of Contents AUDIT MATTERS Ratification of Appointment of Morgan Stanley’s Independent Auditor  | Our Board unanimously recommends that you vote “FOR” the ratification of Deloitte & Touche’s appointment as our independent auditor. | | |
The Audit Committee has the sole authority and responsibility to appoint, compensate, retain, oversee and evaluate the independent auditor retained to audit the Company’s consolidated financial statements. The Audit Committee reviews and assesses annually the qualifications and performance of the independent auditor and considers, as appropriate, the rotation of the independent auditor. The Audit Committee also ensures the mandatory, regular rotation of the lead audit partner and, in connection with such rotation, the Audit Committee is involved in the selection of the lead audit partner. The Company formerly held commonAudit Committee has appointed Deloitte & Touche LLP (Deloitte & Touche) as independent auditor for the year ending December 31, 2016 and preferred equity interestspresents this selection to the shareholders for ratification. The Audit Committee believes the continued retention of Deloitte & Touche is in FrontPoint (representing not more than a 24.9% equity interest), where Mr. Bostock’s son-in-law is Co-Chief Executive Officer and a significant equity owner. In January 2012,the best interest of the Company restructuredand its relationshipshareholders. Deloitte & Touche was selected as independent auditor upon the merger creating the current Company in 1997 and has served continuously as independent auditor since that time. Deloitte & Touche will audit the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ending December 31, 2016 and will perform other permissible, pre-approved services. The Audit Committee pre-approves all audit and permitted non-audit services that Deloitte & Touche performs for the Company and is responsible for the audit fee negotiations associated with FrontPoint by exchanging allthe engagement of Deloitte & Touche. As part of the Audit Committee’s annual review of Deloitte & Touche, the Audit Committee reviewed the results of management’s assessment of Deloitte & Touche’s performance and discussed with Deloitte & Touche its equity interest in FrontPoint (whichindependence from the Company. In considering the appointment of Deloitte & Touche as auditor, the Audit Committee also discussed with Deloitte & Touche succession planning for senior Deloitte & Touche personnel on the engagement. AUDIT COMMITTEE REPORT The Audit Committee’s charter provides that the Audit Committee is now 100% owned by FrontPoint management, including Mr. Bostock’s son-in-law)responsible for revenue shares in remaining funds and a sharethe oversight of any future FrontPoint asset sale proceeds. The Company continued not to control FrontPoint after the restructuring. Beneficial Ownership of Company Common Stock
Executive Equity Ownership Commitment
Membersintegrity of the Company’s Operatingconsolidated financial statements, the Company’s system of internal control over financial reporting, certain aspects of the Company’s risk management as described in the charter, the qualifications and independence of the Company’s independent registered public accounting firm (independent auditor), the performance of the Company’s internal auditor and independent auditor, and the Company’s compliance with legal and regulatory requirements. We have the sole authority and responsibility to appoint, compensate, retain, oversee, evaluate and, when appropriate, replace the Company’s independent auditor. The Board has determined that all members of the Audit Committee are “financially literate” within the meaning ofthe NYSE listing standardsand “audit committee financial experts” within the meaning ofthe SEC rules.
The Audit Committee serves in an oversight capacity and is not part of the Company’s managerial or operational decision-making process. Management is responsible for the financial reporting process, including the system of internal controls, for the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the U.S. (GAAP) and for the report on the Company’s internal control over financial reporting. The Company’s independent auditor, Deloitte & Touche, is responsible for auditing those financial statements and expressing an opinion as to their conformity with GAAP and expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Our responsibility is to oversee the financial reporting process and to review and discuss management’s report on the Company’s internal control over financial reporting. We rely, without independent verification, on the information provided to us and on the representations made by management, the internal auditor and the independent auditor. Morgan Stanley 2016 Proxy Statement 35
Table of Contents AUDIT MATTERS
The Audit Committee, among other things: | ● | Reviewed and discussed the Company’s quarterly earnings releases, Quarterly Reports on Form 10-Q and Annual Report on Form 10-K, including the consolidated financial statements;
| | ● | Reviewed the major legal and compliance risk exposures and the guidelines and policies that govern the process for risk assessment and risk management, including coordinating with the Risk Committee and the Operations and Technology Committee;
| | ● | Reviewed, discussed and approved the plan and scope of the work of the internal auditor for 2015 and reviewed and discussed summaries of the significant reports to management by the internal auditor;
| | ● | Approved the functional reporting of the Head of Internal Audit to the Audit Committee, and reviewed the performance and compensation of the Head of Internal Audit;
| | ● | Reviewed and discussed the plan and scope of the work of the independent auditor for 2015;
| | ● | Reviewed and discussed reports from management on the Company’s policies regarding applicable legal and regulatory requirements, and reviewed, discussed and approved the Company’s annual compliance plan;
| | ● | Met with senior representatives of the Finance Department, Legal and Compliance Division and the Internal Audit Department; and
| | ● | Met with Deloitte & Touche, the internal auditor and Company management in executive sessions. |
We reviewed and discussed with management, the internal auditor and Deloitte & Touche: the audited consolidated financial statements for 2015, the critical accounting policies that are set forth in the Company’s Annual Report on Form 10-K, management’s annual report on the Company’s internal control over financial reporting and Deloitte & Touche’s opinion on the effectiveness of the Company’s internal control over financial reporting. We discussed with Deloitte & Touche matters that independent registered public accounting firms must discuss with audit committees under standards of the Public Company Accounting Oversight Board (PCAOB), including, among other things, matters related to the conduct of the audit of the Company’s consolidated financial statements and the matters required to be discussed by Auditing Standard No. 16,Communication with Audit Committees, as adopted by the PCAOB. Deloitte & Touche also provided to the Audit Committee the written disclosures and the letter required by applicable requirements of the PCAOB regarding the independent auditor’s communications with the Audit Committee concerning independence and represented that it is independent from the Company. We discussed with Deloitte & Touche their independence from the Company, and considered if services they provided to the Company beyond those rendered in connection with their audit of the Company’s consolidated financial statements, reviews of the Company’s interim condensed consolidated financial statements included in its Quarterly Reports on Form 10-Qand their opinion on the effectiveness of the Company’s internal control over financial reporting were compatible with maintaining their independence. We also reviewed and pre-approved, among other things, the audit, audit-related and tax services performed by Deloitte & Touche. We received regular updates on the amount of fees and scope of audit, audit-related and tax services provided. Based on our review and the meetings, discussions and reports discussed above, and subject to an Equity Ownership Commitment that requires themthe limitations on our role and responsibilities referred to retain at least 75% of common stockabove and equity awards (less allowances forin the payment of any option exercise price and taxes) made to them for service on the Operating Committee. This commitment ties a portion of their net worth to the Company’s stock price and provides a continuing incentive for them to work towards superior long-term stock price performance. None of our executive officers have prearranged trading plans under SEC Rule 10b5-1. Executive officers also are prohibited from engaging in hedging strategies or selling short or trading derivatives involving Morgan Stanley securities. 19
Director Equity Ownership Requirement
As indicated under “Director Compensation,” our independent directors generally receive an equity award upon initial electionAudit Committee charter, we recommended to the Board and receive an annual equity award thereafter with a grant date fair value of $250,000 (proratedthat the Company’s audited consolidated financial statements for 2015 be included in the caseCompany’s Annual Report on Form 10-K. We also selected Deloitte & Touche as the Company’s independent auditor for the year ending December 31, 2016 and are presenting the selection to the shareholders for ratification.
Respectfully submitted, Robert H. Herz, Chair
Thomas H. Glocer
Donald T. Nicolaisen
Perry M. Traquina 36 Morgan Stanley 2016 Proxy Statement
Table of the initial award) as part of their director compensation. 50% of each equity award granted to our independent directors does not become payable until the director retires from the Board (and may be deferred beyond retirement at the director’s election), which fosters a long-term ownership view.Contents AUDIT MATTERS
Stock Ownership of Executive Officers and DirectorsINDEPENDENT AUDITOR’S FEES
We encourage our directors, executive officers and employees to own our common stock; owning our common stock aligns their interests with those of shareholders.
The following table sets forthsummarizes the beneficial ownershipaggregate fees (including related expenses; $ in millions) for professional services provided by Deloitte & Touche related to 2015 and 2014. | | 2015 ($) | 2014 ($) | | Audit Fees(1) | 47.6 | 49.0 | | Audit-Related Fees(2) | 7.4 | 6.9 | | Tax Fees(3) | 1.4 | 1.7 | | All Other Fees | — | — | | Total | 56.4 | 57.6 |
| (1) | Audit Fees services include: the audit of our consolidated financial statements included in the Company’s Annual Report on Form 10-K and reviews of the interim condensed consolidated financial statements included in our quarterly reports on Form 10-Q; services attendant to, or required by, statute or regulation; comfort letters, consents and other services related to SEC and other regulatory filings; and audits of subsidiary financial statements. | | | (2) | Audit-Related Fees services include: data verification and agreed-upon procedures related to asset securitizations; assessment and testing of internal controls and risk management processes beyond the level required as part of the consolidated audit; statutory audits and financial audit services provided relating to investment products offered by Morgan Stanley, where Morgan Stanley incurs the audit fee in conjunction with the investment management services it provides; agreed upon procedures engagements; regulatory matters; and attest services in connection with debt covenants. | | | (3) | Tax Fees services include: U.S. federal, state and local income and non-income tax planning and advice; U.S. federal, state and local income and non-income tax compliance; non-U.S. income and non-income tax planning and advice; non-U.S. income and non-income tax compliance; and transfer pricing-related services. |
Morgan Stanley offers various unconsolidated registered money market, equity, fixed income and alternative funds, and other funds (collectively, Funds). Deloitte & Touche provides audit, audit-related and tax services to certain of common stockthese unconsolidated Funds. Fees paid to Deloitte & Touche by these Funds for these services were $10.4 million in 2015 and $7.3 million in 2014. A Deloitte & Touche representative will attend the annual meeting to respond to your questions and will have the opportunity to make a statement. If shareholders do not ratify the appointment, the Audit Committee will reconsider it. Our Board unanimously recommends that you vote “FOR” the ratification of Deloitte & Touche’s appointment as our independent auditor. Proxies solicited by the Board will be voted “FOR” this ratification unless otherwise instructed. Morgan Stanley 2016 Proxy Statement 37
Table of February 28, 2013 by our CEO andContents EXECUTIVE COMPENSATION Company Proposal to Approve the other executive officers namedCompensation of Executives as Disclosed in the “2012 Summary Compensation Table” (the named executive officers or NEOs), directors and director nominees, andProxy Statement (Non-Binding Advisory Resolution) | Our Board unanimously recommends that you vote “FOR” this proposal. | | |
As required by all our directors and executive officers as of February 28, 2013, as a group. As of February 28, 2013, none of the common stock beneficially owned by our directors and NEOs was pledged. | | | | | | | | | | | | | | | | | | | | | | | | | | Common Stock Beneficially Owned as of February 28, 2013 | | | | | | | | | | | Name | | Shares(1) | | | | | Underlying
Stock Units(2) | | | | | Subject to Stock Options
Exercisable within
60 Days | | | | | Total(2)(3) | | NAMED EXECUTIVE OFFICERS | | | | | | | | | | | | | | | | | | | | | | | James P. Gorman | | | 365,269 | | | | | | 709,111 | | | | | | 694,908 | | | | | | 1,769,288 | | Ruth Porat | | | 536,937 | | | | | | 242,256 | | | | | | 164,833 | | | | | | 944,026 | | Gregory J. Fleming | | | 216,958 | | | | | | 250,003 | | | | | | 40,448 | | | | | | 507,409 | | Colm Kelleher | | | 32,586 | | | | | | 274,022 | | | | | | 306,102 | | | | | | 612,710 | | Paul J. Taubman | | | 617,909 | | | | | | 600,435 | | | | | | 302,881 | | | | | | 1,521,225 | | | | | | | | | | DIRECTORS | | | | | | | | | | | | | | | | | | | | | | | Roy J. Bostock | | | 48,758 | | | | | | 48,856 | | | | | | — | | | | | | 97,614 | | Erskine B. Bowles | | | 1,000 | | | | | | 92,594 | | | | | | — | | | | | | 93,594 | | Howard J. Davies | | | 15,210 | | | | | | 53,103 | | | | | | 7,049 | | | | | | 75,362 | | Thomas H. Glocer(4) | | | 1,000 | | | | | | — | | | | | | — | | | | | | 1,000 | | Robert H. Herz | | | — | | | | | | 15,425 | | | | | | — | | | | | | 15,425 | | C. Robert Kidder | | | 75,638 | | | | | | 64,100 | | | | | | 21,742 | | | | | | 161,480 | | Klaus Kleinfeld | | | — | | | | | | 17,651 | | | | | | — | | | | | | 17,651 | | Donald T. Nicolaisen | | | 4,704 | | | | | | 59,329 | | | | | | — | | | | | | 64,033 | | Hutham S. Olayan | | | 8,000 | | | | | | 85,156 | | | | | | — | | | | | | 93,156 | | James W. Owens | | | 5,000 | | | | | | 30,971 | | | | | | — | | | | | | 35,971 | | O. Griffith Sexton | | | 633,934 | | | | | | 84,429 | | | | | | — | | | | | | 718,363 | | Ryosuke Tamakoshi(5) | | | — | | | | | | — | | | | | | — | | | | | | — | | Masaaki Tanaka(5) | | | — | | | | | | — | | | | | | — | | | | | | — | | Laura D. Tyson | | | 37,340 | | | | | | 38,256 | | | | | | 16,448 | | | | | | 92,044 | | | | | | | | | | | | | | | | | | | | | | | | | | | ALL DIRECTORS AND EXECUTIVE OFFICERS AS OF FEBRUARY 28, 2013 AS A GROUP (20 PERSONS) | | | 2,096,764 | | | | | | 2,448,176 | | | | | | 1,378,236 | | | | | | 5,923,176 | |
(1)Each director, NEO and executive officer has sole voting and investment power with respect to his or her shares, except as follows: Mr. Gorman – 62,719 shares held in a grantor retained annuity trust for which Mr. Gorman and his spouse are co-trustees, 600 shares held in a Uniform Gifts to Minors Act account for which Mr. Gorman is custodian and for which he disclaims beneficial ownership, and 500 shares held in a Uniform
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Transfer to Minors Act account for which Mr. Gorman’s spouse is custodian and for which he disclaims beneficial ownership; Mr. Fleming – 104,550 shares held in an irrevocable family trust for which Mr. Fleming’s spouse is a trustee and beneficiary; Mr. Taubman – 1,585 shares held by Mr. Taubman’s spouse; Mr. Bostock – 1,775 shares held by Mr. Bostock’s spouse; and Mr. Bowles – 1,000 shares held in a trust revocable by Mr. Bowles on 30 days’ notice.
(2) Shares of common stock held in a trust (Trust) corresponding to certain outstanding restricted stock units (RSUs). Directors and executive officers may direct the voting of the shares corresponding to such RSUs. Voting by executive officers is subject to the provisions of the Trust, as described in “Information about the Annual Meeting – How Do I Submit Voting Instructions for Shares Held in Employee Plans?” Excludes long-term incentive program awards granted in 2013 and performance stock units granted in prior years because executive officers may not direct the voting of any shares corresponding to such awards prior to settlement of the applicable award.
(3) Each NEO and director beneficially owned less than 1% of the shares of common stock outstanding. All executive officers and directors as a group as of February 28, 2013 beneficially owned less than 1% of the common stock outstanding.
(4) If elected to the Board at the 2013 annual meeting of shareholders, Mr. Glocer, as a non-employee director, will receive an annual equity award under DECAP with a grant date fair value of $250,000. See “Director Compensation” for further details regarding our director compensation arrangements.
(5) Messrs. Tamakoshi and Tanaka were designated by MUFG and elected to the Board pursuant to the Investor Agreement. They are not compensated by Morgan Stanley for their service on the Board. See “Principal Shareholders” regarding MUFG’s beneficial ownership of Company common stock.
Principal Shareholders
The following table contains information regarding the only persons we know of that beneficially own more than 5% of our common stock.
| | | | | | | | | | | | | | | | Shares of Common Stock Beneficially Owned | | Name and Address | | Number | | | | | Percent(1) | | | | CIC(2) New Poly Plaza, No. 1 Chaoyangmen Beidajie Dongcheng District, Beijing 100010, People’s Republic of China | | | 125,114,454 | | | | | | 6.4% | | | | MUFG(3) 7-1, Marunouchi 2-chome Chiyoda-ku, Tokyo 100-8330, Japan | | | 435,452,411 | | | | | | 22.2% | | | | State Street(4) 225 Franklin Street, Boston, MA 02110 | | | 178,923,589 | | | | | | 9.1% | | | |
(1) Percentages based upon the number of shares of common stock outstanding as of the record date, March 18, 2013, and the beneficial ownership of the principal shareholders as reported in SEC filings in notes 2-5 below.
(2) Based on the Schedule 13G filed on February 6, 2013 (as of December 31, 2012) by CIC and Harvest Investment Corporation. The Schedule 13G discloses that CIC had shared dispositive and shared voting power with respect to all beneficially owned shares reported.
(3) Based on the amended Schedule 13D filed on July 1, 2011 by MUFG. The amended Schedule 13D discloses that MUFG had sole dispositive and sole voting power with respect to the beneficially owned shares reported, including 3,435,259 shares held solely in a fiduciary capacity by certain affiliates of MUFG as the trustee of trust accounts or the manager of investment funds, other investment vehicles and managed accounts as of May 31, 2011 for which MUFG disclaims beneficial ownership.
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(4) Based on the Schedule 13G filed on February 12, 2013 (as of December 31, 2012) by State Street and State Street Bank and Trust Company, each acting in various fiduciary and other capacities. The Schedule 13G discloses that State Street had shared dispositive power as to 178,923,589 shares and shared voting power as to 178,350,345 shares; that 121,031,132 shares beneficially owned by State Street Bank and Trust Company, a subsidiary of State Street, are held as trustee and investment manager on behalf of the Trust that holds shares of common stock underlying certain restricted stock units awarded to employees under various of the Company’s equity-based plans and an additional 25,826,687 shares are beneficially owned by State Street Bank & Trust and held in various capacities; and all shares reported are beneficially owned by State Street and its direct or indirect subsidiaries in their various fiduciary and other capacities, and, accordingly, another entity in every instance is entitled to dividends or proceeds of sale.
Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a)14A of the Securities Exchange Act of 1934, requires our directors and certainthis proposal seeks a shareholder advisory vote to approve the compensation of our NEOs (including for this purpose, our former CFO, Ms. Porat) as disclosed pursuant to Item 402 of Regulation S-K through the following resolution:
“RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the Company’s named executive officers, as disclosed in the Company’s proxy statement for the 2016 Annual Meeting of Shareholders pursuant to file reports with the SEC indicating their holdingscompensation disclosure rules of the Securities and transactions in,Exchange Commission (which disclosure includes the Compensation Discussion and Analysis and the accompanying compensation tables and related narrative).” Although this “Say on Pay” vote is advisory and is not binding on our equity securities. The Company believes that during 2012Board, the CMDS Committee will take into consideration the outcome of the vote when making future executive compensation decisions. At the 2015 annual meeting of stockholders, more than 88% of the votes cast favored our reporting persons complied with all Section 16(a) filing requirements. Executive Compensation
Compensation Governance
“Say on Pay” proposal. The CMDS Committee currently consists of four (4) directors, includingconsidered our Lead Director, all of whom are independent members of the Board under the NYSE listing standards“Say on Pay” result, and, the independence requirements of the Company. The CMDS Committee operates under a written charter adopted by the Board. The CMDS Committee is responsible for reviewing and approving annually all compensation awarded to the Company’s executive officers, including the NEOs. In addition, the CMDS Committee administers the Company’s equity incentive plans and cash-based nonqualified deferred compensation plans, including reviewing and approving grants to executive officers. Information on the CMDS Committee’s processes, procedures and analysis of NEO compensation for 2012 is addressed in the “Compensation Discussion and Analysis” (CD&A). The CMDS Committee actively engages in its duties and follows procedures intended to ensure excellence in compensation governance, including those described below:
Retains its own independent compensation consultant to provide advice to the CMDS Committee on executive compensation matters and evaluates the independence of such consultant and other advisors as required by any applicable law, regulation or listing standard. The independent compensation consultant generally attends all CMDS Committee meetings, reports directly to the CMDS Committee Chair and regularly meets with the CMDS Committee without management present. In addition, the Chair of the CMDS Committee regularly engages with the CMDS Committee’s compensation consultant, without management, outside of the CMDS Committee meetings.
Regularly reviews the competitive environment and the design and structure of the Company’s compensation programs to ensure that they are consistent with and support our compensation objectives.
Regularly reviews the Company’s achievements with respect to execution of long-term strategy and evaluates executive performance in light of such achievements.
Regularly reviews legislativethe significant majority of votes cast in favor of the 2014 compensation of our NEOs, did not materially change the overall approach for 2015 compensation from the prior year. However, the 2015 pay decision for the CEO of $21 million was reduced approximately 7% from $22.5 million for 2014, and regulatory developments affecting compensationnew share ownership requirements were introduced for our CEO (10x base salary) and our CFO, President and Chief Operating Officer (6x base salary), based on feedback from shareholders.
As discussed in the U.S.CD&A, the Board of Directors believes that our current executive compensation program appropriately links the compensation of our NEOs to our performance and globally.properly aligns the interests of our NEOs with those of our shareholders. We urge our shareholders to read the “Overview of Voting Items,” CD&A and “Executive Compensation Tables,” which provide a detailed description of our executive compensation program. Our Board unanimously recommends that you vote “FOR” this proposal. Proxies solicited by the Board will be voted “FOR” this proposal unless otherwise instructed. 38Morgan Stanley 2016 Proxy Statement
Table of Contents EXECUTIVE COMPENSATION COMPENSATION DISCUSSION AND ANALYSIS (CD&A) In this CD&A, we review the objectives and elements of Morgan Stanley’s executive compensation program, its alignment with Morgan Stanley’s performance and the 2015 compensation decisions for our named executive officers (NEOs): | James Gorman | CEO | | Jonathan Pruzan | CFO as of May 1, 2015 | | Ruth Porat | Former CFO who served through April 30, 2015 | | Gregory Fleming | President of Wealth Management for 2015 | | Colm Kelleher | President of Institutional Securities for 2015 | | James Rosenthal | Chief Operating Officer (COO) |
Annually reviews the Company’s incentive compensation arrangements to help ensure that such arrangements are consistent with the safety and soundnessEffective January 6, 2016, Mr. Kelleher became President of the Company, and doMr. Fleming ceased to be an executive officer. Unless otherwise noted, the term NEO as used in this CD&A does not encourage excessive risk taking, and are otherwise consistent with applicable related regulatory rules and guidance.
Grants senior executive annual incentive compensation after a comprehensive review and evaluation of Company, business unit and individual performance for the year both on a year-over-year basis and as comparedinclude Ms. Porat, due to our key competitors.
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Oversees plans for management development and succession.
Regularly meets throughout the year and regularly meets in executive session without the presence of management or its compensation consultant.
Receives materials for meetings in advance, and the Chair of the CMDS Committee participates in pre-meetings with management to review the agendas and materials.
Regularly reports on its meetings to the Board.
As mentioned above, to perform its duties, the CMDS Committee retains the services of a qualified and independent compensation consultant that possesses the necessary skill, experience and resources to meet the CMDS Committee’s needs and that has no relationship with the Company that would interfere with its ability to provide independent advice. Effective October 2012, the CMDS Committee has selected Pay Governance as its compensation consultant. Previously Hay Group served as the CMDS Committee’s compensation consultant and as a consultant to the Nominating and Governance Committee with respect to Board compensation. The CMDS Committee’s compensation consultant assists the CMDS Committee in collecting and evaluating external market data regarding executive compensation and performance and advises the CMDS Committee on developing trends and best practices in executive compensation and equity and incentive plan design. Other than the aforementioned consulting services, neither Pay Governance nor Hay Group provides other services to the Company or its executive officers. In accordance with the requirements of Item 407(e)(3)(iv) of Regulation S-K, the Company has affirmatively determined that no conflict of interest has arisen in connection with the work of Pay Governance or Hay Group as compensation consultant for the CMDS Committee.
The Company’s Human Resources department acts as a liaison between the CMDS Committee and its independent consultant and also prepares materials for the CMDS Committee’s use in making compensation decisions. Separately, the Human Resources department may itself engage third-party compensation consultants to assist in the development of compensation data and analyze potential compensation structures to inform and facilitate the CMDS Committee’s deliberations.
The principal compensation plans and arrangements applicable to our NEOs are described in the CD&A and the tables in the “Executive Compensation” section. The CMDS Committee may delegate the administration of these plans and arrangements as appropriate, including to executive officers ofher departure from the Company, and members of the Company’s Human Resources department. The CMDS Committee may also create subcommittees with authorityterm “CFO” refers to act on its behalf. Significant delegations made by the CMDS Committee include the following:
The CMDS Committee has delegated to the Equity Awards Committee (which consists of the CEO) its authority to make special new hire and retention equity awards; however, this delegation of authority does not extend to awards to our executive officers and certain other senior executives of the Company. Awards granted by the Equity Awards Committee are subject to a share limit imposed by the CMDS Committee and individual awards are reported to the CMDS Committee on a regular basis.
The CMDS Committee has delegated to the Chief Operating Officer its authority to administer the Company’s cash-based nonqualified deferred compensation plans, including the Morgan Stanley Compensation Incentive Plan (discussed in the CD&A); however, the CMDS Committee has sole authority relating to grants of cash-based nonqualified deferred compensation plan awards to, or amendments to such awards held by, executive officers and certain other senior executives, material amendments to any such plans or awards, and the decision to implement certain of these plans in the future.
Our executive officers do not engage directly with the CMDS Committee in setting the amount or form of executive officer compensation. However, as discussed in the CD&A, as part of the annual performance review for our executive officers other than the CEO, the CMDS Committee considers our CEO’s assessment of each executive officer’s individual performance, as well as the performance of the Company and our CEO’s compensation recommendations for each executive officer, other than himself.
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Annual equity and cash-based long-term incentive awards are typically granted by the CMDS Committee after the end of the year (beginning with 2013, future-oriented equity-based long-term incentive awards may also be granted). This schedule coincides with the time when year-end financial results are available and the CMDS Committee can evaluate individual and Company performance as described in the CD&A. Special equity and cash-based long-term incentive awards are generally approved on a monthly basis; however, they may be granted at any time, as deemed necessary for new hires, promotions, recognition or retention purposes. We do not coordinate or time the release of material information around our grant dates in order to affect the value of compensation.
Consideration of Risk Matters in Determining Compensation
The CMDS Committee works with the Company’s Chief Risk Officer and the CMDS Committee’s independent compensation consultant to evaluate whether the Company’s compensation arrangements encourage unnecessary or excessive risk-taking and whether risks arising from the Company’s compensation arrangements are reasonably likely to have a material adverse effect on the Company. Morgan Stanley is a financial institution that engages in significant trading and capital market activities that are subject to market and other risks. The Company employs risk management practices, including trading limits, marking-to-market positions, stress testing and employment of models. The Company believes in pay-for-performance and as a result also evaluates its compensation programs to recognize these risks.
In 2012, the Chief Risk Officer met with representatives from the Company’s Human Resources, Financial Control Group and Legal departments to evaluate each compensation program across each of the Company’s major areas – Institutional Securities, Asset Management, Global Wealth Management Group and Company/Infrastructure. These working sessions were intended to identify whether there were any material risks to the Company arising from such compensation programs, including those programs in which our NEOs participate. The review covered numerous programs, including equity and cash-based deferred compensation programs, discretionary bonus programs and performance-based formulaic bonus programs. The working group reviewed a number of factors, including the eligibility, form of payment, applicable performance measures, vesting, clawback, holdback and cancellation provisions and governance and oversight aspects of each program.
In 2012, the Chief Risk Officer concluded that Morgan Stanley’s current compensation programs do not incentivize employees to take unnecessary or excessive risk and that such programs do not create risks that are reasonably likely to have a material adverse effect on the Company. The following are among the factors considered in making his determination:
Our balance of fixed compensation and discretionary compensation;
Our balance between short-term and long-term incentives;
Our mandatory deferrals into both equity-based and cash-based long-term incentive programs;
The governance procedures followed in making compensation decisions, including our rigorous up-front risk adjustment process for assessing performance based on financial, capital and risk metrics;
The risk-mitigating features of our awards, such as cancellation, holdback and clawback provisions; and
Our equity retention requirements.
The Chief Risk Officer and the Chief Human Resources Officer then reviewed these arrangements, along with the analyses and findings of the Chief Risk Officer, with the CMDS Committee and its independent compensation consultant. Before compensation decisions were approved in January 2013, the Chief Risk Officer reviewed the final compensation programs pursuant to which compensation would be paid and confirmed his conclusions. It is intended that the Chief Risk Officer will continue to evaluate any new incentive arrangements for the NEOs and material arrangements for other employees, report periodically to the CMDS Committee and be involved in the design and assessment of our incentive arrangements to the extent appropriate or required under applicable law.
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In addition to the foregoing, the CMDS Committee regularly reviews with the CEO, Chief Risk Officer and senior management the Company’s controls regarding the year-end compensation process. These controls are structured to help eliminate incentives for excessive risk-taking and have been designed to be consistent with the Federal Reserve Board’s principles for safety and soundness. Such controls include:
Sizing the incentive compensation pool to more fully consider risk-adjusted returns, compliance with risk limits and the market and competitive environment;
Allocating the incentive compensation pool among business areas to take into account the businesses’ returns on certain financial, capital and risk metrics;
Increasing, generally for more senior-level employees, the level of year-end deferrals subject to multi-year clawback and cancellation provisions; and
As described more fully in the CD&A, expanding clawback provisions to apply to both deferred equity and deferred cash awards; increasing the accountability of compensation managers for executing clawback and cancellation provisions and considering an employee’s risk management activities and outcomes in making compensation decisions; and implementing a rigorous review process by the independent control functions of potential clawback and cancellation situations. Clawback provisions provide for the forfeiture of an award upon, among other things, the occurrence of certain losses and the employee’s violation of the Company’s risk policies and standards.
Compensation Discussion and Analysis
Mr. Pruzan. The CD&A is comprised of the following sections:
I.1. Overview | Executive Summary |
Morgan Stanley tiesThe CMDSCommittee considers multiple factors in determining executive compensation to Companyensure that Morgan Stanley’s compensation program is shareholder-aligned, motivating, and individual performance.competitive, and reflects current best practices in corporate governance, risk management, and regulatory principles. The CMDS Committee oftakes into consideration progress with respect to the Board,Company’s long-term strategic plan, as informed by financial and non-financial goals.
The CMDS Committee, with the advice of its independent compensation consultant, Pay Governance, places performance at the forefront of the structure and administration of executive compensation.compensation program. This performance orientation is demonstrated in the structure of executive compensation and the performance results that drive compensation decisions for our NEOs. The Committee’s approach to executive pay is also informed by input from shareholders. At the start of 2015, as in prior years, the CMDS Committee established a target range of CEO compensation and the resulting executiveperformance factors to be considered in determining year-end compensation. At year end, CEO total compensation decisionswas set at $21 million for 2015, a 7% decrease from $22.5 million in 2014, with shareholder-aligned features: | ● | 72% deferred over three years and subject to clawback,
| | ● | 39% of such deferred compensation delivered through future performance-vested equity awards. |
Morgan Stanley 2016 Proxy Statement39
Table of Contents EXECUTIVE COMPENSATION
1.1. Performance-Based Approach to Executive Compensation and 2015 Performance Highlights In its assessment of 2015 performance, the CEO, James Gorman,CMDS Committee considered Morgan Stanley’s progress in relation to its strategic objectives, financial performance, and shareholder returns. Strategic Objectives In 2015, the other NEOs.Company achieved a number of important strategic priorities, including improvement of Wealth Management profit margin, growth in Morgan Stanley U.S. Bank(1), prudent expense management, and increased capital return to shareholders. | 1. | Ongoing Wealth Management upside through additional margin improvement | Achieved FY 2015 22% pre-tax margin, up from 20% in 2014(2)
One of leading Wealth Management platforms with ~$2Tn in client assets and ~16,000 financial advisors | ✓ | | 2. | Continued execution of U.S. Bank strategy in Wealth Management and Institutional Securities | Achieved 46% NII growth in U.S. Bank versus 2014 in a flat rate environment(3)
Increased Wealth Management lending in U.S. Bank by 31% versus 2014(3) | ✓ | | 3. | Progress in Fixed Income and Commodities ROE | Failed to meet objective and subsequently initiated major restructuring
Completed exit of physical oil business | ✕ | | 4. | Maintain leadership in Institutional Equities and Investment Banking | Ranked 1st in Institutional Equities revenue market share for the second consecutive year(4)
Ranked 1st in Global IPOs, 2nd in Global Announced M&A, and 2nd in Global Equity(4) | ✓ | | 5. | Tailwind from lower funding costs | Continued to benefit as new debt issued at tighter spreads than maturing debt | ✓ | | 6. | Maintain focus on expense management | Achieved 37% Institutional Securities compensation ratio ex-DVA, down from 48% (42% excluding deferred compensation adjustments) in 2014(5)
Company-wide expense initiatives underway | ✓ | | 7. | Rating upgrade | Received two-notch upgrade from Moody’s: Morgan Stanley’s long-term senior debt rating increased from Baa2 to A3 | ✓ | | 8. | Steadily increase capital return to shareholders | Received non-objection from the Federal Reserve Board to the 2015 Capital Plan, which included an increase in authorized share repurchase to $3.1 billion from $1.0 billion in the 2014 Capital Plan and the quarterly common stock dividend to $0.15 per share from $0.10 per share in the 2014 Capital Plan | ✓ |
Financial Performance(6)(7) The Company delivered improved financial performance in 2015. Net revenues and income from continuing operations before taxes (Pre-tax Profit) increased in 2015 from 2014, both as reported and excluding the impact of Debt Valuation Adjustment (DVA)(8). Return on average common equity (ROE) also increased from the prior year, but still has room for continued improvement. MS Firm Financials Results
Ex-DVA ($ Billion) | 2011 | 2012 | 2013 | 2014 | | 2015 | % Δ 2015
vs. 2014 | | | | | | | | | | | | | | | | | | | | Net Revenues(9) | 28.6 | 30.6 | 33.2 | 33.6 | | 34.5 | +3% | | | | | | | | | | | | | | | | | | | | Pre-tax Profit(9) | 2.5 | 5.0 | 5.2 | 2.9 | (10) | 7.9 | +168% | | | | | | | | | |
40 Morgan Stanley 2016 Proxy Statement
Table of Contents EXECUTIVE COMPENSATION
| Morgan Stanley ROE (2011 – 2015)(11)(12) |  |
I.A. ExecutiveShareholder Returns
Morgan Stanley’s significant strategic progress and improved financial performance in 2015 notwithstanding, TSR in the year trailed peers in a challenging year for global financials – only two of our eight global peers delivered positive returns. However, over the three-year period from 2013 to 2015, Morgan Stanley’s TSR ranks first among peers. | MS and Peer Total Shareholder Return(14) |  |
Section 3.2 contains further details about Company performance; see also Section 5 “Notes to the Compensation StructureDiscussion and Analysis.” Morgan Stanley 2016 Proxy Statement41
Table of Contents In 2012,EXECUTIVE COMPENSATION
1.2 Framework for Compensation Decisions and Performance Evaluation At the start of 2015, the CMDS Committee, in consultation with its independent compensation consultant, conductedestablished a comprehensive best practices reviewtarget range for 2015 CEO pay of $28 million or more for superior performance to $10 million or less for performance substantially below expectations. This target range is reviewed and set annually and serves as a guideline for the CMDS Committee. To inform its decision-making with respect to the appropriate target range, the CMDS Committee considers compensation information for peers as described in Section 3.1 under “Benchmarking Target CEO compensationPay.” The 2015 pay decision for the CEO was made by the CMDS Committee, in consultation with the full Board, based on the CMDS Committee’s assessment of Morgan Stanley’s improvement in financial services industry. In prior years, the compensationperformance with room for continued improvement on ROE, Mr. Gorman’s strong individual performance through Morgan Stanley’s continued successful execution of the CEO had consistedlong-term strategic objectives approved by the Board, and Morgan Stanley’s shareholder returns as trailing peers in a challenging year for global financials. As a result, the CMDS Committee determined that Company and individual performance warranted a 2015 pay decision for Mr. Gorman of a base salary, together$21 million, 7% below Mr. Gorman’s 2014 pay of $22.5 million. The CMDS Committee believes that this decision appropriately aligns Mr. Gorman’s 2015 pay with a discretionary bonus awarded after year-end based on2015 performance. 
The alignment of Mr. Gorman’s pay with Company performance can also be demonstrated over the longer-term by the fact that over the 2013 to 2015 period, Mr. Gorman’s realizable pay has increased only slightly and the Company’s three-year total TSR for the year. Approximately 20%same period is 72%(15). Section 3.2 contains more details about individual NEO performance. 1.3 Compensation Elements Pay in a given year is delivered in a combination of thisfixed compensation (generally, base salary), cash bonus, was awardeddeferred cash, restricted stock units (RSUs), and a long-term incentive program (LTIP) award in the form of performance stock units (PSUs),units. A significant portion of pay is deferred, awarded in equity, subject to future stock price performance and cancellation and clawback and, in the ultimate valuecase of whichLTIP awards, subject to future achievement of specified financial goals over a three-year period. Mr. Gorman’s 2015 pay was determined after three years based ondelivered in a combination of these compensation elements, as outlined below. The CMDS Committee believes this approach to executive compensation is consistent with shareholder alignment, executive motivation, best practices, and regulatory principles. Sections 4.2 and 4.3 contain more detail about the Company’s return on common equity (ROE)elements of our compensation program. 42 Morgan Stanley 2016 Proxy Statement
Table of Contents EXECUTIVE COMPENSATION
MS 2015 CEO Compensation Elements* | | $ Million
% of Deferred | | % of Total | | | |  | | | | | Performance-Vested Long-Term Equity Incentive Compensation | | | ●Realizable value determined after three years (2016-2018), based equally on two performance metrics: target average ROE of 10% and shareholder returns relative to the S&P Financials Index ●Shares delivered can range from 0 – 1.5x target, depending on performance relative to target. TSR portion will not exceed 1.0x if there is negative TSR for the performance period ●Subject to cancellation and clawback | | |
| | | Deferred Incentive Compensation | | | Deferred Cash and Deferred Equity ●Deferred over three years ●Subject to cancellation and clawback | | |
| | | Current Compensation | | | Base Salary and Cash Bonus ●Cash bonus was awarded consistent with the Company-wide deferral schedule | | | | | | | | | | | | | | |
| * | $21 million is the amount the CMDS Committee awarded to the CEO in early 2016 for 2015 performance. This amount differs from the SEC required disclosure in the “2015 Summary Compensation Table.” |
With the exception of Mr. Kelleher, who was identified as “Code Staff” for 2015 and relative total shareholder return (TSR). Aswhose 2015 deferred compensation structure is prescribed by the remuneration code of the U.K. Prudential Regulatory Authority, and Mr. Fleming, who did not receive an LTIP award in light of his ceasing to be a member of our Operating Committee as of January 6, 2016, the NEOs received their 2015 compensation in the same elements as described in the chart above. Ms. Porat did not receive a cash or deferred bonus for 2015 or an LTIP award, and only received base salary for 2015, as a result of this review,her departure from the Company on April 30, 2015. Section 4.1 contains the 2015 compensation decisions for each NEO, which follow a similar performance evaluation process.
1.4 Shareholder Engagement and “Say on Pay” Vote Morgan Stanley is committed to open and ongoing communication with our shareholders, and takes the opportunity to engage with shareholders directly on compensation and other matters to understand their perspectives and provide information about Morgan Stanley’s programs, performance assessment, and decision-making process. A substantial majority (88.6%) of the votes cast at the May 2015 annual meeting of shareholders were in favor of our annual “Say on Pay” proposal. In 2015, we continued our engagement program, seeking feedback from shareholders and proxy advisory firms on a variety of topics, which was conveyed to the CMDS Committee decided that it was a better practice to clearly separateand the awardBoard. The CMDS Committee factored shareholder feedback, including the “Say on Pay” vote results, into its consideration of future-oriented, long-term incentiveexecutive compensation from annual compensation awarded for the previous structure and determination of NEO pay levels.25
year’s performance. Accordingly,After carefully considering shareholder feedback, the CMDS Committee established a target amountmaintained its performance-based approach to executive compensation, and executive pay decreased for 2012 CEO annual performance compensation for a good performance year based upon market rates for similar CEO positions.2015 after evaluation against strategic and financial objectives as well as shareholder returns. The CMDS Committee further established an award amount, also based upon market comparables, for a future-oriented long-term incentive program (LTIP) based on 2013-2015 ROE and TSR. The CMDS Committee determined that $10 million was the appropriate target for CEO annual performance compensation for a good performance year, and that $3,750,000 was the appropriate target amountintroduced minimum share ownership requirements for the future-oriented LTIP award. These two target amounts resulted in a comprehensive target pay opportunity of $13,750,000 – representing the combination of compensation for 2012 annual performance and forward-looking LTIP performance for 2013-2015.
To arrive at these amounts, the CMDS Committee reviewed CEO compensation for 2011 both at the 12 financial companies in the S&P 100 and at the five large U.S. bank competitors of Morgan Stanley. For the financial companies in the S&P 100, the median and average CEO total pay opportunity was approximately $13-$14 million, of which annual performance compensation was approximately $10 million and the balance was in long-term incentives. For the five large U.S. bank competitors of Morgan Stanley 2016 Proxy Statement 43
Table of Contents EXECUTIVE COMPENSATION
CEO, CFO, President, and COO (see “Ownership of Our Stock – Executive Equity Ownership Commitment” for details). In response to the medianfeedback received through shareholder engagement, the Board also amended our bylaws to implement proxy access, and average CEO totalwe provided clearer disclosure of considerations and decisions regarding pay, opportunity was approximately $15-16 million,continued to address shareholder dilution by repurchasing more shares than we issued, and revised and redesigned our proxy statement to more clearly communicate with shareholders (see the “Overview of which annual performance compensation was approximately $12 million and the balance was in long-term incentives. Voting Items” for details). I.B.
| 2012 Performance Results |
In 2012, Company net revenues were $26.1 billion, net income was $68 million and ROE was 0.1%. Excluding the impact of a debt valuation adjustment (commonly referred to as “DVA”), Company net revenues were $30.5 billion, net income was $3.2 billion, and ROE was 5.2% in 2012. The reported $4.4 billion in negative DVA in 2012 resulted from Morgan Stanley’s credit spreads improving substantially over the course of the year. Morgan Stanley believes that most investors assess its results excluding DVA.
While 2012 financial performance was subpar, a strong financial foundation has been built under Mr. Gorman’s leadership. From 2010, when he became CEO, to year-end 2012, the Company has increased its Basel I Tier 1 Common ratio from 10.2% to 14.6%, increased common equity from $47.6 billion to $60.6 billion and reduced Basel I risk-weighted assets (RWAs) from $344 billion to $307 billion.
In addition to financial performance factors, several strategic factors were considered in evaluating 2012 performance for Mr. Gorman and other senior executives. The Company succeeded in completing the integration of the legacy Smith Barney and Morgan Stanley brokerage platforms. Also, the Morgan Stanley Wealth Management joint venture (Wealth Management JV) pretax margin increased from 11% in the first quarter to 17% in the fourth quarter. The Company increased its ownership of the Wealth Management JV to 65% by purchasing an incremental 14%, and locked in that valuation for the purchase of the remainder, subject to regulatory approvals. Substantial progress was made in reducing Basel III RWAs in the Fixed Income and Commodities business from $390 billion in the second half of 2011 to $280 billion at year-end 2012. The Company achieved top-two rankings globally in Mergers and Acquisitions, Equity Underwriting and Equity Sales and Trading wallet share. Finally, successful Company-wide cost reduction actions were important foundational steps, including the reduction of employee headcount from 61,546 at the beginning of 2012 to 55,529 as of January 31, 2013.
In determining Mr. Gorman’s compensation, the CMDS Committee also considered the Company’s total return to shareholders, which was 28% in 2012 – above the median of 23% for the S&P 500 Financials, but below the median of 36% for Morgan Stanley’s nine largest global competitors. Finally, in determining Mr. Gorman’s compensation, the CMDS Committee also considered that overall year-over-year compensation was broadly reduced for employees across the Company.
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I.C. | Compensation Decisions |
Based on the various elements of performance outlined above, the CMDS Committee determined Mr. Gorman’s annual performance compensation for 2012 at $6 million – 40% below the target annual performance compensation of $10 million. Annual performance compensation consisted of $800,000 in base salary, $2,575,000 in cash-based awards deferred over three years and $2,625,000 in stock option awards vesting over three years. In addition, Mr. Gorman received a 2013 LTIP award with a target value of $3,750,000, which converts to shares after three years only if predetermined performance goals are achieved over 2013-2015. As shown in the table below, Mr. Gorman’s comprehensive pay opportunity (2012 annual performance compensation when combined with 2013-2015 LTIP award) is $9,750,000 – a decline of 7% from the previous year.
| | | | | | | | | | | | | | | | | | Components of CEO Pay | | | | | | 2011 Annual Decision | | | | | | | 2012 Annual/2013 LTIP Decisions | | Base Salary | | | | | | $ | 800,000 | | | | | | | $ | 800,000 | | | | | | | | | Current Cash Bonus | | | | | | $ | 0 | | | | | | | $ | 0 | | | | | | | | | Deferred Cash Award | | | | | | $ | 2,716,000 | | | | | | | $ | 2,575,000 | | | | | | | | | At-Risk Equity Award | | | | | | $ | 5,044,000 | | | | | | | $ | 2,625,000 | | | | | | | | | Future-Oriented, Performance-Based Equity Award | | | | | | $ | 1,940,000 | | | | | | | $ | 3,750,000 | | | | | | | | | Comprehensive Pay Opportunity: | | | | | | $ | 10,500,000 | | | | | | | $ | 9,750,000 | |
Across the periods, the proportion of equity-based compensation has remained approximately the same. However, the proportion of that equity-based compensation that vests subject to future performance conditions has substantially increased. The mix of compensation for the other NEOs as disclosed herein is generally consistent with the CEO’s. For 2012, stock options, rather than restricted stock units, were granted to all NEOs other than the chief financial officer (CFO) in order to preserve the tax deductibility of the compensation to the Company (See “Tax Deductibility” under Section III.A).
Overall, while the CMDS Committee believes that the strategic and financial foundations for future success have been put in place, the CEO’s and each NEO’s compensation has been reduced to reflect the Company’s 2012 performance. The alignment of pay and performance at the Company is also demonstrated by the fact that over the 2010-2012 period Mr. Gorman’s realizable pay has declined by approximately 31%, and the Company’s TSR has declined by about 34%. As a further demonstration of shareholder and strategic alignment, the PSUs granted to Mr. Gorman and the other NEOs as 20% of their 2009 annual performance award (for Mr. Gorman, a grant date target value of $2,853,151) were cancelled without payment for failure to meet performance goals over the 2010-2012 period.
II. | 2. Compensation Objectives and Strategy |
Morgan Stanley is committed to responsible and effective compensation programs. The CMDS Committee continually evaluates the Company’s compensation programs with a view toward balancing the following key objectives: Attract and Retain Top Talent. The Company competes for talent globally with investment banks, commercial banks, brokerage firms, hedge funds and other companies offering financial services, and the Company’s ability to sustain or improve its position in this highly competitive environment depends substantially on our ability to continue to attract and retain the most qualified employees. Inobjectives, all of which support of our recruitment and retention objectives, we continually monitor competitive pay levels and we structure our incentive awards to include vesting, deferred payment and cancellation and clawback provisions that protect the Company’s interests.
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Deliver Pay for Sustainable Performance. Our executive compensation program emphasizes discretionary variable annual performance compensation and long-term incentive compensation with specific financial targets. Variable annual performance compensation is adjusted year-over-year to appropriately reward annual achievement of the Company’s financial and strategic objectives. Long-term incentive compensation is future-oriented and only rewards performance that serves shareholders’ interests by executing on the Company’s long-term business strategy. Both deferred annual incentives and long-term incentives promote sustained shareholder value creation over the long term. The structure of the Company’s compensation program balances the objectives of delivering returns for shareholders and providing appropriate rewards to motivate superior individual performance.
Align Executive Compensation with Shareholders’ Interests. The Company delivers a significant portion of incentive compensation in deferred equity awards to align employee interests with those of shareholders. The CMDS Committee believes that linking compensation amounts to performance and delivering annual and long-term incentives primarily as deferred equity awards that are subject to market, cancellation and clawback risk over a multi-year period helps motivate executives to achieve financial and strategic goals. In addition, members of the Operating Committee are required to retain at least 75% of the after-tax shares they receive as compensation for service on the Operating Committee. Executives are also prohibited from engaging in hedging strategies, selling short or trading derivatives with Company securities. These policies tie a significant portion of our executive officers’ compensation directly to the Company’s stock price. Our executives also do not engage in pre-established written plans for trading in Company securities, commonly referred to as “Rule 10b5-1 programs.”
Mitigate Excessive Risk-taking. The CMDS Committee is advised by the Company’s Chief Risk Officer and the CMDS Committee’s independent compensation consultant to help ensure that the structure and design of compensation arrangements do not encourage unnecessary or excessive risk-taking that threatens the Company’s interests or gives rise to risk that could have a material adverse effect on the Company. (See also the discussion of the risk review of compensation programs in “Compensation Governance – Consideration of Risk Management in Determining Compensation.”)
interests: III. | | | | |  | Deliver Pay for
Sustainable
Performance | ●Emphasize variable annual incentive compensation and performance-vested long-term incentive compensation ●Condition vesting and payment of long-term incentive compensation on future performance against specified financial targets that align with long-term business strategy ●Balance the objectives of delivering returns for shareholders and providing appropriate rewards to motivate superior individual performance | | | | | | |  | Align Executive
Compensation
with Shareholders’
Interests | ●Deliver a significant portion of incentive compensation in deferred equity awards that are impacted, up or down, by future stock price performance and are subject to cancellation and clawback over a multi-year period ●Tie a significant portion of executive compensation directly to the Company's stock price and encourage ownership by requiring executives to retain shares ●Ongoing shareholder engagement to understand shareholder views | | | | | | |  | Attract and Retain
Top Talent | ●Offers competitive pay levels to support the Company's objectives of continuing to attract and retain the most qualified employees in a highly competitive global environment for talent ●Structure incentive awards to include vesting, deferred payment, and cancellation and clawback provisions that protects the Company's interests | | | | | | |  | Mitigate Excessive
Risk-Taking | ●Structure and design compensation arrangements that do not incentivize unnecessary or excessive risk-taking that could have a material adverse effect on the Company ●Annually evaluate compensation programs from a risk perspective; review finding with CMDS Committee and independent compensation consultant | | | | | |
3. Framework for Making Compensation Decisions |
III.A. | Factors Considered in 2012 Annual Compensation Decisions |
3.1 Factors Considered in Compensation Decisions The 2012 annual performance2015 compensation of the NEOs was determined at the discretion ofby the CMDS Committee after consideration of Company financialbusiness results and strategic performance and individual performance, as well as competitor compensation data and, with respect to the CEO, benchmarking data, and other considerations set forth below. | ● | Company and Individual Performance Review.To inform its decision-making process for NEO compensation for 2015, the CMDS Committee evaluated Company and individual performance. For 2015, a number of performance priorities were set by the CMDS Committee and the Board at the beginning of the year. The performance priorities are established based on a directional assessment made at the beginning of the year in light of the market environment and the Company’s strategic objectives, and their attainment or non-attainment does not correspond to any specific compensation decision.
| | For 2015, the CMDS Committee reviewed performance priorities in the following areas: |
| ○ | Financial performance, including ROE, ex-DVA
| | ○ | Shareholder return
| | ○ | Capital and liquidity strength
| | ○ | Business performance and development for each primary business unit |
Company and Individual Performance Review. To inform its use of discretion in determining NEO annual performance compensation for 2012, the CMDS Committee evaluates Company and individual performance. The CMDS Committee does not utilize formulaic or non-formulaic financial performance goals or targets, and performance metrics are not assigned any specific weighting for purposes of determining the annual compensation awarded to the CEO or other NEOs. The CMDS Committee does not establish any targets with respect to the Company’s financial performance during the year for purposes of determining compensation, because the market and macroeconomic environment (which impacts the financial services industry) can change dramatically during the year. Instead, the CMDS Committee assesses actual financial performance at the end of the year in light of the most recent facts and circumstances.44
For 2012, the CMDS Committee evaluated Company performance against a number of financial and market metrics on an absolute basis and relative to a comparison group consisting of Bank of America Corp., Barclays Plc, Citigroup Inc., Credit Suisse Group, Deutsche Bank AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., UBS AG and Wells Fargo & Company (Comparison Group). No single financial or market metric controlled compensation decisions, but rather the data were used to help the CMDS Committee better understand Company performance.
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Market Data and Review. The Company uses the Comparison Group to understand market practices and trends and to evaluate the competitiveness of our compensation programs. Throughout the year, the CMDS Committee reviewed analyses of our competitors’ pay levels, including historical compensation data obtained from public filings and compensation surveys conducted by consultants on an unattributed basis, and compensation plan design. Our Comparison Group consists of companies that either directly compete with us for business and/or talent or are global organizations with scope, size or other characteristics similar to the Company’s that we consider for purposes of compensation for the CEO, CFO and other functional heads of our businesses. The market compensation information considered by the CMDS Committee is either prepared or validated by its independent compensation consultant. Other than with respect to the CEO as described under “Benchmarking” below, for 2012, the CMDS Committee did not target NEO compensation at a certain range compared to the Comparison Group. Rather, the CMDS Committee used this information to better understand the market and to inform its discretionary compensation decisions.
Benchmarking of Target Annual CEO Pay. As noted in Section I.A, the CMDS Committee, in consultation with its independent compensation consultant, established a target 2012 annual performance compensation for the CEO of $10 million. To inform its decision-making with respect to the appropriate target, the CMDS Committee reviewed the median and the average of 2011 compensation levels for the following two sample groups: (i) the 12 financial companies in the S&P 100 (Allstate, American Express, Bank of New York Mellon, Capital One Financial, MasterCard, MetLife, US Bancorp and the five U.S. companies within the Comparison Group); and (ii) the five U.S. companies within the Comparison Group. The CMDS Committee then utilized the range of results as a benchmark from which to set the annual performance compensation target for the CEO. The two sample groups are intended to provide benchmarks of our core peers and other financial institutions of similar size, scope and complexity.
Input and Recommendations from the Chief Executive Officer, Independent Directors and CMDS Committee’s Independent Consultant. At the end of the year, Mr. Gorman presented the CMDS Committee with a performance assessment and compensation recommendations for each NEO other than himself. The CMDS Committee reviewed these recommendations with the CMDS Committee’s independent compensation consultant to assess whether they were reasonable compared with the market for executive talent and met in executive session to discuss the performance of our CEO and the other NEOs and to determine their annual performance compensation. In addition, the CMDS Committee considered input on NEO compensation from the other independent directors and reviewed proposed CEO incentive compensation with the full Board (other than Mr. Gorman) in executive session.
Performance Priorities. The CMDS Committee and the full Board review performance priorities at the beginning of each year to guide their evaluation of Company and individual performance throughout the year. To inform its use of discretion in determining NEO annual performance compensation for 2012, the CMDS Committee reviewed performance priorities in the following areas throughout the year: (i) financial performance; (ii) business development for each primary business unit; (iii) risk management and controls; (iv) financial and operating risk management; (v) international businesses and the strategic alliance with MUFG; (vi) alignment between the Board and management on the articulation of Company strategy; and (vii) demonstration of “One Firm” culture and stakeholder engagement. These performance priorities are a directional assessment made at the beginning of the year and their attainment or non-attainment does not correspond to any specific compensation decision.
Tax Deductibility. Section 162(m) of the Internal Revenue Code (Section 162(m)) limits the tax deductibility of compensation for certain executive officers (other than the CFO) that is more than $1 million, unless the compensation qualifies as “performance-based.” While our policy, in general, is to preserve the tax deductibility of compensation paid to executive officers covered under Section 162(m), the CMDS Committee nevertheless may authorize awards or payments that might not be deductible if it believes they are in the best interests of the Company and its shareholders. To qualify as “performance-based” compensation, the award must be based on objective, pre-established performance criteria approved by shareholders or otherwise qualify as “performance-based” under Section 162(m) (for example, fair market value stock options).
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Morgan Stanley’s shareholder-approved Section 162(m) performance formula imposes a cap of 0.5% of adjusted pre-tax earnings (as defined) on the annual bonus paid to a designated officer (other than awards, such as stock options, that are otherwise “performance-based”). However, this formula was adopted in 2001 before the concept of DVA was established under accounting principles generally accepted in the U.S. (GAAP). As noted in Section I.B, 2012 results reflected over $4 billion of negative revenues as a result of Morgan Stanley’s credit spreads improving over the course of the year, an improvement that was a positive result for both the Company and its shareholders. As a result, Morgan Stanley also reports earnings information excluding the impact2016 Proxy Statement
Table of DVA, as the Company believes this non-GAAP financial measure is useful for investors to allow better comparabilityContents EXECUTIVE COMPENSATION
| ○ | The strategic alliance with Mitsubishi UFJ Financial Group, Inc. (MUFG)
| | ○ | Firm risk management and controls
| | ○ | Operations and technology and data infrastructure initiatives
| | ○ | Firm compensation and talent development
| | ○ | Board assessment of risk culture, leadership, strategy, and reputation |
| Performance against certain of the performance priorities is evaluated by the CMDS Committee on a relative basis to a comparison group comprised of Bank of America Corp., Barclays Plc, Citigroup Inc., Credit Suisse Group, Deutsche Bank AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., and UBS AG (together with Wells Fargo & Company, Comparison Group). Our Comparison Group consists of companies that either directly compete with us for business and/or talent or are global organizations with scope, size, or other characteristics similar to those of the Company.
| | ● | Compensation Market Data. The Company uses the Comparison Group to understand market practices and trends, evaluate the competitiveness of our compensation programs, and inform its compensation decisions. During 2015, the CMDS Committee reviewed analyses of our competitors’ pay levels, including historical compensation data obtained from public filings and compensation surveys conducted by consultants on an unattributed basis, as well as compensation plan design.
| | ● | Benchmarking Target CEO Pay. As discussed in Section 1.2, the CMDS Committee, in consultation with its independent compensation consultant, established a target range for 2015 compensation for the CEO of $28 million or more for superior performance to $10 million or less for performance substantially below expectations. To inform its decision-making with respect to the appropriate target range, the CMDS Committee reviewed 2014 compensation levels for the following two sample groups, which are intended to reflect institutions of similar size, scope, and complexity: (i) the 13 financial companies in the S&P 100 (AIG, Allstate, American Express, Bank of New York Mellon, Capital One Financial, MasterCard, MetLife, US Bancorp, and the five U.S. companies within the Comparison Group), and (ii) the five U.S. companies within the Comparison Group. The CMDS Committee then utilized the range of results as a benchmark from which to set the target range for 2015 compensation for the CEO.
| | ● | Input and Recommendations from the CEO, Independent Directors and CMDS Committee’s Independent Consultant. At the end of the year, Mr. Gorman presented the CMDS Committee with performance assessments and compensation recommendations for each NEO other than himself. The CMDS Committee reviewed these recommendations with the CMDS Committee’s independent compensation consultant to assess whether they were reasonable compared with the market for executive talent and met in executive session to discuss the performance of our CEO and the other NEOs and to determine their compensation. In addition, the CMDS Committee reviewed proposed NEO incentive compensation with the full Board (other than Mr. Gorman) in executive session.
| | ● | Compensation Expense Considerations. Prior to determining individual NEO incentive compensation, the CMDS Committee reviewed and considered the relationship between Company performance, total compensation expense (which includes fixed compensation costs such as base salaries, allowances, benefits, and commissions), and incentive compensation as a subset of overall compensation expense. This exercise furthers the balancing of the objectives of delivering returns for shareholders and providing appropriate rewards to motivate superior individual performance.
| | ● | Global Regulatory Principles.The Company’s compensation practices are subject to oversight by our regulators in the U.S. and internationally. Throughout 2015, senior management briefed the CMDS Committee on relevant regulatory developments, including with regard to the mix of incentive compensation and the portion of compensation that should be deferred for certain populations, as well as principles of balanced risk-taking. For example, the Company is subject to the Federal Reserve’s guidance that is designed to help ensure that incentive compensation paid by banking organizations does not encourage imprudent risk-taking that threatens the organizations’ safety and soundness. The Company is also subject to the compensation-related provisions of the Dodd-Frank Act and the remuneration code of the U.K. Prudential Regulatory Authority, which prescribes the deferred compensation structure for certain employees who are identified as “Code Staff.” |
Morgan Stanley 2016 Proxy Statement 45
Table of year-to-year operating performance.Contents EXECUTIVE COMPENSATION For 2012, the CMDS Committee determined to preserve the tax deductibility of executive officer compensation to the Company through the grant of stock option awards that comply with Section 162(m) to all NEOs other than the CFO. The CMDS Committee believes that, in light of Company and individual performance, the grant of tax-deductible stock option awards appropriately rewards and incentivizes these NEOs and is therefore in the best interests of the Company and its shareholders.
To prevent DVA from having an impact, positive or negative, on the Section 162(m) performance formula, the Board has submitted for shareholder vote an amendment to the Section 162(m) performance formula to exclude the impact of DVA in determining the cap for annual performance compensation to designated officers (See “Item 6 – Company Proposal to Amend the Section 162(m) Performance Formula Governing Annual Performance Compensation for Certain Officers”). If the proposed amendment had been in effect for 2012, the CMDS Committee would have been able to grant tax-deductible restricted stock units, rather than tax-deductible stock options, to all NEOs for 2012 annual compensation.
In addition, to help preserve corporate tax-deductibility of future LTIP awards, the Board has submitted for shareholder approval an amendment to the Company’s equity plan to include performance criteria for such awards (See “Item 5 – Company Proposal to Amend the 2007 Equity Incentive Compensation Plan to Provide for Qualifying Performance-Based Long-Term Incentive Awards under Section 162(m)”). If approved by shareholders, the proposed amendments will apply beginning with performance periods starting on or after January 1, 2014.
In advance of these amendments, the deferred cash component of 2012 annual bonuses to the NEOs counted toward the cap generated by the existing performance formula, and the 2013-2015 LTIP award will count toward the cap generated by the 2013 performance formula.
Global Regulatory Principles. The Company’s compensation practices are subject to oversight by our regulators in the U.S. and internationally. Throughout 2012, senior management briefed the CMDS Committee on relevant regulatory developments in respect of compensation, including with regard to the mix of incentive compensation and the portion of compensation that should be deferred for certain populations, as well as principles of balanced risk-taking. For example, in 2012 the Federal Reserve continued to develop its policies on compensation during its ongoing review of incentive compensation policies and practices of the Company and other banking organizations. In addition, the U.K. Financial Services Authority prescribed the deferred compensation structure, including minimum deferral rates and the portion of incentive compensation granted as equity awards, for certain executives, including Mr. Kelleher.
Compensation Expense Considerations. Prior to determining individual NEO incentive compensation, the CMDS Committee reviewed and considered the relationship between Company performance, total compensation expense (which includes fixed compensation costs such as base salaries, benefits and commissions) and incentive compensation as a subset of overall compensation expense. This furthers the balancing of the objectives of delivering returns for shareholders and providing appropriate rewards to motivate superior individual performance.
• | ● | Relative Pay ConsiderationsConsiderations..We place importance on the pay relationships among members of our Operating Committee because we view our Operating Committee members as highly talented executives capable of rotating among the leadership positions of our businesses and key functions. Our goal is always |
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| to be in a position to appoint our most senior executives from within our Company and to incent our people to aspire to senior executive roles. At year-end, the CMDS Committee reviewed the relative differences between the compensation for the CEO and other NEOs and between the NEOs and other members of the Operating Committee. Consideration is also given to
| | ● | Tax Deductibility.Section 162(m) of the year-over-year change inInternal Revenue Code (Section 162(m)) limits the tax deductibility of compensation for certain executive officers (other than the CEO and NEOs relativeCFO) that is more than $1 million, unless the compensation qualifies as “performance-based.” To qualify as “performance-based” compensation, the award must be based on objective, pre-established performance criteria approved by shareholders or otherwise qualify as “performance-based” under Section 162(m). While our policy, in general, is to changesmaximize the tax deductibility of compensation paid to executive officers covered under Section 162(m), the CMDS Committee nevertheless may authorize awards or payments that might not be tax deductible if it believes they are in the aggregate incentive compensation pool.best interests of the Company and its shareholders. |
3.2 Evaluating Company and Individual Performance for Alignment with Executive Compensation “Say on Pay” Vote in 2012. As previously disclosed, atIn determining the 2012 annual meeting of shareholders, in alignment with the recommendations of the Board, a significant majority of our shareholders who voted on the matter approved, by advisory resolution, theperformance compensation of the Company’s executives as disclosed inCEO and other NEOs, the CMDS Committee weighed the Company’s 2012 proxy statement (the 2012 “say on pay” vote).overall financial performance, progress toward long-term strategic objectives, and, as applicable, business unit performance. Morgan Stanley’s overall 2015 financial performance was meaningfully improved, and the Company entered 2016 well positioned strategically and with strong capital and liquidity. The significant strategic progress and improved financial performance were, however, not reflected in Morgan Stanley’s share price. Morgan Stanley’s TSR(14) was negative 17% for 2015, a challenging year for global financial firms. While ROE improved, it was still below expectations, and management has articulated a clear path to ROE improvement. The CMDS Committee believes that an annual advisory vote on executive compensation is consistent with our long-standing practice of seeking the views of, and engaging in discussions with, our shareholders on corporate governance matters and our executive compensation philosophy, policies and practices. In that regard, and in anticipation of the 2013 “say on pay” vote, Company management solicited feedback from our shareholders and from proxy advisory services on the Company’s 2012 compensation program and conveyed the feedback received to the CMDS Committee. Following the 2012 annual meeting of shareholders, the CMDS Committee considered the results of the 2012 “say on pay” vote. The changes to the 2012 compensation program described in this CD&A reflect the CMDS Committee’s evaluation of the votethese results, as well as the CMDS Committee’s and the Company’s ongoing efforts to improve our executive compensation program and the quality of our executive compensation disclosures.
Clawback Policies and Procedures. In 2008, Morgan Stanley implemented a clawback for a substantial portion of incentive compensation and, in the years since, we have expanded the application of the clawback to cover all incentive compensation awards and a broad scope of improper employee behavior. (See Section IV.B “2012 Annual Compensation Program Details.”) To supplement compliance and escalation processes, the Company’s independent control functions (the Internal Audit, Legal, Risk and Finance departments) take part in an enhanced, robust review process for identifying and evaluating situations occurring throughout the course of the year that could require clawback or cancellation of previously awarded compensation, as well as adjustments to current-year compensation. Clawbacks of previously awarded compensation are reviewed with a committee of senior management quarterly and reported to the CMDS Committee on a regular basis. In addition, the CMDS Committee adopted a global incentive compensation discretion policy that sets forth standards for the exercise of managerial discretion in annual performance compensation decisions and specifically provides that all managers must consider whether an employee effectively managed and supervised the risk control practices of his or her employee reports during the performance year.
III.B. | Evaluating Company and Individual Performance |
The CMDS Committee considered the factors describedindicated below, in determining annual performance compensation for the NEOs: Mr. Gorman, the CEO, Ms. Porat, the CFO, Mr. Fleming, the President of Global Wealth Management Group and Asset Management, and Messrs. Kelleher and Taubman, who served as the Co-Presidents of Institutional Securities during 2012. Mr. Taubman retired from his position as Co-President of Institutional Securities effective December 31, 2012, and will remain an employee through his anticipated end date of May 5, 2013. Mr. Kelleher became President of Institutional Securities effective January 1, 2013.
our NEOs. •● | Strategic Objectives.During 2015, the Company achieved several milestones in connection with its overall strategy to continue to enhance shareholder returns: |
| ○ | Achieved Wealth Management pre-tax margin target of 22% in 2015(2).
| | ○ | Continued execution of U.S. Bank strategy in Wealth Management and Institutional Securities to support growthin net interest income (46% total NII growth in U.S. Bank over the prior year) and lending (31% growth in Wealth Management lending in U.S. Bank over the prior year)(3).
| | ○ | Progress toward a strategic solution for the Commodities franchise, with the sale of the Global Oil Merchantingbusiness.
| | ○ | Achievement of #1 ranking in Institutional Equities revenue market share and #1 ranking globally in Initial PublicOfferings, #2 ranking globally in Announced Mergers and Acquisitions and Global Equity(4).
| | ○ | Tailwind from lower funding costs as new debt issued at tighter spreads than maturing debt.
| | ○ | Reduction in the Institutional Securities compensation ratio excluding DVA to 37%, achieving the target of 39% orlower(5).
| | ○ | Received two-notch upgrade from Moody’s: Morgan Stanley’s long-term senior debt ratings increased from Baa2 toA3.
| | ○ | Received non-objection from the Federal Reserve Board to the 2015 Capital Plan, which included share repurchase ofup to $3.1Bn and an increase in the quarterly common stock dividend to $0.15 per share from $0.10 per share. |
| ● | Company Financial PerformancePerformance..(6)(7)Management reviewed the Company’s estimatedforecasted 2015 financial performance with the CMDS Committee in December 20122015, and the CMDS Committee assessed full-year actual financial results before finalizing compensation decisions in January 2013. Morgan Stanley’s credit spreads improved dramatically during 2012, reflecting the macroeconomic environment as well as recognition of the Company’s fortified foundation and accomplishments during the year. For example, the Company’s 10-year cash bond spread to Treasuries began the year at 470 basis points and ended the year at 210 basis points. Due to the impact of DVA, which is reported as negative revenues when improving2016. |
| ○ | Company-wide. Morgan Stanley credit spreads increase the theoretical value of the Company’s outstanding debt, the Company reported negative revenues of $4.4 billion. This resultedimproved financial performance in reported2015 over 2014. The Companyreported net revenues of $26.1$35.2 billion income from |
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| continuing operations of $.02 per diluted share and modest net income applicable to Morgan Stanley of $68 million$6.1 billion, or $2.90 per diluted common share for 2012. However, excluding2015. Excluding the impact of DVA, for 2015 revenues were $30.5$34.5 billion up 6.9% from 2011,and net income from continuing operationsapplicable to Morgan Stanley was $1.64$5.7 billion, or $2.70 per diluted sharecommon share. This compared with net revenues
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46 Morgan Stanley 2016 Proxy Statement
Table of Contents EXECUTIVE COMPENSATION
| of $34.3 billion and the Company earned net income applicable to Morgan Stanley of $3.2$ 3.5 billion, – up 74%or $1.60 per diluted common share for 2014. Excluding the impact of DVA, for 2014 revenues were $33.6 billion and net income applicable to Morgan Stanley was $3.0 billion, or $1.39 per diluted common share(16).
| | ○ | Institutional Securities. Institutional Securities reported pre-tax income of $4.7 billion in 2015, compared with pre-tax loss of $(58) million in the prior year. Excluding the impact of DVA, pre-tax income was $4.1 billion, compared with a pre-tax loss of $709 million in 2014(17). Results were driven by strong performance in its Sales and Trading businesses, partially offset by lower revenues in Investment Banking.
| | ○ | Wealth Management. Wealth Management reported pre-tax income from continuing operations of $3.3 billion compared with $3.0 billion in the prior year, and a pre-tax margin(2) of 22% compared with 20% in 2014. Higher margins reflected increased deposits and asset optimization, higher asset management fees, and expense controls.
| | ○ | Investment Management. Investment Management reported pre-tax income of $492 million in 2015 compared with$664 million in the prior year, and a pre-tax margin(2) of 21% compared with 24% in 2014. These results reflect lower investment revenues in the Merchant Banking and Real Estate Investing business. |
| ● | Individual Performance. The Committee considered the following individual contributions of the CEO and each other NEO (other than Ms. Porat, who was not eligible to receive any incentive compensation for 2015 due to her departure from the Company): |
| ○ | Mr. Gorman’s continued outstanding leadership of the Company, including: articulating and executing a Company-wide long-term strategy (with financial and non-financial goals) to enhance profitability and returns to shareholders; maintaining strong liquidity and capital positions; reducing expenses; maintaining sound risk management and controls; playing a leadership role in industry efforts to improve culture and set the tone for enhancements to existing strong culture at the Company; and continuing to strengthen the Company’s reputation among employees, research analysts, rating agencies, the media, and regulators.
| | ○ | Mr. Pruzan’s efforts with respect to strong financial controls and processes; strengthening the budget and planningprocess that is consistent with the Company’s strategic objectives; execution of an efficient liquidity and funding program that takes into account recent regulatory developments; driving successful capital management processes in accordance with evolving regulatory requirements; and working closely with global and U.S. regulators, investors, clients, counterparties, and rating agencies.
| | ○ | Mr. Fleming’s strong business results for Wealth Management, including increased profit before tax and continuedmargin improvement in accordance with the Company’s long-term strategy; continued execution of the bank strategy to enhance banking and lending services; and efforts to increase collaboration with Institutional Securities to enhance revenues.
| | ○ | Mr. Kelleher’s solid business results for Investment Banking and Equities Sales & Trading business in terms ofprofitability and revenue market share; right sizing Fixed Income and Commodities through the ongoing reduction of capital and expenses to provide for a critical and credible business for clients; completion of the exit from the physical oil business; increased collaboration with Wealth Management to enhance revenues; and continued successful management of his global role, global regulatory obligations, and client interactions across many jurisdictions.
| | ○ | Mr. Rosenthal’s role in advising the Board of Directors and Operating Committee on the Company’s strategic and costreduction initiatives; leadership of several support functions including Operations and Technology and Data; chairing of the Financial Holding Company Governance Committee that coordinates important cross-functional operational improvement and regulatory initiatives; and chairman of the Company’s U.S. bank subsidiaries with a comparative basis.focus on profitable growth and heightened governance expectations. |
Institutional Securities reported a pre-tax loss of $1.7 billion, compared with pre-tax income of $4.6 billion in 2011. Excluding the impact of DVA, the Institutional Securities Group’s pre-tax income was $2.7 billion, compared with pre-tax income of $910 million in 2011.
The Global Wealth Management Group reported pre-tax income from continuing operations of $1.6 billion compared with $1.3 billion in the prior year, and a pre-tax margin of 12% in 2012, the highest since the inception of the Wealth Management JV.
Asset Management reported pre-tax income from continuing operations of $590 million compared with $253 million in the prior year, and a pre-tax margin of 27%.
Strategic Initiatives. The Company during 2012 also passed several milestones in connection with its overall strategy to enhance shareholder returns:
Completion of the integration of the legacy Smith Barney and legacy Morgan Stanley brokerage platforms;2016 Proxy Statement 47
Significant progress in the Global Wealth Management Group’s pretax margin, including a 17% margin in the fourth quarter;
A more rapid than expected reduction of Basel III RWAs in our Fixed Income and Commodities business, from $390 billion in mid-2011 to $280 billion at year-end 2012;
Achievement of top-two ranking globally in Announced Mergers and Acquisitions, Equity underwriting, and Equities Sales and Trading wallet share;
Successful firm-wide cost reduction efforts, including reducing employee headcount from 61,546 at the beginning of 2012 to 55,529 as of January 31, 2013, reflecting reductions in force and disciplined hiring programs; and
Launch of more than 35 collaborative initiatives to increase revenues and synergies between Institutional Securities and the Global Wealth Management Group.
Contents As a result of these and other actions, Morgan Stanley entered 2013 well-positioned strategically and with strong capital and liquidity. Despite the substantial strategic progress that the Company made during 2012, overall performance was subpar, as reflected by ROE and relative TSR that were below the median of the Comparison Group. For 2012, Morgan Stanley’s ROE was 0.1% and 5.2% excluding the impact of DVA, and Morgan Stanley’s TSR was 28%. These results are reflected in the CMDS Committee’s pay decisions and in compensation outcomes.EXECUTIVE COMPENSATION
Chief Executive Officer Performance. In addition to the Company’s full-year financial results and progress against the strategic initiatives discussed above, the CMDS Committee evaluated Mr. Gorman’s efforts to deliver strong performance across the business units.
Institutional Securities: The Company continued to have top rankings in advisory and equity underwriting within Investment Banking. Equity Sales and Trading remains one of the top franchises of its kind in the industry, offering clients expertise across a broad range of products in markets all over the world. Within Fixed Income and Commodities Sales and Trading, the Company is concentrating on areas of growth, and efficient and profitable use of capital to serve clients.
Global Wealth Management Group: The acquisition of another 14% stake in the Wealth Management JV and progress toward attaining pre-tax margin goals were key accomplishments this year.
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Asset Management: This business had strong performance against investment benchmarks and increased net flows and pre-tax margin.
The CMDS Committee also assessed Mr. Gorman’s continuing efforts with respect to articulating and executing a Company-wide strategy to enhance profitability, maintaining sound risk management and controls, deepening the Company’s strategic alliance with MUFG, and promoting cultural cohesion and engagement among employees. Finally, the CMDS Committee considered Mr. Gorman’s role during the first and second quarters of 2012 in responding to an industry-wide rating review announced by a major rating agency that led to a ratings change that was better than initially proposed by the agency.
• | | Other NEO Performance.In determining the annual performance compensation of other NEOs, the CMDS Committee weighed the Company’s overall financial performance and, as applicable, business unit performance.
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Ms. Porat, Executive Vice President and Chief Financial Officer: The CMDS Committee assessed Ms. Porat’s continuous efforts with respect to maintaining strong financial controls and processes; developing and executing a prudent liquidity and funding program; driving capital management processes; and supporting strategic initiatives critical to fortifying the Company’s financial strength, including capital optimization across businesses. The CMDS Committee also considered Ms. Porat’s role in working closely with global and United States regulators, her efforts with investors and rating agencies, and her role in responding to the industry-wide rating review mentioned above.
Mr. Fleming, Executive Vice President and President of Global Wealth Management Group and Asset Management: With respect to the Global Wealth Management Group, the CMDS Committee considered Mr. Fleming’s efforts to achieve pre-tax margin goals, enhance fee-based asset flows, complete the integration of a technology platform across the Wealth Management JV and pursue collaborative initiatives with Institutional Securities to enhance revenues. With respect to Asset Management, the CMDS Committee assessed Mr. Fleming’s efforts to foster improved investment performance, increase asset flows and enhance overall profitability.
Mr. Kelleher, Executive Vice President and Co-President of Institutional Securities (2012); President of Institutional Securities (since January 2013): The CMDS Committee evaluated Mr. Kelleher’s efforts to enhance revenue share across Institutional Equities and Fixed Income and Commodities and to reduce Fixed Income Basel III RWAs to $280 billion as of the end of 2012, ahead of previously determined targets. The CMDS Committee also considered Mr. Kelleher’s efforts to position the business for regulatory rules pertaining to Basel III, derivatives reform and the Volcker Rule, among others, and to increase collaboration with the Global Wealth Management Group.
Mr. Taubman, Executive Vice President and Co-President of Institutional Securities (2012):The CMDS Committee considered that the Company continues to be the underwriter of choice for equity and initial public offerings, as evidenced by Investment Banking’s #1 rankings in Global IPOs and #2 rankings in Global Announced M&A and Global Equity. The CMDS Committee also considered the Company’s improved market share in investment grade debt underwriting and Mr. Taubman’s continuous efforts to strengthen client relationships, as well as his leadership role in the joint venture with MUFG.
IV. | 4. Compensation Decisions and Program for 2012 and Future Years |
IV.A. | Compensation Decisions |
4.1 Compensation Decisions As discussed above, despite the progress the Company achieved in executing its strategy in 2012 under Mr. Gorman’s leadership, NEO compensation for 2012 was below the levels of the prior year, reflecting the Company’s financial performance for the year. The table below shows how the CMDS Committee viewed itsCommittee’s compensation decisions for 20122015 for the NEOs, butand is not a replacement fordifferent from the SEC required disclosure required in the “2012“2015 Summary Compensation Table.”
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The table below also lists the grant date target value of the 2013-2015 LTIP awards granted to the NEOs. The LTIP awards are not considered part of annual compensation as the grant value is not a function of prior-year performance and the realizable award value is dependent entirely on prospective performance over a multiyear performance period. The LTIP award grant value for each key executive was based on multifaceted benchmarking as described above for CEO annual compensation in Section III.A under “Benchmarking of Target Annual CEO Pay.”
| | | | | | | | | | | | | | | | | | | | | | | | Mr. Gorman | | | Ms. Porat | | | Mr. Fleming | | | Mr. Kelleher | | | Mr. Taubman | | Base Salary(1) | | $ | 800,000 | | | $ | 750,000 | | | $ | 750,000 | | | $ | 776,661 | | | $ | 750,000 | | Annual Performance Award: | | | | | | | | | | | | | | | | | | | | | Current Cash Bonus | | | — | | | | — | | | | — | | | | — | | | | — | | Equity Award(2) | | $ | 2,625,000 | | | $ | 2,250,000 | | | $ | 2,425,000 | | | $ | 2,411,669 | | | $ | 2,425,000 | | MSCIP Award(3) | | $ | 2,575,000 | | | $ | 2,250,000 | | | $ | 2,425,000 | | | $ | 2,411,670 | | | $ | 2,425,000 | | 2012 Compensation Total: | | $ | 6,000,000 | | | $ | 5,250,000 | | | $ | 5,600,000 | | | $ | 5,600,000 | | | $ | 5,600,000 | | 2013-2015 LTIP Award:(4) | | $ | 3,750,000 | | | $ | 2,750,000 | | | $ | 3,000,000 | | | $ | 3,000,000 | | | $ | 3,000,000 | | | | | | | | | | | | | | | | | | | | | | | Comprehensive Pay Opportunity: | | $ | 9,750,000 | | | $ | 8,000,000 | | | $ | 8,600,000 | | | $ | 8,600,000 | | | $ | 8,600,000 | |
| Mr. Gorman | Mr. Pruzan | Mr. Fleming | Mr. Kelleher | Mr. Rosenthal | | Base Salary(a) | $ | 1,500,000 | $ | 802,740 | $ | 1,000,000 | $ | 6,305,228 | $ | 1,000,000 | | Cash Bonus(b) | $ | 4,397,500 | $ | 2,136,952 | $ | 3,347,500 | $ | 417,424 | $ | 2,497,500 | | Deferred Equity Award (RSUs)(c) | $ | 4,626,250 | $ | 1,390,702 | $ | 5,451,250 | $ | 3,158,001 | $ | 1,751,250 | | Deferred Cash-based Award(d) | $ | 4,626,250 | $ | 3,030,154 | $ | 5,451,250 | $ | 2,080,948 | $ | 3,751,250 | | 2016-2018 Performance-vested LTIP Award(e) | $ | 5,850,000 | $ | 1,639,452 | | — | $ | 3,288,399 | $ | 2,000,000 | | Total: | $ | 21,000,000 | $ | 9,000,000 | $ | 15,250,000 | $ | 15,250,000 | $ | 11,000,000 |
(1)(a) | 2012 base salaries remain unchanged from 2011.As CFO effective May 1, 2015, Mr. Kelleher’sPruzan receives base salary of $1 million. Mr. Kelleher was £490,000identified as “Code Staff” under the remuneration code of the U.K. Prudential Regulatory Authority for 2015 and, wastherefore, received base salary and fixed compensation in the form of allowances based on his specific U.K. director and officer roles and responsibilities. For Mr. Kelleher, the amount shown includes base salary of £625,000 and fixed allowances of £3.5 million (for purposes of the table, such amounts were converted to U.S. dollars using the 20122015 average of daily spot rates of £1 to $1.5850.
$1.5285). Mr. Kelleher resigned from his U.K. director and officer roles effective February 5, 2016 in connection with his appointment as President of the Company and, therefore, will receive only a prorated portion of the fixed allowances for the period January 1, 2016 to February 5, 2016. As President of the Company, Mr. Kelleher receives base salary of $1.2 million retroactive to January 1, 2016. |
| (2)(b) | Mr. Kelleher’s cash bonus was paid in British pounds sterling in the amount of £273,087 (such amount was converted from U.S. dollars using the 2015 average of daily spot rates of $1 to £0.6542). | | | (c) | Mr. Gorman received 484,827 stock options, Messrs.183,678 RSUs, Mr. Pruzan received 55,215 RSUs, Mr. Fleming and Taubman received 447,888 stock options and216,433 RSUs, Mr. Kelleher received 445,425 stock options125,383 RSUs, and Mr. Rosenthal received 69,530 RSUs (in each case, calculated using the Black-Scholes option value of $5.4143 on January 22, 2013, the grant date). The stock options have an exercise price per share of $22.98, the closing price of the Company’s common stock on the grant date, and expire on the fifth anniversary of grant. The stock options vest and become exercisable (and cancellation provisions lift) in three equal annual installments, with the exception of Mr. Taubman’s stock options, which are scheduled to vest and become exercisable upon his termination of employment (and transfer and cancellation restrictions lift in four equal installments beginning on June 1, 2013 and ending on December 15, 2014) in accordance with his separation and release agreement with the Company dated January 3, 2013 (Separation Agreement). Ms. Porat received 99,834.94 RSUs (calculated using $22.5372, the volume-weighted average price of Company common stock of $25.1867 on January 20, 2016, the grant date, January 22, 2013)date). The RSUs are scheduled to vest and convert to shares of Company common stock (and cancellation provisions lift) on January 28, 2019, except that 82,620 of Mr. Kelleher’s RSUs are scheduled to vest and convert to shares of Company common stock in three equal annual installments.installments and 42,762 of Mr. Kelleher’s RSUs are scheduled to vest and convert to shares of Company common stock in July 2016 (in each case, as prescribed by the U.K. Prudential Regulatory Authority). |
| (3)(d) | Deferred cash-based awards under the Morgan Stanley Incentive Compensation Incentive ProgramPlan (MSCIP) are scheduled to vest and distribute (and cancellation provisions lift) in four installments beginning May 2013 and ending November 2015, with the following exceptions:on January 22, 2018, except that Mr. Kelleher’s award (as prescribed by the UK Financial Services Authority) is scheduled to vest and distribute (and cancellation provisions lift) in three equal annual installments and Mr. Taubman’s award is scheduled to vest upon his termination of employment and distribute (and cancellation restrictions lift) in four installments beginning on June 1, 2013 and ending on December 15, 2014 in accordance with his Separation Agreement. (as prescribed by the U.K. Prudential Regulatory Authority). |
| (4)(e) | The target number of performance stock units underlying the LTIP award granted to Mr. Gorman is 164,139.65232,265 stock units, to Ms. PoratMr. Pruzan is 120,369.0765,091 stock units, to Mr. Kelleher is 130,560 stock units, and to Messrs. Fleming, Kelleher and TaubmanMr. Rosenthal is 131,311.7279,406 stock units (in each case, calculated using the volume-weighted average price of Company common stock of $22.8464$25.1867 on January 31, 2013,20, 2016, the grant date). Mr. Fleming did not receive an LTIP award pursuant to his separation and release agreement with the Company, described below, in light of his ceasing to be a member of our Operating Committee as of January 6, 2016. |
Ms. Porat is not included in the table above because she did not receive a bonus for 2015 or a 2016-2018 LTIP award, and only received base salary for 2015, as a result of her departure from the Company on April 30, 2015. In view of her contributions to the Company over her 28-year career, Ms. Porat was treated as retirement-eligible upon her departure for purposes of her outstanding deferred awards as described in the “Potential Payments upon Termination or Change-in-Control” section of this proxy statement. The CMDS Committee determined to increase the fixedapproved a separation and release agreement with Mr. Fleming dated January 22, 2016 that provides that his 2015 bonus compensation be comprised of the CEOelements in the table above, and other membersthat he is entitled to receive benefits as described in “Potential Payments upon Termination or Change-in-Control.” 48 Morgan Stanley 2016 Proxy Statement
Table of Contents EXECUTIVE COMPENSATION 4.2 Annual Compensation Program Elements The following chart provides a brief summary of the Operating Committee through base salary adjustments effective January 1, 2013. The 2013 base salaries are $1.5 million for Mr. Gorman, GBP 625,000 (which is intended to be approximately $1,000,000) for Mr. Kelleher and $1 million (or local currency equivalent) for each other memberprincipal elements of the Operating Committee, including Ms. Porat and Mr. Fleming. The base salary adjustments were intended to bring Operating Committee base salaries in line with the base salaries paid to executives in comparable positions at other financial institutions and to achieve appropriate balance between fixed and at-risk variable compensation. 34
IV.B. 2012 Annual Performance Compensation Program Details
Company’s 2015 annual compensation program for our NEOs. Each NEO receives a base salary which is intended to provide fixed pay based on the executive’s experience and level of responsibility, and is eligible to receive discretionary annual performance compensation for prior-year performance. Annual performance compensation is intended to reward NEOs for achievement of the Company’s financial and strategic objectives over the prior year. year and is delivered in a mix of a cash bonus, a deferred equity award, and a deferred cash-based award. The LTIP awards, which are deferred equity awards that are subject to future achievement of specified financial goals over a three-year period, are described in Section 4.3 “Long-Term Incentive Program”. | | | | | | Purpose | | Purpose | | Features | Mix of Current Cash and Deferred Awards | | Deferral supports each of the Company’s key compensation objectives described in Section II. | | NEOs received no current cash bonus (i.e., annual performance compensation paid in cash shortly following year-end (typically in February) that is not subject to vesting, cancellation, clawback or market conditions). | • Base Salary*Equity Awards – Stock Options and RSUs
| | Base salary reflects level of experience and responsibility and is intended to be competitive with salaries for comparable positions at competitors. | | Base salaries are reviewed periodically and are subject to change for, among other reasons, a change in responsibilities or the competitive environment. | Cash Bonus | | Paying a portion of compensation in cash bonus is aligned with competitive pay approaches. | | The portion of cash bonus is intended to be consistent with practice among the Comparison Group. Higher compensated employees continue to be subject to higher deferral levels. | Deferred Equity Award –
RSUs | | Equity awards link realized value to shareholder returns, and the terms of the awards support retention objectives and link realized value to shareholder returns. The terms of the awards serve to mitigate excessive risk-taking. Equity incentive compensation awards were granted in the form of stock options to the NEOs other than the CFO to maintain tax deductibility of compensation under Section 162(m) (See “Tax Deductibility” under Section III.A).risk-taking over a three-year deferral period.
| | Awards are subject to vesting and generally cancelable upon termination of employment other than by the Company without cause or by the executive with 12 months’ advance notice.
Awards are subject to cancellation for competition, cause (i.e.(i.e., any act or omission that constitutes a breach of obligation to the Company, including failure to comply with internal compliance, ethics or risk management standards, and failure or refusal to perform duties satisfactorily, including supervisory and management duties), disclosure of proprietary information, and solicitation of employees or clients. | Deferred Cash-Based Award –
MSCIP | | The terms of deferred cash-based awards support retention objectives and mitigate excessive risk-taking. The awards provide a cash incentive with a rate of return based upon notional reference investments over a two-year deferral period. | | Awards are subject to clawback if an employee’s act or omission (including with respect to direct supervisory responsibilities) causes a restatement of the Company’s consolidated financial results, constitutes a violation of the Company’s global risk management principles, policies and standards, or causes a loss of revenue associated with a position on which the employee was paid and the employee operated outside of internal control policies.* | • MSCIP Deferred Cash-Based Awards
| | Deferred cash-based awards support retention objectives and mitigate excessive risk-taking. The awards provide a cash incentive with a rate of return based upon notional reference investments. | | | | | | | Awards to Operating Committee members (including NEOs) are also subject to clawback if the CMDS Committee determines that the Operating Committee member had significant responsibility for a material adverse outcome for the Company or any of its businesses or functions.** |
| * | Mr. Taubman’s awardsKelleher was identified as “Code Staff” under the remuneration code of the U.K. Prudential Regulatory Authority for 2015 and, therefore, also received fixed compensation in the form of allowances based on his specific U.K. director and officer roles and responsibilities. Allowances are payable annually in cash and/or in shares of Company common stock at the end of the relevant year, subject to specified terms and conditions. | | | ** | In addition, as “Code Staff,” Mr. Kelleher’s cash bonus and deferred incentive compensation awarded in January 2015 in respect of 2014 performance and in January 2016 in respect of 2015 performance are subject to specified cancellationclawback and clawback provisions untilrepayment in certain circumstances for a minimum period of seven years following grant under the applicable distribution date in accordance with his Separation Agreement.Company’s Code Staff Clawback Policy. |
Morgan Stanley 2016 Proxy Statement49
Table of Contents EXECUTIVE COMPENSATION IV.C. 2013-20154.3 Long-Term Incentive Program Details
For the past three consecutive years, the Company has granted a portion of annual compensation to key executives in the form of a long-term performance award that delivers value only if the Company achieves objective performance goals. The 2016-2018 LTIP builds upon the program of the past three years and complements the Company’s existing annual performance compensation program for key executives. Like the Company’s prior multi-year performance program, the LTIP tiesawards tie a meaningful portion of each executive’sNEO’s compensation to the Company’s long-term financial performance and reinforcesreinforce the executive’sNEO’s accountability for the achievement of the Company’s future financial and strategic goals by directly linking the ultimate realizable award value to prospective performance against core financial measures over a forward-looking three-year period. However, in order to more directly align the new LTIP awards with Company performance over the long-term, the grant value of the award is not a function of individual or Company prior-year annual performance.
Award Terms. The LTIP awards will vest and convert to shares of the Company’s common stock in 2016 only if the Company achieves predetermined performance goals with respect to ROE and relative TSR, as set forth below, over the period beginning January 1, 2013 and ending December 31, 2015. While each key
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| ● | executiveGeneral Terms. The 2016-2018 LTIP awards will vest and convert to shares of the Company’s common stock at the end of the three-year performance period only if the Company achieves predetermined performance goals with respect to ROE and relative TSR, as set forth below, over the period beginning January 1, 2016 and ending December 31, 2018. While each participant was awarded a target number of performance stock units, the actual number of units earned could vary from as few as zero, if performance goals are not met, to as much as twoup to 1.5 times target, if performance goals are meaningfully exceeded. No participant will receive any portion of the LTIP award if the threshold performance goals are not met.
The LTIP awards remain subject to cancellation upon certain events until they are converted to shares of Company common stock. If, after conversion of the LTIP awards, the CMDS Committee determines that the performance certified by the CMDS Committee was based on materially inaccurate financial statements, then the shares delivered will be subject to clawback by the Company.
| | ● | Performance Goals. One-half of the target LTIP award is earned based on the Company’s average ROE over the three-year performance period (MS Average ROE). The other half of the target LTIP award is earned based on the Company’s TSR over the three-year period (MS TSR) relative to the TSR of the S&P 500 Financials Index over the three-year period (Index Group TSR). The number of stock units ultimately earned will be determined by multiplying each half of the target award by a multiplier as follows: |
The LTIP awards remain subject to cancellation upon certain events until conversion to shares of Company common stock. If, after conversion of the LTIP awards, the CMDS Committee determines that the performance certified by the CMDS Committee was based on materially inaccurate financial statements, then the shares delivered will be subject to clawback by the Company.
Performance Goals. One-half of the target LTIP award is earned based on the Company’s average ROE over the three-year performance period. The other half of the target LTIP award is earned based on the Company’s TSR over the three-year period (MS TSR) relative to the TSR of the S&P 500 Financials Index over the three-year period (Index Group TSR). The number of stock units ultimately earned will be determined by multiplying each half of the target award by a multiplier as follows:
| MS Average ROE* | | Multiplier | | Relative TSR** | | Multiplier | | 11.5% or more | | 1.50 | | 25% or more | | 1.50 | | 10% | | 1.00 | | 0% | | 1.00 | | 5% | | 0.50 | | -50% | | 0.50 | | Less than 5% | | 0.00 | | Less than -50% | | 0.00 |
| | | | | | | | | | MS Average ROE* | | Multiplier | | | | Relative TSR** | | Multiplier | 13% or more | | 2.00 | | | | 50% or more | | 2.00 | 10% | | 1.00 | | | | 0% | | 1.00 | 5% | | 0.50 | | | | -50% | | 0.50 | Less than 5% | | 0.00 | | | | Less than -50% | | 0.00 |
| * | MS Average ROE, for this purpose, excludes (a) the impact of DVA, (b) certain gains or losses associated with the sale of specified businesses, (c) specified goodwill impairments, (d) certain gains or losses associated with specified legal settlements relating to business activities conducted prior to January 1, 2011, and (e) specified cumulative catch-up adjustments resulting from changes in, or application of a new, accounting rule that are not applied on a full retrospective basis. If MS Average ROE is between two of the thresholds noted in the table, the number of stock units earned will be determined by straight-line interpolation between the two thresholds. ROE, for this purpose, excludes (a) the impact of DVA, (b) gains or losses associated with the sale of specified businesses, (c) specified goodwill impairments, (d) any gain or loss, including accruals, associated with specified legal settlements relating to business activities conducted prior to January 1, 2011, and (e) specified cumulative catch-up adjustments resulting from changes in accounting principles that are not applied on a full retrospective basis. | | |
| ** | Relative TSR will beis determined by subtracting the Index Group TSR from the MS TSR. In no event mayTSR; however, if performance for the period is negative, the multiplier may not exceed 1.50 if MS TSR for the performance period is negative.1.00. If Relative TSR is between two of the thresholds noted in the table, the number of stock units earned will be determined by straight-line interpolation between the two thresholds. | |
As described in further detail in note 2 to the “2015 Grants of Plan-Based Awards Table,” each of our NEOs (including Ms. Porat, but excluding Mr. Pruzan) received an LTIP award in 2015 on similar terms as described above. Additionally, as described in note 3 to the “2015 Option Exercises and Stock Vested Table,” LTIP awards granted in 2013 vested at 134.77% of target, based on performance over the three-year performance period ended December 31, 2015. IV.D.4.4 Additional Compensation and Benefits Details.Information
| ● | Clawback Policies and Procedures. The Company’s independent control functions (the Internal Audit, Legal, Risk, Human Resources and Finance departments) take part in a formalized review process for identifying and evaluating situations occurring throughout the course of the year that could require clawback or cancellation of previously awarded compensation, as well as downward adjustments to current year compensation. Clawbacks of previously awarded compensation are reviewed quarterly with a committee of senior management (currently the Chief Legal Officer, CRO, Chief Human Resources Officer, COO, and Chief Compliance Officer) and reported to the CMDS Committee. In addition, the Global Incentive Compensation Discretion Policy, which was adopted by the CMDS Committee in 2011, sets forth standards for managers on the use of discretion when making annual compensation decisions and considerations for assessing risk management and outcomes. |
50Morgan Stanley 2016 Proxy Statement
Health and Insurance Benefits. All NEOs are eligible to participate in Company-sponsored health and insurance benefit programs available in the relevant jurisdiction, except that Mr. Kelleher participates in the international medical plan available to expatriates rather than the U.K. medical plan. In the U.S., higher-paid employees pay more to participate in the Company’s medical plan.
Personal Benefits. The Company provides limited personal benefits to certainTable of the NEOs for competitive reasons. The Company’s Board-approved policy authorizes the CEO to use the Company’s aircraft. For personal travel, Mr. Gorman entered into an aircraftContents
EXECUTIVE COMPENSATION | ● | No Severance or Change-in-Control Tax Gross-Up Protection.NEOs are not contractually entitled to cash severance payments upon termination of employment or to any golden parachute excise tax protection upon a change-in-control of Morgan Stanley.
| | ● | Health and Insurance Benefits.All NEOs are eligible to participate in Company-sponsored health and insurance benefit programs available in the relevant jurisdiction to similarly-situated employees. In the U.S., higher compensated employees pay more to participate in the Company’s medical plan. NEOs are also eligible to participate in Morgan Stanley’s Executive Health Program, under which each NEO is eligible to receive Company-funded access to a private primary care physician offering on-call services and an annual executive health care assessment. Upon retirement, NEOs are eligible for Company-paid retiree medical coverage for themselves and eligible dependents following any termination of employment.
| | ● | Pension and Retirement.Company-provided retirement benefits in the U.S. include a tax-qualified 401(k) plan(401(k) Plan) and a frozen tax-qualified pension plan (the Employees Retirement Plan (ERP)). Certain NEOs may also be eligible to participate in the Company’s frozen Supplemental Executive Retirement and Excess Plan (SEREP). The SEREP, which was originally intended to compensate for the limitations imposed under the ERP and Internal Revenue Code, was amended in 2014 to cease further benefit accruals. No NEO is awarded with credited service in excess of his/her actual service under the ERP or the SEREP.
| | ● | Personal Benefits.The Company provides personal benefits to certain of the NEOs for competitive and security reasons. The Company’s Board-approved policy authorizes the CEO to use the Company’s aircraft. As of January 1, 2010, Mr. Gorman entered into a time-share agreement with the Company as of January 1, 2010 and, since entering into such agreement, has fully reimbursed the Company for the incremental cost of his personal use of the Company’s aircraft. Personal benefits provided to NEOs are discussed under the “2012 Summary Compensation Table.” Pension and Retirement. Company-provided retirement benefits in the U.S. include a tax-qualified 401(k) plan and a frozen pension plan (the Employees Retirement Plan (ERP)) for eligible employees hired before July 1, 2007. Effective after December 31, 2010, no further benefit accruals will occur under the ERP. NEOs may also be eligible to participate in the Company’s global Supplemental Executive Retirement and Excess Plan (SEREP). The SEREP was originally intended to compensate for the limitations imposed by the Internal Revenue Code on qualified pension plan benefits and eligible pay. When it was determined that SEREP benefits were no longer needed to remain competitive, the SEREP was generally closed to new participants. In view of his 27 years of service with the Company and in accordance with his Separation Agreement, Mr. Taubman will receive his accrued benefit through his employment end date under the
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| SEREP, in accordance with the termsCompany permitting him to reimburse the Company for the incremental cost of his personal use of the SEREP, determined as if he were eligible for early retirement. Company contributionsaircraft. On February 25, 2016, the CMDS Committee approved that Mr. Kelleher, in connection with his relocation from the U.K. to savings plans forthe U.S., would receive standard relocation benefits and continuation of his housing allowance. Personal benefits provided to NEOs are discloseddiscussed in further detail under the “2012“2015 Summary Compensation Table.” Pension arrangements for NEOs are described under
| | ● | Share Usage.Morgan Stanley pays a significant portion of incentive compensation as deferred equity awards, which aligns the “2012 Pension Benefits Table.”interests of the Company’s employees with those of its shareholders. The Company strives to maximize employee and shareholder alignment through the use of deferred equity awards, while minimizing dilution. Since 2009, the Company has requested approval of a number of additional shares that we anticipate will be sufficient to cover only one year of grant needs. The Company has evaluated, as it does annually, whether to return to shareholders to request approval of additional shares at the 2016 annual meeting of shareholders and has determined to request 20 million shares to cover one year of grant needs – this is less than the 59 million shares the Company repurchased in 2015. |
Severance. NEOs are not contractually entitled to cash severance payments upon termination of employment. Upon retirement, NEOs may be eligible to participate in retiree medical coverage under the Morgan Stanley Medical Plan on the same basis as other retired employees.
V. | 5. Notes to the Compensation Discussion and Analysis |
The following notes are an integral part of the Company’s financial and operating performance described in this CD&A: A detailed analysis of the Company’s financial and operational performance for 2012 is contained in the Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the 2012 Form 10-K.
TSR is the change in share price over a period of time plus the dividends paid during such period, expressed as a percentage of the share price at the beginning of such period.
DVA represents the change in fair value of certain of the Company’s long-term and short-term borrowings outstanding resulting from the fluctuation in the Company’s credit spreads and other credit factors.
Pre-tax profit margin and results excluding DVA are non-GAAP financial measures that the Company considers useful measures for the Company and investors to assess operating performance and capital adequacy. For further information regarding these measures, please see pages 54-56 and 68 of the 2012 Form 10-K.
The Company calculates its Basel I RWAs and Tier 1 Common Ratio in accordance with the capital adequacy standards for financial holding companies adopted by the Federal Reserve Board. For further information regarding these measures, please see pages 101-106 of the 2012 Form 10-K.
The Company estimates its Basel III RWAs based on a preliminary analysis of Basel III guidelines published to date and other factors. This is a preliminary estimate and subject to change.
The Company’s capital markets rankings are reported by Thomson Reuters as of January 18, 2013 for the period of January 1, 2012 to December 31, 2012. Equity Sales and Trading wallet
| (1) | U.S. Bank refers to the Company’s U.S. Bank operating subsidiaries Morgan Stanley Bank, N.A. and Morgan Stanley Private Bank, National Association, and excludes transactions with affiliated entities. | | | (2) | Pre-tax margin is calculated as income (loss) from continuing operations before taxes as a percentage of net revenues. Pre-tax margin is a non- GAAP financial measure that the Company considers useful for investors to assess operating performance. | | | (3) | Net interest income (NII) growth in U.S. Bank represents the total year-over-year NII percentage increase for the Company’s U.S. Bank operating subsidiaries. The increase in Wealth Management lending reflects the year-over-year growth in securities-based, tailored, and residential real estate loans conducted through the U.S. Bank. | | | (4) | Institutional Equities revenue market share is based on the sum of the reported net revenues for the equity sales and trading businesses of Morgan Stanley and the companies within the Comparison Group (excluding Wells Fargo & Company); where applicable, the reported net revenues exclude DVA. Equity sales and trading net revenues, ex-DVA is a non-GAAP financial measure that the Company considers useful for investors to allow better comparability of period to period operating performance. The Company’s capital markets rankings are reported by Thomson Reuters as of January 4, 2016 for the period of January 1, 2015 to December 31, 2015. | | | (5) | Institutional Securities compensation ratios, ex-DVA of 37% and 48% for 2015 and 2014, respectively, represent the segment’s compensation and benefits expense (2015: $6,467 million; 2014: $7,786 million) as a percentage of net revenues, ex-DVA (2015: $17,335 million, excluding the positive impact of $618 million from DVA; 2014: $16,220 million, excluding the positive impact of $651 million from DVA). The 2014 compensation ratio of 42% also excludes $904 million of compensation and benefits expense associated with the 2014 compensation actions. For further information regarding the incentive compensation actions taken in 2014, see pages 68 and 69 of the 2015 Form 10-K. The Institutional Securities compensation ratio, ex-DVA and the impact of the 2014 compensation actions, are non-GAAP financial measures the Company considers useful for investors to assess operating performance. |
Morgan Stanley and the companies within the Comparison Group, excluding Wells Fargo & Company; where applicable, the reported revenues exclude DVA.2016 Proxy Statement51
Table of Contents EXECUTIVE COMPENSATION | (6) | A detailed analysis of the Company’s financial and operational performance for 2015 is contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the 2015 Form 10-K. | | | (7) | Information provided in this CD&A may include certain non-GAAP financial measures. The definition of such financial measures and/or the reconciliation of such measures to the comparable GAAP figures is included in either the 2015 Form 10-K or herein. | | | (8) | DVA represents the change in fair value of certain of the Company’s long-term and short-term borrowings outstanding resulting from the fluctuation in the Company’s credit spreads and other credit factors. The Company believes that most investors assess its operating performance exclusive of DVA. | | | (9) | Net revenues and pre-tax profit exclude the impact of DVA for each of the years presented. Positive (negative) revenues from DVA were: $618 million in 2015; $651 million in 2014; ($681) million in 2013; ($4,402) million in 2012; and $3,681 million in 2011. Net revenues and pre-tax profit, ex-DVA are non-GAAP financial measures that the Company considers useful for investors to assess operating performance. |
| | (10) | Pre-tax profit in 2014 includes litigation costs related to residential mortgage-backed securities and credit crisis matters of $3,083 million, 2014 compensation actions of approximately $1,137 million, and a funding valuation adjustment implementation charge of $468 million. For further information regarding these items, see page 39 of the 2015 Form 10-K. | | | (11) | The calculation of ROE uses net income from continuing operations applicable to Morgan Stanley less preferred dividends as a percentage of average common equity. To determine ROE, ex-DVA both the numerator and denominator were adjusted to exclude the impacts of DVA. ROE and ROE, ex-DVA are non-GAAP financial measures that the Company considers useful for investors to assess operating performance. | | | (12) | ROE, ex-DVA is one of the measures the CMDS Committee utilizes to evaluate the Company’s financial performance. The 2015 ROE, ex-DVA of 8.0% differs from the operating ROE, ex-DVA measure of 7.0% referred to by the Company in the 2016 Strategic Update included as Exhibit 99.3 to the Company’s Current Report on Form 8-K dated January 19, 2016. The calculation of operating ROE excludes the impacts of DVA and net discrete tax benefits recognized by the Company in both the numerator and denominator. The impact of net discrete tax benefits on ROE, ex-DVA was: 0.8% in 2015; 3.3% in 2014; 0.6% in 2013; 0.2% in 2012; and 0.8% in 2011. | | | (13) | ROE, ex-DVA in 2014 includes the after tax impact of the costs and charges discussed in note (10) and net discrete tax benefits of $2,226 million. For further information regarding these items, see pages 39 and 40 of the 2015 Form 10-K. | | | (14) | TSR represents the change in share price over a period of time plus the dividends paid during such period, expressed as a percentage of the share price at the beginning of such period. | | | (15) | Over the 2013 to 2015 period, Mr. Gorman’s realizable pay increased only slightly at approximately 1% compared to his pay as reported in the Summary Compensation Table for the relevant years, and the Company’s three-year total TSR for the same period is 72%. Realizable pay for this period was $59.3 million, while Summary Compensation Table compensation for this period was $58.5 million. Realizable pay reflects the current value of the sum of base salary, cash bonus, stock awards and option awards disclosed in the 2013, 2014, and 2015 proxy statements. For purposes of this calculation, equity awards were valued using the closing price of Morgan Stanley common stock on December 31, 2015, option awards were valued based on intrinsic value and performance-vested awards were valued based on performance at target. | | | (16) | Company net revenues, ex-DVA, net income applicable to Morgan Stanley, ex-DVA, and earnings per diluted common share, ex-DVA, are non- GAAP financial measures that the Company considers useful measures for investors to assess operating performance. For further information regarding these measures, see pages 42 and 43 of the 2015 Form 10-K. | | | (17) | Institutional Securities pre-tax profit, ex-DVA excludes positive revenues from DVA of $618 million and $651 million in 2015 and 2014, respectively. Pre-tax profit, ex-DVA is a non-GAAP financial measure that the Company considers useful for investors to assess operating performance. |
Compensation, Management Development and Succession Committee Report We, the Compensation, Management Development and Succession Committee of the Board of Directors of Morgan Stanley, have reviewed and discussed with management the Compensation Discussion and Analysis contained in this proxy statement. Based on such review and discussions, we have recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into the Company’s Annual Report on Form 10-K for the year ended December 31, 20122015 filed with the SEC. Respectfully submitted, Erskine B. Bowles, Chair
C. Robert Kidder
Donald T. Nicolaisen
Hutham S. Olayan, ChairErskine B. BowlesKlaus KleinfeldJames W. Owens52Morgan Stanley 2016 Proxy Statement
Table of Contents 37EXECUTIVE COMPENSATION
2012 Summary Compensation TableEXECUTIVE COMPENSATION TABLES
The following table summarizestables summarize the compensation of our named executive officersNEOs (including for this purpose, our former CFO, Ms. Porat) in the format specified by the SEC. Our NEOs are our Chief Executive Officer, Chief Financial Officer and the three other most highly compensated executive officers as determined by their total compensation for the year ended December 31, 2012 set forth in the table below, excluding, in accordance with SEC rules, the amount in the column captioned “Change in Pension Value and Nonqualified Deferred Compensation Earnings.” | 2015 Summary Compensation Table |
Pursuant to SEC rules, the following table is required to include for a particular year only those stock awards and option awards grantedduring the year, rather than awards grantedafter year-end that were awarded for performance in that year. Through 2012,2015, our year-endannual equity awards relating to performance in a year are made shortly after year-end. Therefore, compensation in the table includes not only non-equity compensation earnedawarded for services in the applicable year but, in the case of stock awards and option awards compensation earned for performance in prior years but granted in the years reported in the table.table, compensation awarded for performance in prior years and forward-looking performance-vested compensation. A summary of the CMDS Committee’s decisions on the compensation awarded to our NEOs for 20122015 performance (which, in accordance with SEC rules, are in large part not reflected in the Summary Compensation Table) can be found in the CD&A. The table also does not include the forward-looking 2013-2015 LTIP awards that were granted in January 2013. | | Name and
Principal Position | | Year | | Salary
($)(1) | | Bonus
($)(1)(2) | | Stock
Awards
($)(3)(4) | | Option
Awards
($) | | Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)(5) | | All Other
Compensation
($)(6) | | Total
($) | | | James P. Gorman
Chairman and
Chief Executive Officer | | 2015 | | 1,500,000 | | 9,023,750 | | 11,250,320 | | — | | 149,572 | | 192,410 | | 22,116,052 | | | | 2014 | | 1,500,000 | | 10,077,325 | | 11,241,190 | | — | | 195,398 | | 256,131 | | 23,270,044 | | | | 2013 | | 1,500,000 | | 5,408,000 | | 4,349,344 | | 2,624,999 | | 497,893 | | 28,327 | | 14,408,563 | | | Jonathan Pruzan*
Executive Vice President
and Chief Financial Officer | | 2015 | | 802,740 | | 5,167,106 | | 3,472,275 | | — | | 13,864 | | 10,600 | | 9,466,585 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ruth Porat*
Former Executive Vice
President and
Chief Financial Officer | | 2015 | | 333,333 | | — | | 6,295,262 | | — | | 60,322 | | 53,390 | | 6,742,307 | | | | 2014 | | 1,000,000 | | 5,901,325 | | 7,476,460 | | — | | 388,313 | | 16,746 | | 14,782,844 | | | | 2013 | | 1,000,000 | | 3,623,000 | | 5,439,519 | | — | | 25,307 | | 16,103 | | 10,103,929 | | | Gregory J. Fleming*
Executive Vice President
and President of Wealth
Management | | 2015 | | 1,000,000 | | 8,798,750 | | 7,948,629 | | — | | — | | 20,956 | | 17,768,335 | | | | 2014 | | 1,000,000 | | 7,293,325 | | 9,147,181 | | — | | — | | — | | 17,440,506 | | | | 2013 | | 1,000,000 | | 4,473,000 | | 3,479,475 | | 2,425,000 | | — | | — | | 11,377,475 | | | Colm Kelleher*
Executive Vice President
and President of
Institutional Securities | | 2015 | | 6,305,228 | (7) | 2,498,372 | (8) | 8,621,073 | | — | | 353,568 | | 272,750 | | 18,050,991 | | | | 2014 | | 6,795,386 | | 2,825,495 | | 9,348,854 | | — | | 735,935 | | 317,127 | | 20,022,797 | | | | 2013 | | 978,102 | | 4,293,225 | | 3,479,475 | | 2,411,665 | | 792,321 | | 385,313 | | 12,340,101 | | | James A. Rosenthal
Executive Vice President
and Chief Operating Officer | | 2015 | | 1,000,000 | | 6,248,750 | | 5,468,579 | | — | | — | | 32,252 | | 12,749,581 | | | | 2014 | | 1,000,000 | | 5,205,325 | | 6,474,027 | | — | | 12,384 | | 10,400 | | 12,702,136 | | | | 2013 | | 1,000,000 | | 3,113,000 | | 3,189,519 | | 2,024,997 | | — | | 10,200 | | 9,337,716 | |
| * | Mr. Pruzan was elected CFO effective May 1, 2015, following Ms. Porat’s departure from the Company on April 30, 2015. Effective January 6, 2016, Mr. Kelleher was elected President of Morgan Stanley and Mr. Fleming ceased to be one of our Executive Vice Presidents and our President of Wealth Management. |
Morgan Stanley 2016 Proxy Statement53 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name and Principal
Position | | Year(1) | | | Salary ($)(2) | | | Bonus ($)(3) | | | Stock Awards ($)(4)(5) | | | Option Awards ($)(5) | | | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(6) | | | All Other Compensation ($)(7) | | | Total ($) | | | James P. Gorman | | | 2012 | | | | 800,000 | | | | 2,575,000 | | | | 6,984,208 | | | | — | | | | 292,454 | | | | 20,552 | | | | 10,672,214 | | | Chairman and | | | 2011 | | | | 800,000 | | | | 2,716,011 | | | | 5,942,777 | | | | 3,499,996 | | | | 13,272 | | | | 9,800 | | | | 12,981,856 | | | Chief Executive Officer | | | 2010 | | | | 800,000 | | | | 3,880,000 | | | | 10,167,949 | | | | — | | | | 331,688 | | | | 6,100 | | | | 15,185,737 | | | Ruth Porat | | | 2012 | | | | 750,000 | | | | 2,250,000 | | | | 4,800,178 | | | | — | | | | 278,030 | | | | 15,497 | | | | 8,093,705 | | Executive Vice President and Chief Financial Officer | |
| 2011
2010 |
| |
| 750,000
750,000 |
| |
| 3,200,003
3,700,000 |
| |
| 5,667,083
6,911,340 |
| |
| 1,499,993
— |
| |
| 265,285
342,985 |
| |
| 14,927
6,100 |
| |
| 11,397,291
11,710,425 |
| | Gregory J. Fleming | | | 2012 | | | | 750,000 | | | | 2,425,000 | | | | 5,100,174 | | | | — | | | | — | | | | — | | | | 8,275,174 | | Executive Vice President and President of Global Wealth Management Group and Asset Management | |
| 2011
2010 |
| |
| 750,000
673,558 |
| |
| 3,400,018
3,500,000 |
| |
| 5,360,760
9,000,000 |
| |
| 499,992
— |
| |
| —
— |
| |
| —
75,000 |
| |
| 10,010,770
13,248,558 |
| | Colm Kelleher* | | | 2012 | | | | 776,661 | (8) | | | 2,411,670 | | | | 4,232,218 | | | | — | | | | 576,399 | | | | 279,045 | | | | 8,275,993 | | Executive Vice President and Co-President of Institutional Securities | |
| 2011
2010 |
| |
| 785,910
757,316 |
| |
| 4,232,063
4,097,074 |
| |
| 6,275,274
6,737,046 |
| |
| 1,499,993
— |
| |
| 257,217
539,527 |
| |
| 754,852
1,231,667 |
| |
| 13,805,309
13,362,630 |
| | Paul J. Taubman | | | 2012 | | | | 750,000 | | | | 2,425,000 | | | | 5,100,174 | | | | — | | | | 1,636,703 | | | | 13,575 | | | | 9,925,452 | | Executive Vice President and Co-President of Institutional Securities | | | 2011 | | | | 750,000 | | | | 3,400,018 | | | | 6,279,760 | | | | 1,499,993 | | | | 686,726 | | | | 13,116 | | | | 12,629,613 | |
Table of Contents * Effective January 1, 2013, Mr. Kelleher became President of Institutional Securities.EXECUTIVE COMPENSATION
(1)For Mr. Taubman, compensation is not shown for 2010 because he was not a NEO in 2010.
(2)Includes elective deferrals to the Company’s employee benefit plans.
(3) The NEOs received no immediately payable cash bonus for 2012. For 2012, represents deferred cash amounts awarded in January 2013 under MSCIP for performance in 2012. With the exception of Messrs. Kelleher’s and Taubman’s awards, the 2012 MSCIP awards are scheduled to vest and be distributed 25% on May 31, 2013, one-third of the remaining balance on November 30, 2013, 50% of the remaining balance on November 30, 2014, and the remaining balance on November 30,
| (1) | Includes any elective deferrals to the Company’s employee benefit plans. | | | (2) | For 2015, includes 2015 annual cash bonus paid in February 2016 and awards granted in January 2016 under MSCIP for performance in 2015: |
| | Name | | 2015 Cash Bonus
($) | | 2015 MSCIP Award
($) | | Total
($) | | | James P. Gorman | | 4,397,500 | | 4,626,250 | | 9,023,750 | | | Jonathan Pruzan | | 2,136,952 | | 3,030,154 | | 5,167,106 | | | Ruth Porat | | — | | — | | — | | | Gregory J. Fleming | | 3,347,500 | | 5,451,250 | | 8,798,750 | | | Colm Kelleher | | 417,424 | | 2,080,948 | | 2,498,372 | | | James A. Rosenthal | | 2,497,500 | | 3,751,250 | | 6,248,750 | |
| With the exception of Mr. Kelleher’s award, the 2015 MSCIP awards are scheduled to vest and be distributed on January 22, 2018. Mr. Kelleher’s 2015 MSCIP award is scheduled to vest and be distributed according to the following schedule as prescribed by the U.K. Prudential Regulatory Authority: 1/3 on January 23, 2017, 1/2 of remaining balance on January 22, 2018, and the remaining balance on January 28, 2019. MSCIP awards are subject to cancellation and clawback. For further details on 2015 MSCIP awards, see the CD&A. | | | (3) | For 2015, consists of RSUs granted on January 21, 2015 for performance in 2014 and forward-looking 2015 LTIP awards granted on January 21, 2015, the realizable value of which is dependent entirely on the satisfaction of predetemined performance goals over a three-year performance period. For further details on 2014 RSUs and 2015 LTIP awards, see “2015 Grants of Plan-Based Awards Table.” | | | (4) | Represents aggregate grant date fair value of awards granted during the applicable period for service during the prior year, as well as forward-looking performance-based compensation, determined in accordance with the applicable accounting guidance for equity-based awards. | | | The following table lists the aggregate grant date fair value of stock unit awards granted to the NEOs during 2015. Mr. Kelleher’s 2012 MSCIP award is scheduled to vest and be distributed according to the following schedule: one-third on January 27, 2014, 50% of the remaining balance on January 26, 2015 and the remaining balance on January 25, 2016. Mr. Taubman’s 2012 MSCIP award is scheduled to vest upon his termination of employment and be distributed in four installments on June 1, 2013,38
December 15, 2013, June 1, 2014 and December 15, 2014 in accordance with his Separation Agreement. 2012 MSCIP awards are subject to cancellation and clawback. For further details on MSCIP awards, see the CD&A.
(4) For 2012, consists of RSUs granted on January 20, 2012 for performance in 2011 and PSUs granted on January 20, 2012 for performance in 2011 that are subject to satisfaction of predetermined performance goals over a three-year performance period (2012-2014).
(5)Represents aggregate grant date fair value of awards granted during the applicable period determined in accordance with the applicable accounting guidance for equity-based awards. Therefore, values disclosed in the table include the values of awards granted during the applicable period for the prior year’s service. NEOs do not realize the value of equity-based awards until the awards are settled or exercised. The actual value that a NEO will realize from these awards is determined by future Company performance and share price, and may be higher or lower than the amounts indicated in the table.
The following table lists the aggregate grant date fair value of stock unit awards granted to the NEOs during 2012. The aggregate grant date fair value of RSUs included in the table is based on the volume-weighted average price of the common stock on the grant date, and the aggregate grant date fair value of 2015 LTIP awards included in the table is based on the volume-weighted average price of the common stock on the grant date and the probable outcome of the performance conditions as of the grant date, in each case, as determined in accordance with applicable accounting guidance for equity-based awards. The value of the 2015 LTIP awards on the grant date, assuming that the highest level of performance conditions will be achieved, is $9,750,000 for Mr. Gorman; $5,850,000 for Ms. Porat; $7,200,000 for Messrs. Fleming and Kelleher; and $5,175,000 for Mr. Rosenthal.
|
| | | Stock Unit Awards Granted During 2015 ($) | | | | Name | | 2014 RSUs | | 2015 LTIP Awards | | Total | | | James P. Gorman | | 4,422,675 | | 6,827,645 | | 11,250,320 | | | Jonathan Pruzan | | 3,472,275 | | — | | 3,472,275 | | | Ruth Porat | | 2,198,675 | | 4,096,587 | | 6,295,262 | | | Gregory J. Fleming | | 2,906,675 | | 5,041,954 | | 7,948,629 | | | Colm Kelleher | | 3,579,119 | | 5,041,954 | | 8,621,073 | | | James A. Rosenthal | | 1,844,675 | | 3,623,904 | | 5,468,579 | |
For further information on the valuation of the Company’s RSU and LTIP awards, see notes 2and 18to the consolidated financial statements included in the table is based on the volume-weighted average price2015 Form 10-K. 54Morgan Stanley 2016 Proxy Statement
Table of the common stock on the grant date, as determined in accordance with applicable accounting guidance for equity-based awards. The aggregate grant date fair value of PSUs included in the table is based on the probable outcome of the performance conditions as of the grant date, consistent with the estimate of aggregate compensation cost to be recognized over the service period determined as of the grant date under the applicable accounting guidance for equity-based awards. The value of the PSUs on the grant date based on the volume-weighted average price of the common stock on the grant date and assuming that the highest level of performance conditions will be achieved is $2,910,000 for Mr. Gorman; $2,400,000 for Ms. Porat; $2,550,000 for Mr. Fleming; $2,539,227 for Mr. Kelleher; and $2,550,000 for Mr. Taubman.Contents EXECUTIVE COMPENSATION | | | | | | | | | | Stock Unit Awards Granted During 2012 for Performance in 2011 ($) | Name | | RSUs | | PSUs | | Total | James P. Gorman | | 5,043,989 | | 1,940,219 | | 6,984,208 | Ruth Porat | | 3,199,997 | | 1,600,181 | | 4,800,178 | Gregory J. Fleming | | 3,399,982 | | 1,700,192 | | 5,100,174 | Colm Kelleher | | 2,539,209 | | 1,693,009 | | 4,232,218 | Paul J. Taubman | | 3,399,982 | | 1,700,192 | | 5,100,174 |
(6) The following table lists the change in pension value and the amount of any above-market earnings on nonqualified deferred compensation plans for the NEOs for 2012.
| | | | | | | | Name | | 2012 Change in Pension Value ($)(a) | | 2012 Above-Market Earnings on Nonqualified Deferred Compensation ($)(b) | | Total ($) | James P. Gorman | | 10,444 | | 282,010 | | 292,454 | Ruth Porat | | 270,536 | | 7,494 | | 278,030 | Gregory J. Fleming | | — | | — | | — | Colm Kelleher | | 141,915 | | 434,484 | | 576,399 | Paul J. Taubman | | 920,410 | | 716,293 | | 1,636,703 |
| (5) | The following table lists the change in pension value and the amount of any above-market earnings on nonqualified deferred compensation plans for the NEOs for 2015. Negative amounts included below are reflected as zero in the “2015 Summary Compensation Table”. |
| | | Name | | 2015
Change in
Pension Value
($)(a) | | 2015 Above-Market
Earnings on
Nonqualified
Deferred
Compensation
($)(b) | | | | James P. Gorman | | (3,737) | | 149,572 | | | | Jonathan Pruzan | | (16,640) | | 13,864 | | | | Ruth Porat | | 48,162 | | 12,160 | | | | Gregory J. Fleming | | — | | — | | | | Colm Kelleher | | 108,935 | | 244,633 | | | | James A. Rosenthal | | — | | — | |
| (a) | The “2012“2015 Change in Pension Value” equals the aggregate increase from December 31, 20112014 to December 31, 20122015 in the actuarially determined present value of the accumulated benefit under the Company-sponsored defined benefit pension plans during the measurement period. NEOsMr. Gorman and Mr. Pruzan experienced an increasea decrease in the present value of their accumulated benefits from December 31, 20112014 to December 31, 20122015 primarily due to a decreasean increase in the discount rates described below and in the caseplans’ adoption of a new mortality table. The present value of Ms. Porat’s benefit increased because she commenced her benefit during 2015 prior to age 60, receiving early retirement subsidies. The value of Mr. Taubman, changesKelleher’s benefit increased due to a decrease in final average salaryinterest rates and the effectapplicable exchange rate. The present values at December 31, 2015 are based on the RP-2014 mortality tables rolled back to 2006 with projection Scale RP-2014 and then projected generationally with Scale MP-2015 and discount rates of an additional year of credited service in4.49% for the ERP and 4.20% for the SEREP. The present values at December 31, 20122014 are based on Pension Protection Act (PPA) |
39
| generational annuitantRP-2014 mortality tables projected generationally with Scale MP-2014 and discount rates of 4.08%4.07% for the ERP, 3.75%3.83% for the Excess Plan component and 3.65%3.80% for the SERP component of the SEREP. The present values at December 31, 2011 are based on Pension Protection Act (PPA) generational annuitant mortality tables and discount rates of 4.65% for the ERP, 4.66% for the ExcessSupplemental Executive Retirement Plan component and 4.54% for the SERP(SERP) component of the SEREP. Present values are determined using an interest-only discount before retirement. Post-retirement discounts are based on interest and mortality. For each plan, the assumed benefit commencement date is the earliest age at which the NEO can receive unreduced benefits under that plan or current age, if greater. Mr. Fleming does not have a value shown because he is not eligible for any of the Company-sponsored defined benefit plans.
|
| | | (b) | The “Above-Market Earnings on Nonqualified Deferred Compensation” for 2012 equals the aggregate increase, if any, in the value of the NEOs’ accounts under the Company’s nonqualified deferred compensation plans at December 31, 2012 (without giving effect to any distributions made during 2012) from December 31, 2011 that are attributable to above-market earnings. Such amounts do not reflect the overall performance of the NEOs’ accounts since the grant date of the applicable award, which in some cases may reflect a loss. Above-market earnings representRepresents the difference between market interest rates determined pursuant to SEC rules and the earnings credited on deferred compensation.
|
(7)The “All Other Compensation” column for 2012 includes (a) contributions made by the Company under our defined contribution plans with respect to such period and (b) perquisites and other personal benefits, as detailed below. Perquisites are valued based on the aggregate incremental cost to the Company. Any of the perquisites and other personal benefits listed below but not separately quantified do not individually exceed the greater of $25,000 or 10% of the total amount of all perquisites received by the NEO. In addition, our NEOs may participate on the same terms and conditions as other investors in investment funds that we may form and manage primarily for client investment, except that we may waive or lower applicable fees and charges for our employees.
| | | (6) | The “All Other Compensation” column for 2015 includes (a) contributions made by the Company under our defined contribution plans with respect to such period and (b) the incremental cost to the Company of perquisites and other personal benefits, as detailed below. In addition, our NEOs may participate on the same terms and conditions as other investors in investment funds that we may form and manage primarily for client investment, except that we may waive or lower applicable fees and charges for our employees. | | | (a) | Mr.Messrs. Gorman, Pruzan and Rosenthal and Ms. Porat and Mr. Taubman, each received a matching contribution in the Company’s 401(k) Plan (401(k) Plan) for 20122015 of $10,000.$10,600. Ms. Porat and Mr. Taubman each received a pension transition contribution in the 401(k) Plan for 20122015 of $5,497$6,845.
| | | (b) | Mr. Gorman’s amount includes $153,588 in variable cost related to the use of the Company’s aircraft for one emergency round trip flight to Australia due to a death in Mr. Gorman’s family. Variable cost includes landing, parking and $3,575, respectively. All 401(k)flight planning expenses; crew travel expenses; supplies and catering; aircraft fuel and oil expenses per hour of flight; maintenance, parts and external labor per hour of flight; and customs, foreign permits and similar fees, and does not include fixed costs of leasing and operating the Company contributions were allocated according to each NEO’s investment direction on file.aircraft. The Company contributionimputed income to the Morgan Stanley U.K. Group Pension PlanMr. Gorman for Mr. Kelleher during 2012 totaled £8,250 ($13,076). In addition, the Company made notional contributionsthis flight and did not provide a tax gross-up for such imputed income. | | | | Messrs. Gorman’s, Fleming’s and Rosenthal’s amounts each include $20,000 related to the U.K. Alternative Retirement Plan (ARP) for Mr. Kelleher during 2012 of £22,275 ($35,306). The ARP is an employer financed retirement benefits scheme as defined by Her Majesty’s Revenue and Customs (HMRC) that Mr. Kelleher first joined on April 1, 2012 when he ceased participation in the U.K. Group Pension Plan.Company’s Executive Health Program. Ms. Porat’s amount includes $33,008 paid by the Company (consistent with Company practice for all SEREP participants) in satisfaction of the employee portion of Federal Insurance Contributions Act (FICA) taxes due upon commencement of payment of her SEREP benefit. Mr. Kelleher’s amount includes $216,180 related to housing, as well as costs associated with Company-paid medical coverage, airport fees, and tax preparation services arising from his former expatriation assignment. For each NEO, amounts also include costs associated with the use of a Company car or a car service and meals and for Messrs. Gorman and Rosenthal, use of the Company travel booking service. | | | (7) | For 2015, Mr. Kelleher’s base salary was £625,000 and his fixed allowances were £3,500,000. For further details on Mr. Kelleher’s 2015 fixed allowances, see the CD&A. The amount of British pounds sterling was converted to U.S. dollars using the 20122015 average of daily spot rates of £1 to $1.5850.$1.5285. |
| | (b)(8) | Mr. Gorman’s amounts include costs related to use of a Company-furnished car and meals. Mr. Kelleher’s amounts include $186,750 related2015 cash bonus paid in February 2016 was $417,424, which was paid in British pounds sterling in the amount of £273,087. The amount of U.S. dollars was converted to housing, as well as amounts associated with costs relatingBritish pounds sterling using the 2015 average of daily spot rates of $1 to medical benefits provided following his repatriation from New York to London in May 2011, use£0.6542.
|
Morgan Stanley 2016 Proxy Statement55
Table of Contents EXECUTIVE COMPENSATION 2015 Grants of a car service, tax preparation services and meals.Plan-Based Awards Table(1) |
(8)Mr. Kelleher’s base salary was £490,000 for 2012. The amount of British pounds sterling was converted to U.S. dollars using the 2012 average of daily spot rates of £1 to $1.5850. Mr. Kelleher’s base salary was also £490,000 for 2011 and 2010. Differences in base salary reported in the table are due to currency fluctuations.
40
2012 Grants of Plan-Based Awards Table(1)
The following table sets forth information with respect to the RSUs and PSUs granted to the NEOs in January 20122015 for 2011 performance. The table does not include equity2014 performance and 2015 LTIP awards granted to our NEOs in January 2013 for annual performance in 2012 or2015 for forward-looking performance beginning with 2013.performance. | | | | | | | | | | | | | | | | | | Name | | Grant Date (mm/dd/
yyyy) | | Estimated Future Payouts
Under
Equity Incentive Plan
Awards(2) | | All Other Stock Awards: Number of Shares of Stock or Units (#)(3) | | All Other Option Awards: Number of Securities Underlying Options (#) | | Exercise or Base Price of Option Awards ($/Sh) | | Grant Date
Fair Value of
Stock and
Option Awards ($)(4) | | | | Threshold (#) | | Target (#) | | Maximum
(#) | | | | | James P. Gorman | | 1/20/2012 | | 0 | | 106,834.08 | | 160,251.12 | | — | | — | | — | | 1,940,219 | | | | 1/20/2012 | | — | | — | | — | | 277,768 | | — | | — | | 5,043,989 | Ruth Porat | | 1/20/2012 | | 0 | | 88,110.58 | | 132,165.87 | | — | | — | | — | | 1,600,181 | | | | 1/20/2012 | | — | | — | | — | | 176,221 | | | | | | 3,199,997 | Gregory J. Fleming | | 1/20/2012 | | 0 | | 93,617.49 | | 140,426.24 | | — | | — | | — | | 1,700,192 | | | | 1/20/2012 | | — | | — | | — | | 187,234 | | — | | — | | 3,399,982 | Colm Kelleher | | 1/20/2012 | | 0 | | 93,221.98 | | 139,832.97 | | — | | — | | — | | 1,693,009 | | | | 1/20/2012 | | — | | — | | — | | 139,832 | | — | | — | | 2,539,209 | Paul J. Taubman | | 1/20/2012 | | 0 | | 93,617.49 | | 140,426.24 | | — | | — | | — | | 1,700,192 | | | | 1/20/2012 | | — | | — | | — | | 187,234 | | — | | — | | 3,399,982 |
(1)The PSU | Grant Date
(mm/dd/yyyy) | Approval
Date
(mm/dd/yyyy) |
Estimated Future Payouts
Under Equity Incentive Plan
Awards(2)
| | All Other
Stock
Awards:
Number of
Shares of
Stock or
Units
(#)(3) | All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#) | Exercise
or Base
Price of
Option
Awards
($/Sh) | Grant Date
Fair Value
of Stock
and Option
Awards
($)(4) | Name | Threshold
(#) | Target
(#) | Maximum
(#) | | James P. Gorman | 1/21/2015 | 1/6/2015 | 0 | 187,950 | 281,926 | | — | — | — | 6,827,645 | | | 1/21/2015 | 1/6/2015 | — | — | — | | 127,883 | — | — | 4,422,675 | | Jonathan Pruzan | 1/21/2015 | 1/6/2015 | — | — | — | | 100,402 | — | — | 3,472,275 | | Ruth Porat | 1/21/2015 | 1/6/2015 | 0 | 112,770 | 169,155 | | — | — | — | 4,096,587 | | | 1/21/2015 | 1/6/2015 | — | — | — | | 63,575 | — | — | 2,198,675 | | Gregory J. Fleming | 1/21/2015 | 1/6/2015 | 0 | 138,794 | 208,191 | | — | — | — | 5,041,954 | | | 1/21/2015 | 1/6/2015 | — | — | — | | 84,048 | — | — | 2,906,675 | | Colm Kelleher | 1/21/2015 | 1/6/2015 | 0 | 138,794 | 208,191 | | — | — | — | 5,041,954 | | | 1/21/2015 | 1/6/2015 | — | — | — | | 103,492 | — | — | 3,579,119 | | James A. Rosenthal | 1/21/2015 | 1/6/2015 | 0 | 99,758 | 149,637 | | — | — | — | 3,623,904 | | | 1/21/2015 | 1/6/2015 | — | — | — | | 53,339 | — | — | 1,844,675 |
| (1) | The 2015 LTIP awards included in this table are also disclosed in the “Stock Awards” column of the “2015 Summary Compensation Table” and the “2015 Outstanding Equity Awards at Fiscal Year-End Table.” The RSU awards included in this table are also disclosed in the “Stock Awards” column of the “2015 Summary Compensation Table,” the “2015 Option Exercises and Stock Vested Table” and, other than Mr. Kelleher’s Stock Bonus Award (described in note 3 below), the “2015 Nonqualified Deferred Compensation Table.” The 2015 LTIP awards included in this table are also disclosed in the “Stock Awards” column of the “2012 Summary Compensation Table” and the “2012 Outstanding Equity Awards at Fiscal Year-End Table.” The RSU awards included in this table are also disclosed in the “Stock Awards” column of the “2012 Summary Compensation Table,” the “2012 Option Exercises and Stock Vested Table” and the “2012 Nonqualified Deferred Compensation Table.” The PSUs and RSUs were granted under the Morgan Stanley 2007 Equity Incentive Compensation Plan. All RSUs and 2015 LTIP awards are subject to cancellation if a cancellation event occurs at any time prior to the scheduled conversion date. For further details on cancellation of awards, see “Potential Payments Upon Termination or Change-in-Control.” |
56 Morgan Stanley 2007 Equity Incentive Compensation Plan.2016 Proxy Statement
Table of Contents (2)The PSUs are scheduled to vest and convert to shares in 2015 only if the Company satisfies predetermined performance goals over the three-year performance period that began on January 1, 2012 and ends on December 31, 2014. One-half of the target PSU award will be based on the Company’s ROE over the three-year performance period. The other half of the award will be based on the Company’s TSR relative to the TSR of the S&P Financial Sectors Index (Index Group) over the three-year period.EXECUTIVE COMPENSATION
The number of PSUs ultimately earned will be determined by multiplying one-half of the target award by the multipliers according to the following grids:
| | | | MS ROE* | | Multiplier | 12% or more | | 1.5 | 10% | | 1.00 | 6% | | 0.5 | less than 6% | | 0.00 |
| (2) | The 2015 LTIP awards are scheduled to vest and convert to shares in 2018 only if the Company satisfies predetermined performance goals over the three-year performance period consisting of 2015, 2016 and 2017. One-half of the target 2015 LTIP award is earned based on the Company’s average ROE over the three-year performance period (MS Average ROE). The other half of the target 2015 LTIP award is earned based on the Company’s TSR over the three-year period (MS TSR) relative to the TSR of the S&P 500 Financials Index over the three-year period (Index Group TSR). The number of stock units ultimately earned will be determined by multiplying each half of the target award by a multiplier as follows:
| | |
| | MS Average ROE* | Multiplier | | Relative TSR** | Multiplier | | 11.5% or more | 1.50 | | 25% or more | 1.50 | | 10% | 1.00 | | 0% | 1.00 | | 5% | 0.50 | | -50% | 0.50 | | Less than 5% | 0.00 | | Less than -50% | 0.00 |
| | * | MS Average ROE, for this purpose, excludes (a) the impact of DVA, (b) certain gains or losses associated with the sale of specified businesses, (c) specified goodwill impairments, (d) anycertain gains or loss, including accruals,losses associated with specified legal settlements relating to business activities conducted prior to January 1, 2011, and (e) specified cumulative catch-up adjustments resulting from changes in accounting principles that are not applied on a full retrospective basis. If MS Average ROE is between two of the thresholds noted above,in the table, the number of PSUsstock units earned will be determined by straight-line interpolation between the two thresholds. | | |
| | | MS TSR vs. Index Group TSR* | | Multiplier | Above
| | Up to 1.5 | Equal
| | 1.00 | Below
| | Down to 0.00 |
| | ** | Each 1% difference (positive or negative) in MSRelative TSR as compared towill be determined by subtracting the Index Group TSR resultsfrom the MS TSR. In no event may the multiplier exceed 1.0 if MS TSR for the performance period is negative. If Relative TSR is between two of the thresholds noted in a corresponding 1% (positive or negative) adjustmentthe table, the number of stock units earned will be determined by straight-line interpolation between the two thresholds. | | | | Each NEO is entitled to receive cash dividend equivalents on the 2015 LTIP awards, subject to the multipliersame vesting, cancellation and payment provisions as the underlying award.
|
| (3) | With the exception of 1.00.Mr. Kelleher’s awards, the RSUs are scheduled to convert to shares on January 22, 2018. Mr. Kelleher’s RSUs are scheduled to convert to shares in three equal installments on each of January 20, 2016, January 23, 2017 and January 22, 2018, except that 32,878 of Mr. Kelleher’s RSUs (the Stock Bonus Award) plus reinvested dividend equivalents vested and converted to shares on July 21, 2015 as prescribed by the U.K. Prudential Regulatory Authority. With the exception of Mr. Kelleher’s Stock Bonus Award, the NEOs are retirement-eligible under the award terms at grant and, therefore, the awards are considered vested at grant for purposes of this proxy statement. The NEOs are entitled to receive dividend equivalents in the form of additional RSUs, subject to the same vesting, cancellation and payment provisions as the underlying RSUs.
| | (4) | Represents the aggregate grant date fair value, in accordance with the applicable accounting guidance for equity-based awards, of the RSUs and 2015 LTIP awards. The aggregate grant date fair value of the RSUs granted on January 21, 2015 is based on $34.5835, the volume-weighted average price of the common stock on the grant date. The aggregate grant date fair value of 2015 LTIP awards is based on the volume-weighted average price of the common stock on the grant date as well as the probable outcome of the performance conditions as of January 21, 2015. For further information on the valuation of the Company’s RSUs and LTIP awards, see notes 2 and 18 to the consolidated financial statements included in the 2015 Form 10-K. |
Morgan Stanley 2016 Proxy Statement 57
Table of Contents EXECUTIVE COMPENSATION
2015 Outstanding Equity Awards at Fiscal Year-End Table |
41
Each NEO is entitled to receive cash dividend equivalents on the PSUs, subject to the same vesting, cancellation and payment provisions as the underlying PSUs. NEOs may not direct the vote of the shares underlying the PSUs. The PSUs are subject to cancellation if a cancellation event occurs at any time prior to the scheduled conversion date. If, after payment of the PSUs, the CMDS Committee determines that the performance certified by the CMDS Committee was based on materially inaccurate financial statements or other performance metric criteria, then such number of shares (or cash equivalent if the shares were transferred) shall be subject to clawback by the Company. For further details on cancellation of awards, see “Potential Payments upon Termination or Change-in-Control.”
(3)The RSUs are scheduled to convert to shares according to the following schedule: except with respect to Mr. Kelleher, 50% on February 2, 2014 and 50% on February 2, 2015 and for Mr. Kelleher, three equal installments on February 2nd of each of 2013, 2014 and 2015. Each NEO other than Mr. Fleming is retirement-eligible under the award terms at grant and, therefore, the awards are considered vested at grant. Mr. Fleming became retirement-eligible under the award terms on February 8, 2012 and, therefore, the awards are considered vested as of such date. All RSUs are subject to cancellation if a cancellation event occurs at any time prior to the scheduled conversion date. For further details on cancellation of awards, see “Potential Payments upon Termination or Change-in-Control.” Each NEO is entitled to receive dividend equivalents in the form of additional RSUs, subject to the same vesting, cancellation and payment provisions as the underlying RSUs, and may direct the vote of the shares underlying the RSUs.
(4)Represents the aggregate grant date fair value, in accordance with the applicable accounting guidance for equity-based awards, of the RSUs and PSUs. The aggregate grant date fair value of the RSUs granted on January 20, 2012 is based on $18.159, the volume-weighted average price of the common stock on the grant date. The aggregate grant date fair value of PSUs is based on the probable outcome of the performance conditions as of January 20, 2012, consistent with the estimate of aggregate compensation cost to be recognized over the service period determined as of such date under the applicable accounting guidance for equity-based awards. NEOs do not realize the value of equity-based awards until the awards are settled or exercised. The actual value that a NEO will realize from these awards is determined by future Company performance and share price, and may be higher or lower than the amounts indicated in the table. In particular, with respect to the PSUs, a NEO may ultimately earn up to one and a half times the target number of units (maximum), or nothing (threshold), based on the Company’s performance over the three-year performance period. Based on the Company’s actual performance through December 31, 2012, a NEO would have earned 46.4% of the target number of units. For further information on the valuation of the Company’s RSUs and PSUs, see notes 2 and 20 to the consolidated financial statements included in the 2012 Form 10-K.
42
2012 Outstanding Equity Awards at Fiscal Year-End Table
The following table discloses the number of shares covered by unexercised stock options and unvested RSUs and PSUsstock awards held by our NEOs on December 31, 2012. As of December 31, 2012, each NEO is retirement-eligible under his or her RSU award terms and, therefore, all of his or her outstanding RSU awards are considered vested and, in accordance with SEC rules, are not included in this table. Outstanding vested RSUs held by the NEOs on December 31, 2012 are disclosed in the “2012 Nonqualified Deferred Compensation Table.”As of December 31, 2012, the stock options held by the NEOs had no intrinsic value because the exercise price of each stock option was greater than $19.12, the closing price of the Company’s common stock on December 31, 2012.2015. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Option Awards | | | Stock Awards | | | Name | | | Number of
Securities
Underlying
Unexercised
Options Exercisable (#)(1)(2) | | | Number of
Securities
Underlying
Unexercised
Options Unexercisable (#)(1) | | | Option
Exercise
Price
($)(2) | | | Option
Expiration
Date (mm/dd/ yyyy) | | | Number
of Shares
or Units
of Stock
That
Have Not
Vested
(#)(3) | | | Market
Value of
Shares
or
Units of
Stock
That
Have
Not
Vested
($)(3) | | | Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have
Not
Vested
(#)(4) | | | Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested
($)(4) | | James P. Gorman | | | | 354,986 | | | | — | | | | 51.7552 | | | | 2/17/2016 | | | | 0 | | | | 0 | | | | 106,834.08 | | | | 2,042,668 | | | | | | | | | | 56,772 | | | | — | | | | 66.7260 | | | | 12/12/2016 | | | | | | | | | | | | | | | | | | | | | | | | | | 141,575 | | | | 283,156 | | | | 30.0100 | | | | 1/21/2018 | | | | | | | | | | | | | | | | | | | | |
|
|
| |
|
|
| |
|
|
| | | | | | | | | |
|
|
| |
|
|
| |
|
|
| |
|
|
| | | | | Total | | | | 553,333 | | | | 283,156 | | | | | | | | | | | | 0 | | | | 0 | | | | 106,834.08 | | | | 2,042,668 | | Ruth Porat | | | | | | | 11,699 | | | | — | | | | 36.2209 | | | | 1/2/2013 | | | | 0 | | | | 0 | | | | 88,110.58 | | | | 1,684,674 | | | | | | | | | | 19,746 | | | | — | | | | 47.1909 | | | | 1/2/2014 | | | | | | | | | | | | | | | | | | | | | | | | | | 23,737 | | | | — | | | | 66.7260 | | | | 12/12/2016 | | | | | | | | | | | | | | | | | | | | | | | | | | 60,675 | | | | 121,352 | | | | 30.0100 | | | | 1/21/2018 | | | | | | | | | | | | | | | | | | | | |
|
|
| |
|
|
| |
|
|
| | | | | | | | | |
|
|
| |
|
|
| |
|
|
| |
|
|
| | | | | Total | | | | 115,857 | | | | 121,352 | | | | | | | | | | | | 0 | | | | 0 | | | | 88,110.58 | | | | 1,684,674 | | Gregory J. Fleming | | | | 20,224 | | | | 40,451 | | | | 30.0100 | | | | 1/21/2018 | | | | 0 | | | | 0 | | | | 93,617.49 | | | | 1,789,966 | | | | |
|
|
| |
|
|
| |
|
|
| | | | | | | | | |
|
|
| |
|
|
| |
|
|
| |
|
|
| | | | | Total | | | | 20,224 | | | | 40,451 | | | | | | | | | | | | 0 | | | | 0 | | | | 93,617.49 | | | | 1,789,966 | | Colm Kelleher | | | | 40,201 | | | | — | | | | 47.1909 | | | | 12/2/2013 | | | | 0 | | | | 0 | | | | 93,221.98 | | | | 1,782,404 | | | | | | | | | | 144,551 | | | | — | | | | 66.7260 | | | | 12/12/2016 | | | | | | | | | | | | | | | | | | | | | | | | | | 60,675 | | | | 121,352 | | | | 30.0100 | | | | 1/21/2018 | | | | | | | | | | | | | | | | | | | | |
|
|
| |
|
|
| |
|
|
| | | | | | | | | |
|
|
| |
|
|
| |
|
|
| |
|
|
| | | | | Total | | | | 245,427 | | | | 121,352 | | | | | | | | | | | | 0 | | | | 0 | | | | 93,221.98 | | | | 1,782,404 | | Paul J. Taubman | | | | 56,941 | | | | — | | | | 36.2209 | | | | 1/2/2013 | | | | 0 | | | | 0 | | | | 93,617.49 | | | | 1,789,966 | | | | | | | | | | 65,160 | | | | — | | | | 47.1909 | | | | 1/2/2014 | | | | | | | | | | | | | | | | | | | | | | | | | | 116,371 | | | | — | | | | 66.7260 | | | | 12/12/2016 | | | | | | | | | | | | | | | | | | | | | | | | | | 60,675 | | | | 121,352 | | | | 30.0100 | | | | 1/21/2018 | | | | | | | | | | | | | | | | | | | | |
|
|
| |
|
|
| |
|
|
| | | | | | | | | |
|
|
| |
|
|
| |
|
|
| |
|
|
| | | | | Total | | | | 299,147 | | | | 121,352 | | | | | | | | | | | | 0 | | | | 0 | | | | 93,617.49 | | | | 1,789,966 | |
43
(1) The stock option awards in this table vested and are exercisable, or will vest and become exercisable, in accordance with the chart below. Although each NEO is considered retirement-eligible under the terms of his or her stock options with an expiration date of January 21, 2018, and therefore such options are considered vested, such options do not become exercisable until the applicable scheduled vesting date as described below:
| | Option Awards | | Stock Awards | | Name | | Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)(1)(2) | Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)(1) | Option
Exercise
Price
($)(2) | Option
Expiration
Date
(mm/dd/yyyy) | | Number
of Shares
or Units
of Stock
That
Have Not
Vested
(#) | Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($) | Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
(#)(3) | Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
($)(3) | | James P. Gorman | | 354,986 | — | 51.7552 | 2/17/2016 | | — | — | 370,834 | 11,796,255 | | | 56,772 | — | 66.726 | 12/12/2016 | | | | | | | | 424,731 | — | 30.01 | 1/21/2018 | | | | | | | | | 323,214 | 161,613 | 22.98 | 1/22/2018 | | | | | | | Total | 1,159,703 | 161,613 | | | | — | — | 370,834 | 11,796,255 | | Jonathan Pruzan | | 6,765 | — | 66.726 | 12/12/2016 | | — | — | — | — | | Total | 6,765 | — | | | | — | — | — | — | | Ruth Porat | | 23,737 | — | 66.726 | 12/12/2016 | | — | — | 234,693 | 7,465,589 | | | 182,027 | — | 30.01 | 1/21/2018 | | | | | | | Total | 205,764 | — | | | | — | — | 234,693 | 7,465,589 | | Gregory J. Fleming | | 60,675 | — | 30.01 | 1/21/2018 | | — | — | 286,117 | 9,101,402 | | | 198,588 | 149,300 | 22.98 | 1/22/2018 | | | | | | | Total | 259,263 | 149,300 | | | | — | — | 286,117 | 9,101,402 | | Colm Kelleher | | 144,551 | — | 66.726 | 12/12/2016 | | — | — | 286,117 | 9,101,402 | | | 182,027 | — | 30.01 | 1/21/2018 | | | | | | | | 296,946 | 148,479 | 22.98 | 1/22/2018 | | | | | | | Total | 623,524 | 148,479 | | | | — | — | 286,117 | 9,101,402 | | James A. Rosenthal | | 121,351 | — | 30.01 | 1/21/2018 | | — | — | 206,440 | 6,566,883 | | | 249,336 | 124,673 | 22.98 | 1/22/2018 | | | | | | | Total | 370,687 | 124,673 | | | | — | — | 206,440 | 6,566,883 |
| | | (1) | The stock option awards in this table vested and became exercisable as follows: |
| Option
Expiration Date
(mm/dd/yyyy)
| | VestingExercisability Schedule | 1/2/2013
| | 100% of the award became exercisable on 1/2/2005. The shares acquired upon exercise were subject to cancellation and transfer restrictions until 1/2/2008.
| 12/2/2013
| | 50% of the award became exercisable on 1/2/2006 and 50% of the award became exercisable on 1/2/2007. The shares acquired upon exercise were subject to cancellation and transfer restrictions until 1/2/2009.
| 1/2/2014
| | 50% of the award became exercisable on 1/2/2006 and 50% of the award became exercisable on 1/2/2007. The shares acquired upon exercise were subject to cancellation and transfer restrictions until 1/2/2009.
| 2/17/2016 | | 60% of the award became exercisable on 2/17/2006 and 40% of the award became exercisable on 2/16/2007. 2007 | | 12/12/2016 | | 50% of the award became exercisable on each of 1/2/2009 and 50% of the award became exercisable on 1/2/2010. The shares acquired upon exercise were subject to cancellation and transfer restrictions until 1/2/2010. 2010 | | 1/21/2018 | | One-third of the award became exercisable on each of 2/2/2012. 2012, 2/2/2013 and 2/2/2014 | | 1/22/2018 | One-third of the award will becomebecame exercisable on each of 2/2/20131/27/2014, 1/26/2015 and 2/2/2014.1/25/2016 |
(2) | Stock options were granted with an exercise price equal to the fair market value of the Company’s common stock on the date of grant. |
58 Morgan Stanley 2016 Proxy Statement
Table of Contents (2)Stock options were granted with an exercise price equal to the fair market value of the Company’s common stock on the date of grant and, with the exception of the stock options that are scheduled to expire on January 21, 2018, were subsequently equitably adjusted to reflect the spin-off of Discover Financial Services in 2007.EXECUTIVE COMPENSATION
(3)Reflects PSUs granted in connection with 2009 compensation, with respect to which the NEO was eligible to receive up to two times the target number of units, or nothing, based on the Company’s performance over the performance period consisting of 2010, 2011 and 2012. Based on Company performance through December 31, 2012, the NEOs did not earn any portion of the PSUs and as a result, such
| (3) | Represents the target number of performance units granted under the 2014 LTIP award and 2015 LTIP award that are realizable in connection with the achievement of pre-established performance targets over the applicable three-year performance period. The NEOs may ultimately earn up to 1.5 times the target number of performance units or nothing, based on the Company’s performance over the performance period. The 2015 LTIP awards and 2014 LTIP awards were subsequently cancelled.(4)Based on Company performance through December 31, 2012, the number of PSUs reflected in the table represents the target number of PSUs granted in connection with 2011 compensation (2011 PSUs) and reflects the threshold number of PSUs, or zero, granted in connection with 2010 compensation (2010 PSUs). With respect to the 2011 PSUs and the 2010 PSUs, the NEOs may ultimately earn up to 1.5 times or 2 times, respectively, the target number of units, or nothing, based on the Company’s performance over the applicable three-year performance period. The 2011 PSUs are scheduled to vest and convert to shares in 2018 and 2017, respectively, only if the Company satisfies the predetermined performance goals (see note 2 to the “2015 Grants of Plan-Based Awards Table” for 2015 LTIP award performance goals). The market value of the performance units is based on $31.81, the closing price of the Company’s common stock on December 31, 2015.
|
2015 only if the Company satisfies predetermined performance goals over the three-year performance period consisting of 2012, 2013 and 2014 (see note 2 to the “2012 Grants of Plan-Based Awards Table”). The target number of 2010 PSUs granted to each NEO were: 64,904.87 to Mr. Gorman; 61,893.82 to Ms. Porat; 58,548.21 to Mr. Fleming; 68,536.08 to Mr. Kelleher; and 68,585.04 to Mr. Taubman. The 2010 PSUs are scheduled to vest and convert to shares in 2014 only if the Company satisfies predetermined performance goals over the three-year performance period consisting of 2011, 2012 and 2013. Based on Company performance through December 31, 2012, the NEOs would not be entitled to earn any portion of the 2010 PSUs; however, a portion may still be earned based on 2013 performance. The market value of the PSUs is based on $19.12, the closing price of the Company’s common stock on December 31, 2012. 44
2012 Option Exercises and Stock Vested Table
|
The following table contains information about the stock options exercised by NEOs during 2015 and the RSUs and LTIP awards held by the applicable NEOs that vested during 2012. These RSUs are also disclosed in the “Stock Awards” column2015. | | | | Option Awards | | Stock Awards | | | Name | | Number of
Shares Acquired
on Exercise
(#) | | Value Realized on
Exercise ($) | | Number of
Shares Acquired
on Vesting
(#)(1) | | Value Realized on
Vesting ($) | | | | | James P. Gorman | | — | | — | | 127,883 | | 4,422,675 | (2) | | | | | | | | | 221,210 | | 7,082,879 | (3) | | | Jonathan Pruzan | | — | | — | | 100,402 | | 3,472,275 | (2) | | | | | | Ruth Porat | | — | | — | | 63,575 | | 2,198,675 | (2) | | | | | | | | | 162,220 | | 5,194,090 | (3) | | | Gregory J. Fleming | | — | | — | | 84,048 | | 2,906,675 | (2) | | | | | | | | | 176,968 | | 5,666,303 | (3) | | | Colm Kelleher | | — | | — | | 70,613 | | 2,442,077 | (2) | | | | | | | | | 176,968 | | 5,666,303 | (3) | | | | | | | | | 33,097 | | 1,325,892 | (4) | | | James A. Rosenthal | | — | | — | | 53,339 | | 1,844,675 | (2) | | | | | | | | | 162,220 | | 5,194,090 | (3) | |
| (1) | Consists of RSUs granted on January 21, 2015 for 2014 performance, which are considered vested at grant for purposes of this proxy statement due to the NEOs’ retirement eligibility, and LTIP awards granted on January 31, 2013, which are considered vested on December 31, 2015 (the last day of the three-year performance period) for purposes of this proxy statement, based on the Company’s performance over the performance period (2013 LTIP awards). For further details on the RSUs, see note 3 to the “2015 Grants of Plan-Based Awards Table.”
| | (2) | The aggregate grant date fair value of these RSUs is based on $34.5835, the volume-weighted average price of the Company’s common stock on the grant date.
| | (3) | The value realized is based on $32.0188, the volume-weighted average price of the Company’s common stock on December 31, 2015, which is the last day of the 2013 LTIP awards’ performance period, for 134.77% of the target number of units underlying the 2013 LTIP awards. The 2013 LTIP awards converted to shares of common stock on February 25, 2016.
| | (4) | The value realized is based on $40.0608, the volume-weighted average price of the Company’s common stock on July 21, 2015, the date on which the award vested pursuant to its terms. |
Morgan Stanley 2016 Proxy Statement 59
Table of the “2012 Summary Compensation Table,” the “2012 Grants of Plan-Based Awards Table” and the “2012 Nonqualified Deferred Compensation Table.” The table does not include PSUs granted in January 2012 for 2011 performance because the vesting of such awards is subject to the Company’s satisfaction of predetermined performance goals over a three-year performance period.Contents EXECUTIVE COMPENSATION | | | | | | | | | | | | | | | | | | | | | | Option Awards | | | Stock Awards | | Name | | Number of Shares Acquired
on Exercise (#) | | | Value Realized on Exercise ($) | | | Number of Shares Acquired On Vesting (#)(1) | | | Value Realized on Vesting ($)(2) | | | | James P. Gorman | | | — | | | | — | | | | 277,768 | | | | 5,043,989 | | | | Ruth Porat | | | — | | | | — | | | | 176,221 | | | | 3,199,997 | | | | Gregory J. Fleming | | | — | | | | — | | | | 528,961.87 | (3) | | | 10,721,105 | (3) | | | Colm Kelleher | | | — | | | | — | | | | 139,832 | | | | 2,539,209 | | | | Paul J. Taubman | | | — | | | | — | | | | 187,234 | | | | 3,399,982 | | | |
(1)Other than with respect to Mr. Fleming, consists of RSUs granted on January 20, 2012 for 2011 performance. For further details on these RSUs, including the terms of the deferral, see note 3 to the “2012 Grants of Plan-Based Awards Table.”
(2) Except as noted below with respect to Mr. Fleming, the value realized represents the aggregate grant date fair value, in accordance with the applicable accounting guidance for equity-based awards, of the RSUs. The aggregate grant date fair value of the RSUs is based on $18.159, the volume-weighted average price of the common stock on the grant date.
(3) With respect to Mr. Fleming, consists of the following RSU awards that became vested pursuant to their terms on February 8, 2012 when Mr. Fleming became retirement-eligible: (i) RSUs granted on January 20, 2012 for 2011 performance, (ii) RSUs granted on January 21, 2011 for 2010 performance and (iii) RSUs granted on February 8, 2010 in accordance with his employment offer letter with the Company. Pursuant to the terms of the RSUs described in clause (iii), 110,079 RSUs that vested on February 8, 2012 also converted to shares of common stock on such date. The value of the RSUs is based on $20.2682, the volume-weighted average price of the common stock on February 8, 2012, the vesting date of the awards.
2012
2015 Pension Benefits Table |
The table below discloses the present value of accumulated benefits payable to each NEO and the years of service credited to each NEO under the Company’s defined benefit retirement plans as of December 31, 2012. | | | | | | | | | | | | | | | | | | | | Name | | Plan Name(1) | | Number of Years Credited Service | | | Retirement Age for Full Benefits | | | Present Value of Accumulated Benefit ($)(2) | | | Payments During Last Fiscal Year ($) | | James P. Gorman | | Morgan Stanley Employees Retirement Plan | | | 4 | | | | 65 | | | | 72,955 | | | | 0.00 | | | Ruth Porat | | Morgan Stanley Employees Retirement Plan | | | 20 | | | | 65 | | | | 400,790 | | | | 0.00 | | | | | Morgan Stanley Supplemental Executive Retirement and Excess Plan | | | 23 | | | | 60 | | | | 1,337,987 | | | | 0.00 | | Gregory J. Fleming(3) | | — | | | — | | | | — | | | | — | | | | — | | | Colm Kelleher | | Morgan Stanley U.K. Group Pension Plan(4) | | | 7 | | | | 60 | | | | 169,672 | | | | 0.00 | | | | | Morgan Stanley Supplemental Executive Retirement and Excess Plan | | | 23 | | | | 60 | | | | 1,008,126 | | | | 0.00 | | | Paul J. Taubman(5) | | Morgan Stanley Employees Retirement Plan | | | 25 | | | | 65 | | | | 439,296 | | | | 0.00 | | | | | Morgan Stanley Supplemental Executive Retirement and Excess Plan | | | 27 | | | | 60 | | | | 2,162,348 | | | | 0.00 | |
(1) Benefits under the SEREP are shown even if the eligibility requirements (i.e., grandfathered group, age 55, five years of service, and age plus service totals at least 65) have not been met as of the current date. See the discussion under “Supplemental Executive Retirement and Excess Plan” following this table.
45
(2)2015. The present value at December 31, 2012 is based on PPA generational annuitant mortality tables and discount rates of 4.08% for the ERP, 3.75% for the Excess Plan component and 3.65% for the SERP component of the SEREP. Present values are determined using an interest-only discount before retirement. Post-retirement discounts are based on interest and mortality. The assumed benefit commencement date is the earliest age at which the executive can receive unreduced benefits or current age, if greater.
(3) Mr. Fleming is not eligible for any of the Company-sponsored defined benefit plans.
(4)During 2012, Mr. Kelleher participated in the Morgan Stanley U.K. Group Pension Plan (U.K. Pension Plan), a defined contribution plan that provided defined benefit pension accruals until October 1, 1996. As of October 1, 1996, Mr. Kelleher’s accrued defined benefit under the U.K. Pension Plan was converted to an account balance, the value of which is £107,048 ($169,672) as of December 31, 2012. If the value of the account balance relating to the pre-October 1996 portion of Mr. Kelleher’s U.K. Pension Plan benefit, adjusted for investment experience until the payment date, is greater than the value of the guaranteed minimum pension under the U.K. Pension Plan, no defined benefit pension is payable. If the value of the guaranteed minimum pension, determined in accordance with U.K. laws, is greater than the value of the adjusted account balance, the guaranteed minimum pension is payable, in addition to any defined contribution amount payable for the period after September 30, 1996. Mr. Kelleher had seven years of credited service in the U.K Pension Plan at the time his accrued benefit was converted to an account balance. The amount shown in the table for Mr. Kelleher does not include defined contribution benefits that were accrued after September 30, 1996. The amount of British pounds sterling was converted to U.S. dollars using the 2012 average of daily spot rates of £1 to $1.5850.
(5)In accordance with his Separation Agreement, Mr. Taubman will receive his accrued benefit through his termination date under the SEREP, in accordance with the terms of the SEREP, determined as if he were eligible for early retirement. The estimated present value of the incremental benefit provided under the SEREP based on service through his anticipated termination date is $1.7 million.
The following is a description of the material terms with respect to eachand conditions of thethese plans referenced in the table above.are described below.
| Name | Plan Name | Number of
Years
Credited
Service(1) | Retirement
Age for Full
Benefits | Present Value of
Accumulated
Benefit ($)(2) | Payments
During Last
Fiscal Year ($) | | James P. Gorman | Morgan Stanley Employees Retirement Plan | 4 | 65 | 79,983 | — | | Jonathan Pruzan | Morgan Stanley Employees Retirement Plan | 15 | 65 | 185,312 | — | | Ruth Porat(3) | Morgan Stanley Employees Retirement Plan | 20 | 57 | 525,249 | 20,039 | | Morgan Stanley Supplemental Executive | 25 | 57 | 1,458,767 | 53,641 | | Retirement and Excess Plan | | | | | | Gregory J. Fleming | — | — | — | — | — | | Colm Kelleher | Morgan Stanley U.K. Group Pension Plan(4) | 7 | 60 | 197,712 | — | | Morgan Stanley Supplemental Executive | 25 | 60 | 1,227,482 | — | | Retirement and Excess Plan | | | | | | James A. Rosenthal | — | — | — | — | — |
| (1) | After December 31, 2010, no further benefit accruals occur under the ERP. After September 30, 2014, no further benefit accruals occur under the SEREP. Therefore, employees may have different years of credited service under the ERP and SEREP. No NEO is awarded with credited service under the ERP or SEREP in excess of his/her actual service.
| | (2) | The present value at December 31, 2015 is based on the RP-2014 mortality tables rolled back to 2006 with projection Scale RP-2014 and then projected generationally with scale MP-2015 and discount rates of 4.49% for the ERP and 4.20% for the SEREP. Present values are determined using an interest-only discount before retirement. Post-retirement discounts are based on interest and mortality. The assumed benefit commencement date is the earliest age at which the executive can receive unreduced benefits or current age, if greater.
| | (3) | Ms. Porat commenced her benefit on May 1, 2015. The present value reflects her actual retirement benefit amounts and form of payment election of 100% Joint and Survivor for both the ERP and SEREP.
| | (4) | Until March 31, 2012, the Company contributed to the Morgan Stanley U.K. Group Pension Plan (U.K. Pension Plan) on behalf of Mr. Kelleher, and he remains a deferred vested participant in that plan. As of October 1, 1996, Mr. Kelleher’s accrued defined benefit under the U.K. Pension Plan was converted to an account balance, the value of which was £129,350 as of December 31, 2015. The amount of British pounds sterling was converted to U.S. dollars using the 2015 average of daily spot rates of £1 to $1.5285. If the value of the account balance relating to the pre-October 1996 portion of Mr. Kelleher’s U.K. Pension Plan benefit, adjusted for investment experience until the payment date, is greater than the value of the guaranteed minimum pension under the U.K. Pension Plan, no defined benefit pension is payable. If the value of the guaranteed minimum pension, determined in accordance with U.K. laws, is greater than the value of the adjusted account balance, the guaranteed minimum pension is payable, in addition to any defined contribution amount payable for the period after September 30, 1996. Mr. Kelleher had seven years of credited service in the U.K. Pension Plan at the time his accrued benefit was converted to an account balance. The amount shown in the table for Mr. Kelleher does not include defined contribution benefits that were accrued after September 30, 1996. |
Employees Retirement Plan (ERP)
Substantially all of the U.S. employees of the Company and its U.S. affiliates hired before July 1, 2007 other than certain employees in the Company’s former mortgage business, were covered after one year of service by the ERP, a non-contributory, defined benefit pension plan that is qualified under Section 401(a) of the Internal Revenue Code. Effective after December 31, 2010, the ERP was frozen and no further benefit accruals will occur. Benefits are generally payable as an annuity at age 65 (or earlier, subject to certain reductions in the amounts payable). Under the pre-2004 provisions of the ERP, benefits are payable in full at age 60 and reduced 4% per year for retirement between ages 55 and 60 for employees who retire after age 55 with ten years of service. Before the ERP was frozen, annual benefits were equal to 1% of eligible earnings plus 0.5% of eligible earnings in excess of Social Security covered compensation for each year of service. Eligible earnings generally included all taxable compensation, other than certain equity-based and non-recurring amounts, up to $170,000 per year. ERP participants who, as of January 1, 2004, had age plus service equal to at least 65 and who had been credited with five years of service, received benefits determined under the ERP’s pre-2004 benefit formula, if greater. Pre-2004 benefits equaled 1.15% of final average salary, plus 0.35% of final average salary in excess of Social Security covered compensation, in each case multiplied by credited service up to 35 years, where final average salary was base salary, up to specified limits set forth in the ERP, for the highest paid 60 consecutive months of the last 120 months of service. Mr. Gorman, Ms. Porat and Mr. Taubman have accrued benefits in the ERP. 60 Morgan Stanley 2016 Proxy Statement
Table of Contents EXECUTIVE COMPENSATION Supplemental Executive Retirement and Excess Plan (SEREP) The SEREP is an unfunded, nonqualified plan. Effective after September 30, 2014, the SEREP was frozen and no further benefit accruals will occur. Credited service is counted starting from the first day of the month after the hire date, except that for certain excess benefits credited service begins after one year of service. The SEREP provides benefits not otherwise provided under the ERP formula because of limits in the ERP or 46
Internal Revenue Code on eligible pay and benefits. The SEREP also provides certain grandfathered benefits and supplemental retirement income (unreduced at age 60) for eligible employees after offsetting other Company-provided pension benefits, pension benefits provided by former employers and, effective for calendar years after 2010,January 1, 2011 through June 30, 2014, adjusted to take into account a portion of 401(k) contributions.certain defined contribution plan awards. The supplemental benefit, before offsets, equals 20% of final average salary plus 2% of final average salary per year after five years (up to 50% cumulatively) plus 1% of final average salary per year after 25 years (up to 60% cumulatively), where final average salary is base salary for the highest paid 60 consecutive months of the last 120 months of service through September 30, 2014, up to a maximum annual benefit payable of $140,000 at age 60, reduced by 4% per year for payments beginning before age 60. The SEREP was restricted effective January 1, 2004 to allow only “grandfathered” employees who as of that date met certain eligibility criteria to benefit from the plan.criteria. Grandfathering in this plan was provided to all similarly situated eligible employees and may be provided to other employees with the approval of the CMDS Committee. Benefits may be paid in various actuarially equivalent forms of annuity. Other than for small balances, no lump sums are available under this plan. Ms. Porat and Messrs. Kelleher and Taubman participate in the SEREP. U.K. Group Pension Plan Until March 31, 2012, the Company contributed to the U.K. Pension Plan on behalf of Mr. Kelleher, and he remains a deferred vested participant in that plan. As described in note 4 to the “Pension Benefits Table,” theThe U.K. Pension Plan is a defined contribution plan that provided defined benefit pension accruals until October 1, 1996. The guaranteed minimum pension payable under the U.K. Pension Plan is determined in accordance with U.K. laws.
Morgan Stanley 2016 Proxy Statement 61
Table of Contents 2012 Nonqualified Deferred Compensation TableEXECUTIVE COMPENSATION
2015 Nonqualified Deferred Compensation Table |
The following table contains information with respect to the participation of the NEOs in the Company’s unfunded cash nonqualified deferred compensation plans that provide for the deferral of compensation on a basis that is not tax-qualified, as well as with respect to RSUs granted to the NEOs that are vested but have not yet converted to shares of Morgan Stanley common stock. In addition to the Company equity plans, each NEO participated in one or more of the following cash nonqualified deferred compensation plans as of December 31, 2012: the Capital Accumulation Plan (CAP), the Key Employee Private Equity Recognition Plan (KEPER), the Notional Leveraged Co-Investment Plan (LCIP), MSCIP, the Pre-Tax Incentive Program (PTIP), the Select Employees’ Capital Accumulation Program (SECAP), the Strategic Equity Incentive Plan (SEIP) and the U.K. Alternative Retirement Plan (ARP). The NEOs participate in the plans on the same terms and conditions as other similarly situated employees. TheseThe material terms and conditions of these plans are described below following the notes to the table. CAP, KEPER, LCIP, PTIP and SEIP are closed to new participants and contributions and SECAP has not been offered to the NEOs since 2010.below.
| | Name | | | | | Executive
Contributions
in Last FY
($)(1) | | Registrant
Contributions
in Last FY
($) | | Aggregate
Earnings
in Last FY
($)(2) | | | Aggregate
Withdrawals/
Distributions
($)(3) | | Aggregate
Balance
at Last FYE
($)(4) | | | James P. Gorman | | | Notional Leveraged Co-Investment Plan | | — | | — | | 285,938 | | | — | | 2,686,739 | | | | | | Morgan Stanley Compensation Incentive Plan | | 5,379,825 | | — | | (165,591 | ) | | 2,038,660 | | 6,551,200 | | | | | | Restricted Stock Units(5) | | 4,422,675 | | — | | (4,142,957 | ) | | 6,500,874 | | 19,541,413 | | | | | | Total | | 9,802,500 | | — | | (4,022,610 | ) | | 8,539,534 | | 28,779,352 | | | Jonathan Pruzan | | | Key Employee Private Equity Recognition Plan | | — | | — | | (3,091 | ) | | 18,480 | | 56,775 | | | | | | Notional Leveraged Co-Investment Plan | | — | | — | | 18,302 | | | — | | 93,648 | | | | | | Morgan Stanley Compensation Incentive Plan | | 1,710,225 | | — | | (151,177 | ) | | 1,489,798 | | 2,439,670 | | | | | | Restricted Stock Units(5) | | 3,472,275 | | — | | (1,552,994 | ) | | 3,607,402 | | 7,713,973 | | | | | | Total | | 5,182,500 | | — | | (1,688,960 | ) | | 5,115,680 | | 10,304,066 | | | Ruth Porat | | | Key Employee Private Equity Recognition Plan | | — | | — | | (206 | ) | | 1,232 | | 3,785 | | | | | | Notional Leveraged Co-Investment Plan | | — | | — | | 16,052 | | | — | | 82,134 | | | | | | Morgan Stanley Compensation Incentive Plan | | 3,003,825 | | — | | 87,442 | | | 1,407,049 | | 3,909,067 | | | | | | Pre-Tax Incentive Program | | — | | — | | (23,182 | ) | | — | | 909,819 | | | | | | Restricted Stock Units(5) | | 2,198,675 | | — | | (1,596,695 | ) | | 4,915,433 | | 6,259,417 | | | | | | Total | | 5,202,500 | | — | | (1,516,589 | ) | | 6,323,714 | | 11,164,222 | | | Gregory J. Fleming | | | Morgan Stanley Compensation Incentive Plan | | 3,795,825 | | — | | 4,659 | | | 1,648,662 | | 4,848,273 | | | | | | Restricted Stock Units(5) | | 2,906,675 | | — | | (1,370,941 | ) | | 4,450,825 | | 5,885,127 | | | | | | Total | | 6,702,500 | | — | | (1,366,282 | ) | | 6,099,487 | | 10,733,400 | | | Colm Kelleher | | | Notional Leveraged Co-Investment Plan | | — | | — | | 459,999 | | | — | | 4,182,822 | | | | | | Morgan Stanley Compensation Incentive Plan | | 2,442,077 | | — | | 50,385 | | | 3,621,587 | | 6,599,840 | | | | | | Restricted Stock Units(5) | | 3,579,119 | | — | | (1,807,313 | ) | | 3,212,089 | | 8,603,122 | | | | | | Alternative Retirement Plan | | — | | — | | (124 | ) | | — | | 33,484 | (6) | | | | | Total | | 6,021,196 | | — | | (1,297,053 | ) | | 6,833,676 | | 19,419,268 | | | James A. Rosenthal | | | Notional Leveraged Co-Investment Plan | | — | | — | | 7,632 | | | — | | 658,424 | | | | | | Morgan Stanley Compensation Incentive Plan | | 2,607,825 | | — | | (10,162 | ) | | 1,354,501 | | 3,332,666 | | | | | | Restricted Stock Units(5) | | 1,844,675 | | — | | (1,005,546 | ) | | 3,612,753 | | 3,904,432 | | | | | | Total | | 4,452,500 | | — | | (1,008,076 | ) | | 4,967,254 | | 7,895,522 | |
| (1) | RSU contributions represent the RSU awards granted in January 2015 for 2014 performance that are considered vested at grant for purposes of this proxy statement but are subject to cancellation until the applicable scheduled conversion dates. MSCIP contributions represent MSCIP awards granted in January 2015 for 2014 performance that are considered vested at grant for purposes of this proxy statement but are subject to cancellation until the applicable scheduled payment dates. The MSCIP awards reported in this table are also reported as part of the 2014 bonus in the “2015 Summary Compensation Table.” The value of the RSUs in this column (which are also included in the “Stock Awards” column of the “2015 Summary Compensation Table” for 2015, the “2015 Grants of Plan-Based Awards Table,” and the “2015 Option Exercises and Stock Vested Table”) is the aggregate grant date fair value of the RSUs based on $34.5835, the volume-weighted average price of the Company’s common stock on the grant date. |
62 Morgan Stanley 2016 Proxy Statement
Table of Contents EXECUTIVE COMPENSATION 47
| | | | | | | | | | | | | | | | | | | | | | Name | | Executive Contributions in Last FY ($)(1) | | | Registrant Contributions in Last FY ($) | | | Aggregate Earnings in Last FY ($)(2) | | | Aggregate Withdrawals/ Distributions
($)(3) | | | Aggregate Balance at Last FYE ($)(4) | | James P. Gorman | | | | | | | | | | | | | | | | | | | | | LCIP | | | — | | | | — | | | | 348,549 | | | | — | | | | 1,520,025 | | MSCIP | | | 2,716,000 | | | | — | | | | 461,969 | | | | 5,719,231 | | | | 4,789,819 | | RSUs(5) | | | 5,043,989 | | | | — | | | | 2,876,117 | | | | 1,874,047 | | | | 16,509,391 | |
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| Total | | | 7,759,989 | | | | — | | | | 3,686,635 | | | | 7,593,278 | | | | 22,819,235 | | Ruth Porat | | | | | | | | | | | | | | | | | | | | | CAP | | | — | | | | — | | | | 2 | | | | 7,083 | | | | — | | KEPER | | | — | | | | — | | | | 957 | | | | 1,774 | | | | 9,232 | | LCIP | | | — | | | | — | | | | 8,450 | | | | — | | | | 28,657 | | MSCIP | | | 3,200,000 | | | | — | | | | 873,213 | | | | 5,136,265 | | | | 3,714,250 | | PTIP | | | — | | | | — | | | | 130,309 | | | | — | | | | 607,625 | | RSUs(5) | | | 3,199,997 | | | | — | | | | 1,125,777 | | | | 1,884,986 | | | | 6,793,245 | | SEIP | | | — | | | | — | | | | — | | | | 72,952 | | | | — | |
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| Total | | | 6,399,997 | | | | — | | | | 2,138,708 | | | | 7,103,060 | | | | 11,153,009 | | Gregory J. Fleming | | | | | | | | | | | | | | | | | | | | | MSCIP | | | 3,400,000 | | | | — | | | | 102,643 | | | | 2,801,556 | | | | 1,752,146 | | RSUs(5) | | | 8,490,002 | | | | | | | | (492,715 | ) | | | — | | | | 8,037,736 | |
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| Total | | | 11,890,002 | | | | | | | | (390,072 | ) | | | 2,801,556 | | | | 9,789,882 | | Colm Kelleher | | | | | | | | | | | | | | | | | | | | | CAP | | | — | | | | — | | | | 2 | | | | 11,026 | | | | — | | LCIP | | | — | | | | — | | | | 538,159 | | | | — | | | | 2,330,286 | | MSCIP | | | 4,232,045 | | | | — | | | | 43,242 | | | | 3,337,937 | | | | 6,291,612 | | RSUs(5) | | | 2,539,209 | | | | — | | | | 1,532,859 | | | | 1,367,949 | | | | 8,385,796 | | ARP | | | — | | | | 35,306 | (6)(7) | | | (249 | ) | | �� | — | | | | 35,057 | (7) |
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| Total | | | 6,771,254 | | | | 35,306 | | | | 2,114,013 | | | | 4,716,912 | | | | 17,042,751 | | Paul J. Taubman | | | | | | | | | | | | | | | | | | | | | CAP | | | — | | | | — | | | | 7 | | | | 29,012 | | | | — | | KEPER | | | — | | | | — | | | | 30,611 | | | | 56,763 | | | | 295,411 | | LCIP | | | — | | | | — | | | | 824,179 | | | | — | | | | 4,369,173 | | MSCIP | | | 3,400,000 | | | | — | | | | 551,496 | | | | 5,882,476 | | | | 4,878,487 | | PTIP | | | — | | | | — | | | | 106,628 | | | | — | | | | 1,362,825 | | RSUs(5) | | | 3,399,982 | | | | — | | | | 2,598,649 | | | | 2,352,864 | | | | 13,914,240 | | SECAP | | | — | | | | — | | | | 86,187 | | | | 300,322 | | | | 4,825,491 | | SEIP | | | — | | | | — | | | | — | | | | 24,702 | | | | — | |
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| Total | | | 6,799,982 | | | | — | | | | 4,197,757 | | | | 8,646,139 | | | | 29,645,627 | |
(1)
| (2) | With respect to our cash-based nonqualified deferred compensation plans, represents the change in (i) the balance of the NEO’s account reflected on the Company’s books and records at December 31, 2015, without giving effect to any withdrawals or distributions, compared to (ii) the sum of the balance of the NEO’s account reflected on the Company’s books and records at December 31, 2014 and the value of any contributions made during 2015. Includes any nonqualified deferred compensation earnings that are disclosed in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column of the “2015 Summary Compensation Table” for 2015 and described in note 5 thereto.
With respect to the RSUs, represents (i) the change in the average of the high and low prices of the Company’s common stock on December 31, 2015 (or, if applicable, the earlier distribution date) compared to December 31, 2014 (or, if applicable, the later contribution date), as well as (ii) the amount of the vested cash dividend equivalent rights in 2015 (which is paid to the award holder at the time dividends are paid to holders of the Company’s common stock) and dividend equivalents in the form of additional RSUs credited in 2015 with respect to the award (which are paid to the award holder at the time that the underlying award converts to shares, subject to the same cancellation provisions as the underlying award).
RSU contributions represent RSU awards granted in January 2012 for 2011 performance that are considered vested at grant (or with respect to Mr. Fleming, RSUs that became vested on February 8, 2012, when he became retirement-eligible) but are subject to cancellation until the scheduled conversion dates of such awards in 2014 and 2015, or with respect to Messrs. Fleming and Kelleher, in 2013, 2014 and 2015. MSCIP contributions represent MSCIP awards granted in January 2012 for 2011 performance that are subject to vesting and cancellation until the scheduled payment dates of such awards in 2012 and 2013 (or with respect to Mr. Kelleher, in 2013, 2014 and 2015). The MSCIP awards reported in this table are also reported as part of the 2011 bonus in the “2012 Summary Compensation Table.” The value of the RSUs in this column (which are also included in the “Stock Awards” column of the “2012 Summary Compensation Table” for 2012, the “2012 Grants of Plan-Based Awards Table,” and the “2012 Option Exercises and Stock Vested Table”) is (i) for the NEOs other than Mr. Fleming, the aggregate grant date fair value of the RSUs based on $18.159, the volume-weighted average price of the common stock on the grant date and (ii) for Mr. Fleming, the value of the RSUs on the vesting date based on $20.2682, the volume-weighted average price of the common stock on such date. (2)With respect to our cash-based nonqualified deferred compensation plans, represents the change in (i) the balance of the NEO’s account reflected on the Company’s books and records at December 31, 2012, without
48
giving effect to any withdrawals or distributions, compared to (ii) the sum of the balance of the NEO’s account reflected on the Company’s books and records at December 31, 2011 and the value of any contributions made during 2012. Includes any nonqualified deferred compensation earnings that are disclosed in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column of the “2012 Summary Compensation Table” for 2012 and described in note 6 thereto.
With respect to the RSUs, represents (i) the change in the average of the high and low prices of the Company’s common stock on December 31, 2012 (or, if applicable, the earlier distribution date), compared to December 30, 2011 (or, if applicable, the later contribution date), as well as (ii) the amount of the vested cash dividend equivalent rights and dividend equivalents in the form of additional RSUs credited in 2012 with respect to the award (which, for the RSUs granted prior to 2010, are paid to the RSU holder at the time dividends are paid to holders of the Company’s common stock and, for the RSUs granted in and following 2010, are paid to the award holder at the time that the underlying award converts to shares, subject to the same cancellation provisions as the underlying award).
(3)Represents distributions from our cash-based nonqualified deferred compensation plans and RSU conversions based on the average of the high and low prices of the Company’s common stock on the conversion date and, with respect to the RSUs, also represents amounts paid on RSUs during 2012 pursuant to dividend equivalent rights.
(4) With respect to our cash-based nonqualified deferred compensation plans, represents the balance of the NEO’s account reflected on the Company’s books and records at December 31, 2012. With respect to the RSUs, represents the number of vested units held by the NEO on December 31, 2012 multiplied by the average of the high and low prices of the Company’s common stock on December 31, 2012, as well as the amount of vested cash dividend equivalent rights held with respect to the RSUs. All amounts deferred by a NEO in prior years have been reported in the Summary Compensation Tables in our previously filed proxy statements in the year earned (or with respect to equity awards, granted) to the extent he or she was a NEO for that year for purposes of the SEC’s executive compensation disclosure rules.
(5) The RSUs disclosed in this table include awards that as of December 31, 2012 had vested, but had not reached their scheduled conversion date and remained subject to cancellation, as well as awards that had reached their scheduled conversion date, but were deferred to preserve the Company’s tax deductibility of the award, in accordance with the terms of the award.
(6) Represents monthly notional contributions made by the Company in 2012 to the ARP, a U.K. employer financed retirement benefits scheme, for Mr. Kelleher when he ceased participation in the U.K. Group Pension Plan. Amounts reported in this column are also reported in the All Other Compensation column of the “2012 Summary Compensation Table.”
(7) The Company’s aggregate notional monthly contributions to the ARP for Mr. Kelleher in 2012 of £22,275 ($35,306) and Mr. Kelleher’s aggregate balance at year-end of £22,118 ($35,057) were converted from British pounds sterling to U.S. dollars using the 2012 average of daily spot rates of £1 to $1.5850.
| | (3) | Represents distributions from our cash-based nonqualified deferred compensation plans and with respect to the RSUs, conversions based on the average of the high and low prices of the Company’s common stock on the conversion date and amounts paid during 2015 pursuant to cash dividend equivalent rights.
| | (4) | With respect to our cash-based nonqualified deferred compensation plans, represents the balance of the NEO’s account reflected on the Company’s books and records at December 31, 2015. With respect to the RSUs, represents the number of vested units held by the NEO on December 31, 2015 multiplied by the average of the high and low prices of the Company’s common stock on December 31, 2015.
| | (5) | The RSUs disclosed in this table include awards that as of December 31, 2015 had vested, but had not reached their scheduled conversion date and remained subject to cancellation, as well as awards that had reached their scheduled conversion date, but were deferred to preserve the Company’s tax deductibility of the award, in accordance with the terms of the award.
| | (6) | Mr. Kelleher’s aggregate balance at year-end of £21,906 was converted from British pounds sterling to U.S. dollars using the 2015 average of daily spot rates of £1 to $1.5285.
|
The following is a description of the material terms with respect to contributions, earnings and distributions applicable to each of the following cash nonqualified deferred compensation plans and the RSUs referenced in the table above. Capital Accumulation Plan
Under CAP, participants were granted a number of units based on their level of compensation in excess of base salary. Earnings on units were based on notional interests in investment earnings and interest on risk capital investments selected by the Company. Participants generally received plan distributions after dividends, distributions of capital, liquidation proceeds or other distributions were paid from the underlying investments. The plan has been closed to new contributions since 1998 and was terminated effective December 31, 2011. Final distributions under CAP were made in 2012.
49
Key Employee Private Equity Recognition Plan (KEPER) Under KEPER, participants were permitted to defer a portion of their cash bonus. The plan has been closed to new contributions since 2001. Contributions to KEPER are notionally invested by the Company in reference investments. Such reference investments may include investments made by Company-sponsored private equity funds, investments made by private equity funds sponsored by third parties in which the Company has acquired or will acquire a limited partner or similar interest, and investments in private equity securities that the Company makes for its own account. Distributions are made to participants following the realization of any proceeds in respect of any investment. The amounts contributed by a participant plus any earnings on participant contributions under the program remain subject to cancellation under specified circumstances. Notional Leveraged Co-Investment Plan (LCIP) Under LCIP, participants were permitted to allocate a portion of their long-termdeferred incentive compensation to the plan. LCIP is closed to new participants and has not been offered since 2008. For each of fiscal 2006, fiscal 2007 and fiscal 2008, participants were permitted to allocate up to 40% of their long-term incentive compensation to LCIP. The Company contributed a notional investment in an amount equal to a multiple oftwo times each participant’s contribution (for each of fiscal 2006, fiscal 2007 and fiscal 2008, this multiple was two; however,(however, for fiscal 2008, participants could elect to forgo the notional investment). Contributions are notionally invested by the Company in reference investments, which may include the Company’s proprietary investment funds, “funds of funds” that include Company proprietary investment funds and third-party investment funds, and other third-party investment funds. All amounts contributed by a participant plus any earnings on participant contributions and the Company notional investment were subject to cancellation under specified circumstances until three years after deferral. Participants generally are entitled to receive distributions in respect of their contributions plus any earnings on their contributions and on the Company notional investment on the third anniversary of grant and the tenth anniversary of grant, based on the valuation of the notional investments and any realizations of those investments prior to the scheduled distribution date. Participant distributions under LCIP are offset by the Company notional investment, excluding any earnings thereon. Morgan Stanley 2016 Proxy Statement 63
Table of Contents EXECUTIVE COMPENSATION Morgan Stanley Compensation Incentive Plan (MSCIP) Beginning with fiscal 2008 year-end compensation, aA portion of the NEOs’each participant’s year-end long-termdeferred incentive compensation was mandatorily deferred intois granted under MSCIP. Earnings on MSCIP awards are based on the performance of notional investments available under the plan and selected by the participants. Participants may reallocate such balances periodically, as determined by the plan administrator. Until MSCIP awards reach their scheduled distribution date, they are subject to cancellation and clawback by the Company. The cancellation and clawback events applicable to MSCIP awards held by our NEOs are described belowin the CD&A and in “Potential Payments upon Termination or Change-in-Control.”
Pre-Tax Incentive Program (PTIP) Under PTIP, participants were permitted to defer a portion of their cash bonus or commissions for one or more fiscal years. The plan has been closed to new contributions since 2003. Earnings on PTIP contributions are based on the performance of notional investments available under the plan and selected by the participants. Participants could generally elect the commencement date for distributions of their contributions and earnings and the number of annual installments over which to receive distributions (generally, 5, 10, 15 or 20 years). Subject to earlier distribution on death or termination of employment due to disability, no distributions may begin prior to the attainment of age 55, and no distribution may begin prior to termination of employment. 50
Select Employees’ Capital Accumulation Program
Under SECAP, participants are permitted to defer a portion of their commissions for one or more fiscal years and in prior years, participants were permitted to defer a portion of their cash bonuses for one or more fiscal years. Earnings on SECAP contributions are based on the performance of notional investments available under the plan and selected by the participants. Participants can generally elect the commencement date for distributions of their contributions and earnings and the number of annual installments over which to receive distributions (generally, one to ten years), subject to earlier distribution on death or termination of employment. No distributions may begin later than January 2 following the year in which the participant attains age 65.
Strategic Equity Incentive Plan
Under SEIP, participants were granted notional points to compensate them for their contributions to the growth and profits of the Company. SEIP points entitled a participant to a pro-rata share of earnings based on the performance of notional risk capital investments selected by the Company. SEIP points were awarded for performance years 1999, 2000 and 2001. The plan has been closed to new participants since 2001. The final distribution in respect of SEIP points awarded for 1999 was made in 2010 and the last remaining distribution in respect of SEIP points awarded for 2000 and 2001 was made in 2012.
Restricted Stock Units (RSUs) RSUs may beare granted under the Morgan Stanley 2007 Equity Incentive Compensation Plan or any otheranother Company equity plan as determined by the CMDS Committee. Each RSU constitutes a contingent and unsecured promise of the Company to pay the holder one share of Company common stock on the conversion date of the RSU. The RSUs included in this table are considered vested; however, the RSUs are subject to cancellation if a cancellation event occurs at any time prior to the scheduled conversion date. RSUs granted in 2012 and later are subject to clawback, as well as cancellation, prior to the scheduled conversion date. The cancellation and clawback events applicable to RSUs held by our NEOs are described in the CD&A and in “Potential Payments upon Termination or Change-in-Control,Change-in-Control.” as applicable. U.K. Alternative Retirement Plan (ARP) The ARP is a U.K. employer financed retirement benefits scheme as defined by HMRC.Her Majesty’s Revenue and Customs (HMRC). Under the ARP, eligible participants receive monthly notional contributions from the Company based on a percentage of base salary, subject to specified limits. Participants may also elect to contribute a portion of their cash bonus and distributions from certain cash-based nonqualified deferred compensation plans to the ARP. Participants include those employees who either have an accumulated pension value in the U.K. Group Pension Plan that exceeds a limit set by the U.K. government or have elected pension taxation protection available from the HMRC. Earnings on ARP contributions are based on the performance of notional investments available under the ARP and selected by the participants. Participants can generally elect the commencement date for distributions at any time after age 55, so long as no distributions begin later than age 75. Distributions are currently paid in the form of a lump sum. Potential Payments upon Termination or Change-in-Control
| Potential Payments upon Termination or Change-in-Control |
This section describes and quantifies the benefits and compensation to which each NEO would have been entitled under our existing plans and arrangements if his or her employment had terminated or if the Company had undergone a change-in-control, in each case on December 31, 2012. The2015. For Ms. Porat, this section does not include any awards granteddescribes and quantifies the benefits and compensation to our NEOswhich she was entitled in January 2013 for performance in 2012 or for future performance beginning in 2013, as such awards were not outstanding, and the NEOs were not entitled to such awards, as of December 31, 2012. For purposes of valuing any equity awards, we have assumed a per share value of $19.12, the closing price of the Company’s common stock on December 31, 2012. 51
Although Mr. Taubman resignedconnection with her departure from his position as Co-President of Institutional Securities as of December 31, 2012, he is expected to remain an employee of the Company through his anticipated employment end date of May 5, 2013. The amounts and benefits described herein with respect to Mr. Taubman that assume an employment end date of December 31, 2012 do not take into account those that he is currently entitled to under his Separation Agreement because such agreement was not entered into until January 3, 2013. The CD&A describes the material benefits to which Mr. Taubman is entitled pursuant to the Separation Agreement.on April 30, 2015.
General Policies Our NEOs are not contractually entitled to cash severance payments upon any termination of employment but theyor excise tax protection upon a change-in-control of the Company. NEOs are entitled to receive health and welfarepost-termination benefits that are generally available to all salaried employees, such as accrued vacation pay and death, disability and post-retirement welfare benefits. Our NEOsbenefits, and are not entitled to special or enhancedalso eligible for Company-paid retiree medical coverage under the Morgan Stanley Grandfathered Retiree Medical Plan for themselves and eligible dependents following any termination benefits under our pension and nonqualified deferred compensation plans as compared to other employees, except as described in the CD&A and notes to the “2012 Pension Benefits Table”of employment with respect to the SEREP benefits provided to Mr. Taubman pursuant to his Separation Agreement.three years of service. 64 Morgan Stanley 2016 Proxy Statement
Table of Contents EXECUTIVE COMPENSATION Following termination of employment, the NEOs are entitled to amounts, to the extent vested, due under the terms of our pension arrangements, as described inunder the “2012“2015 Pension Benefits Table”Table,” and accompanying narrative. Further, upon a termination of employment, NEOs are entitled to theour nonqualified deferred compensation amounts, toplans, as described under the extent vested, reported in the “2012“2015 Nonqualified Deferred Compensation Table” subjectTable.” Our NEOs are not entitled to the terms of the arrangements,special or enhanced termination benefits under our pension and nonqualified deferred compensation plans as described in the accompanying narrative.compared to other employees. Even if a NEO is considered vested in a deferred incentive compensation award, reported in the “2012 Nonqualified Deferred Compensation Table,” the award may be subject to cancellation through the distribution date of such award in the event the NEO engages in a cancellation event or if applicable, a clawback event occurs. In general, a cancellation event with respect to such vested deferred incentive awards and the awards described in the table below includes: engaging in competitive activity during a specified period following a voluntary termination of employment (other than following a Good Reason termination for Mr. Gorman’s 2009 and 2010 year-end awards); a termination for cause, a later determination that the NEO’s employment could have been terminated for cause oremployment; engaging in cause whether(i.e., a breach of the NEO’s obligation to the Company, including a failure to comply with internal compliance, ethics or not employment has been terminated;risk management standards and failure or refusal to perform duties satisfactorily, including supervisory and management duties); improper disclosure of the Company’s proprietary information; solicitation of Company employees, clients or customers during employment orand within a specified period following termination of employment; the making of unauthorized disclosures or disparaging or defamatory comments regardingabout the Company; resignation offrom employment without providing the Company proper advance notice within a specified period;notice; or the failure or refusal following termination of employment to cooperate with or assist the Company in connection with investigations, regulatory matters, lawsuits or arbitrations in which the NEO may have pertinent information. “Good Reason,” with respect to Mr. Gorman, generally means a material change or reduction in his duties or responsibilities, including a failure to re-elect him to the Board, any diminution in his title or reporting relationship, the Company’s breachfollowing termination of its obligations to provide payments or benefits under his employment arrangement or requiring Mr. Gorman to be based at a location other than the Company’s headquarters.employment. MSCIPClawback of deferred compensation awards and 2011 year-end equity-based awards also include a provision for clawback by the Company can be triggered through the applicable scheduled distributeddistribution date if the NEO had significant responsibility for a material adverse outcome for the Company or any of such awards, which can be triggeredits businesses or functions, even absent misconduct, or if an individual engages in conductthe NEO’s act or omission (including with respect to direct supervisory responsibilities) detrimental to the Company, including causingcauses a restatement of the Company’s consolidated financial results, or violatingviolates the Company’s global risk management principles, policies and standards. MSCIP awards are also subject to clawback ifstandards, or causes a loss of revenue associated with a position on which the individual causesNEO was paid and he or is reasonably expected to cause, a substantial financial loss on a trading strategy, investment, commitment or other holding and such strategy, investment, commitment or other holding was a factor in the award determination.
she operated outside of internal control policies. Further, shares resulting from the conversion of the PSUsLTIP awards are subject to clawback by the Company in the event the Company’s achievement of the specified goals was based on materially inaccurate financial statements or other performance metric criteria. With respect to Mr. Kelleher’s awards, pursuant to U.K. Prudential Regulatory Authority requirements, any amounts distributed in respect of his deferred compensation awards are subject to clawback and repayment in certain circumstances for a minimum period of seven years following grant pursuant to the Morgan Stanley Code Staff Clawback Policy. 52
In addition to the cancellation and clawback events described above, each NEO is party to a Notice and Non-Solicitation Agreement that provides for injunctive relief and cancellation of any equity or other incentivedeferred compensation awards in the event thatif the NEO does not provide 180 days’ advance notice prior to a resignation from employment or in the event that the NEO improperly solicits ourthe Company’s employees, clients or customers during, employment and for 180 days following termination of, employment. Morgan Stanley 2016 Proxy Statement 65 II. | Amounts Vesting upon a Termination of Employment / Change-in-Control |
Table of Contents With respect toEXECUTIVE COMPENSATION
Termination of Employment / Change-in-Control The table below sets forth the value as of December 31, 2015 of the outstanding unvested outstanding incentivedeferred compensation awards held by the NEOs each NEO would have been entitled toand the following amounts inpresent value of coverage under the event of a termination of employment, or change-in-control of the Company, on December 31, 2012, subject to no cancellation event or clawback event occurring through the distribution date of such award, as applicable. | | | | | | | | | | | | | | | | | Termination Reason or
Change In Control | | Name | | Value of
Unvested
RSUs and
Related
Dividend
Equivalents ($)(1) | | | | Value of Unvested
PSUs and Related
Dividend Equivalents ($)(2) | | | | Value of
Unvested Stock
Options ($)(3) | | | | Value of
Unvested MSCIP
Awards ($)(4) | | Involuntary Termination (other than due to cause or other cancellation event) / Termination Due to Disability / Qualifying Termination(5) | | James P. Gorman | | — | | | | 318,705 | | | | — | | | | 1,401,006 | | | Ruth Porat | | — | | | | 262,850 | | | | — | | | | 1,726,803 | | | Gregory J. Fleming | | — | | | | 279,278 | | | | — | | | | 1,752,146 | | | Colm Kelleher | | — | | | | 278,098 | | | | — | | | | — | | | Paul J. Taubman | | — | | | | 279,278 | | | | — | | | | 1,797,666(9) | | Retirement / Voluntary Termination(6) | | James P. Gorman | | — | | | | 318,705 | | | | — | | | | forfeit | | | Ruth Porat | | — | | | | 262,850 | | | | — | | | | forfeit | | | Gregory J. Fleming | | — | | | | 279,278 | | | | — | | | | forfeit | | | Colm Kelleher | | — | | | | 278,098 | | | | — | | | | — | | | Paul J. Taubman | | — | | | | 279,278 | | | | — | | | | forfeit | Termination Due to
Death / Governmental Service Termination(7) | | James P. Gorman | | — | | | | 298,118 | | | | — | | | | 1,401,006 | | | Ruth Porat | | — | | | | 245,871 | | | | — | | | | 1,726,803 | | | Gregory J. Fleming | | — | | | | 261,238 | | | | — | | | | 1,752,146 | | | Colm Kelleher | | — | | | | 260,134 | | | | — | | | | — | | | Paul J. Taubman | | — | | | | 261,238 | | | | — | | | | 1,797,666 | Change in Control (for PSUs, assuming a termination of employment on December 31, 2012)(8) | | James P. Gorman | | — | | | | 318,705 | | | | — | | | | — | | | Ruth Porat | | — | | | | 262,850 | | | | — | | | | — | | | Gregory J. Fleming | | — | | | | 279,278 | | | | — | | | | — | | | Colm Kelleher | | — | | | | 278,098 | | | | — | | | | — | | | Paul J. Taubman | | — | | | | 279,278 | | | | — | | | | — |
(1) As of December 31, 2012, our NEOs were considered retirement-eligible for purposes of their outstanding RSU awards and related dividend equivalents (which are set forth in the “2012 Nonqualified Deferred Compensation Table”) and, therefore, the NEOs are considered vested in such awards.
(2) The amounts set forth in this column reflect amounts payable with respect to PSUs granted for 2011 performance. As described in the “2012 Outstanding Equity Awards at Fiscal Year-End Table,” based on Company performance through December 31, 2012, the NEOs would not have earned any portion of the PSUs granted with respect to 2009 or 2010 performance. Pursuant to the terms of the PSU awards, amounts set forth in this column with respect to (a) the NEO’s death or governmental service termination reflect Company performance through September 30, 2012 (the quarter ending simultaneously with or before the date of such termination for which the Company’s earnings information had been released as of the date of termination) and (b) a change-in-control of the Company reflect Company performance through December 31, 2012 (the quarter ending simultaneously with the effective date of the change-in-control). Amounts set forth in this column for all other terminations of employmentMorgan Stanley Grandfathered Retiree Medical Plan as of December 31, 2012 assume2015. This table does not include our former CFO, Ms. Porat, whose employment terminated on April 30, 2015. Ms. Porat’s payments and benefits upon her termination are set forth below.
| Termination Reason | | Name | Unvested RSUs and
Related Dividend
Equivalents, Unvested
Stock Options and
Unvested MSCIP Awards
($)(1) | Unvested
LTIP Awards
and Related
Dividend Equivalents
($)(2) | Retiree Medical
Coverage(3) | | Involuntary (not due to a cancellation event) / Disability / Retirement / In connection with a Change-in-Control / Death / Governmental Service Termination | | James P. Gorman | — | $ | 10,570,066 | $ 603,943 | | Jonathan Pruzan | — | | — | $ 950,841 | | Gregory J. Fleming(4) | — | $ | 8,162,140 | $ 773,354 | | Colm Kelleher | — | $ | 8,162,140 | $ 737,625 | | James A. Rosenthal | — | $ | 5,889,604 | $ 632,235 |
| (1) | As of December 31, 2015, our NEOs were retirement-eligible for purposes of their outstanding RSU, MSCIP and stock option awards, which are therefore considered vested for purposes of this proxy statement. Amounts are payable on the scheduled distribution dates, subject to cancellation and clawback provisions, except that RSUs and MSCIP awards are payable upon a termination in connection with a change-in-control and all awards are payable upon death or a governmental service termination. Options will become exercisable and remain exercisable through the expiration date. Retirement treatment may be conditioned upon advance notice of termination. Amounts payable with respect to a termination in connection with a change-in-control are conditioned upon the termination occurring within 18 months of the change-in-control as a result of (i) the Company terminating the NEO’s employment under circumstances not involving any cancellation event, (ii) the NEO resigning from employment due to a materially adverse alteration in job responsibilities or (iii) a change in the NEO’s principal place of employment of more than 75 miles from the current location. A “change-in-control” generally means a significant change in the share ownership of the Company or composition of the Board. Governmental service termination treatment is conditioned upon satisfactory proof of a conflict of interest that necessitates divestiture of the awards and executing an agreement to repay amounts vested in connection with such termination if the NEO engages in any cancellation event.
| | (2) | As of December 31, 2015, our NEOs were retirement-eligible for purposes of the LTIP awards; however, such awards are not considered vested for purposes of this proxy statement until the end of the performance period because these awards only deliver value if the Company achieves objective performance goals over such performance period. Amounts shown in the table reflect performance through December 31, 2015 (the quarter ending simultaneously with the effective date of the termination), which, with the exception of a termination in connection with a change-in-control, is a substitute for performance through the three-year performance period, which would not be known until the end of such period. To facilitate timely payment of LTIP awards upon death or a governmental service termination as of December 31, 2015, amounts payable with respect to these awards would instead reflect Company performance through September 30, 2015 (the quarter ending with or before the date of the termination for which the Company’s earnings information has been released) as follows: $11,412,190 for Mr. Gorman; $8,810,647 for Messrs. Fleming and Kelleher; and $6,357,440 for Mr. Rosenthal. For purposes of valuing LTIP awards, we have assumed a per share value of $31.81, the closing price of the Company’s common stock on December 31, 2015.
| | (3) | Each NEO, having met the service requirement, is eligible to elect retiree medical coverage under the Company’s Grandfathered Retiree Medical Plan for themselves and their eligible dependents following a termination of employment for any reason. The present value is calculated assuming each NEO began retiree medical coverage on December 31, 2015 and elected their current dependent coverage type. The present value is based on the RP-2014 mortality tables rolled back to 2006 with projection Scale RP-2014 and then projected generationally with Scale MP-2015, a discount rate of 4.13%, and a medical inflation rate of 7.12% for 2016-2017 and ultimately settling at 4.50% by 2038.
| | (4) | Pursuant to Mr. Fleming’s January 22, 2016 agreement with the Company relating to his termination of employment, Mr. Fleming is entitled to, in addition to the amounts disclosed in the table, continued access to office space and administrative support through his termination date (anticipated to be July 6, 2016), with a cost to the Company of approximately $140,000, and continued access to his primary care physician under the Company’s Executive Health Program through December 31, 2016. |
66 Morgan Stanley 2016 Proxy Statement
Table of Contents EXECUTIVE COMPENSATION Amounts payable in connection with Ms. Porat’s termination of employment Prior to her departure from the Company’sCompany on April 30, 2015, Ms. Porat satisfied the age and service requirements for retirement eligibility for purposes of her outstanding RSU, MSCIP and stock option awards, and therefore such awards are considered vested for purposes of this proxy statement. Such awards remain subject to all provisions of the awards, including any cancellation and clawback provisions, until the applicable distribution date. With respect to her outstanding LTIP awards, such awards will convert to shares of common stock on their scheduled conversion dates based on the performance of the Company through the applicable three-year performance period, mirrors itssubject to cancellation and clawback provisions. Therefore, the actual value of Ms. Porat’s LTIP awards will not be known until the end of the performance period. Using Company performance through December 31, 2012. The amounts reflect2015 as a pro-rata reduction insubstitute for performance through the number of PSUs otherwise payable given Company performance due toperiod, the NEO’s termination of employment prior to the applicable scheduled vesting date. 53
(3) As of December 31, 2012, our NEOs were considered retirement-eligible for purposes of their outstanding stock options and, therefore, the NEOs are considered vested in such awards. No outstanding stock options held by the NEOs had intrinsic value as of December 31, 2012, as the exercise price2015 of the stock options was in all cases greater than $19.12, the closing price of the Company’s common stock on December 31, 2012.
(4) As of December 31, 2012, our NEOs were considered retirement-eligibleMs. Porat’s LTIP awards for purposes of, and therefore are considered vested in, all of the outstanding MSCIP awards set forth in the “2012 Nonqualified Deferred Compensation Table,” except that the NEOs, other than Mr. Kelleher, are not retirement-eligible for purposes of, and are not considered vested in, the 2011 year-end MSCIP awards. Other than with respect to Mr. Kelleher, amounts set forth in this column reflect the value of the NEOs’ 2011 year-end MSCIP awards.
(5) Amounts set forth in this row will generally be paid on the scheduled distribution dates, subject to cancellation and clawback provisions, as applicable, except that RSUs and MSCIP awards payable in connection with a qualifying termination will be paid upon such termination. Outstanding options that are not then exercisable will become exercisable and all options will generally remain exercisable through the expiration date. A “qualifying termination” is a termination within 18 months of a change-in-control as a result of (i) the Company terminating the NEO’s employment under circumstances not involving any cancellation event, (ii) the NEO resigning from employment due to a materially adverse alteration in his or her position or in the nature or status of his or her responsibilities from those in effect immediately prior to the change-in-control or (iii) the Company requiring the NEO’s principal place of employment to be located more than 75 miles from his or her current principal location. For this purpose, the definition of “change-in-control” generally means a significant change in the share ownership or composition of the Board. The PSUs do not include an accelerated vesting and/or payment provision in connection with a qualifying termination.
(6) Amounts set forth in this row will be paid on schedule, subject to cancellation, and outstanding options that are not then exercisable will become exercisable and all options will generally remain exercisable through the expiration date, subject to cancellation.
(7) Amounts with respect to RSUs and PSUs will be paid upon such termination and, pursuant to the terms of the awards, amounts with respect to PSUs reflect Company performance through September 30, 2012. Outstanding options that are not then exercisable will become exercisable and all options will generally remain exercisable through the expiration date. In exchange for the accelerated vesting, exercisability and payment of awards upon a governmental service termination, the NEO must sign an agreement requiring the NEO to repay the Company the value of the awards that are distributed or exercised in connection with such termination if the NEO engages in any activity that would have resulted in the cancellation of such awards had the distribution, vesting or exercisability of the awards not been accelerated.
(8) Pursuant to the terms of the PSUs, in the event of a change-in-control of the Company on December 31, 2012,which the performance period would havehad not ended on December 31, 2012; however, in general, the NEO must remain employed bywas $6,696,322.
Following her departure from the Company, throughMs. Porat is eligible to elect, but has not yet elected, to receive retiree medical coverage under the applicable scheduled vesting date to not be subject toMorgan StanleyGrandfathered Retiree Medical Plan with a pro-rata reduction in the number of shares payable with respect to the PSUs. For purposes of quantifying thepresent value of PSUs to which the NEO would have been entitled upon a change-in-control on December 31, 2012, amounts set forth in this row with respect to the PSUs assume that each NEO terminated employment on December 31, 2012, and therefore, the value reflects a pro-rata reduction in the number of PSUs otherwise payable. Amounts set forth in this row will be paid on schedule, subject to cancellation.$588,573 (9)Mr. Taubman will vest in his 2011 year-end MSCIP award on his employment end date in 2013, as set forth in his Separation Agreement, and such award will be paid on schedule, subject to cancellation.
Mr. Gorman’s employment arrangement with the Company, dated August 16, 2005, provides that if it is determined that any payments made to him in connection with a change-in-control of the Company would be subject to an excise tax under Section 4999 of the Internal Revenue Code, he would be entitled to receive an additional payment to restore him to the after-tax position that he would have been in if the tax had not been
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imposed. Calculations to estimate the excise tax due under the Internal Revenue Code are complex and reflect a number of assumptions. For purposes of determining whether Mr. Gorman would have been entitled to an additional payment due to a change-in-control as of December 31, 2012,2015, calculated as described above. As disclosed in the following assumptions were made: (i)“All Other Compensation” column of the “2015 Summary Compensation Table,” consistent with Company practice with respect to all RSUs, MSCIP and LCIP awards andSEREP participants, the applicable pro-rataCompany paid $33,008 to satisfyMs. Porat’s portion of PSUs became payable, (ii) all stock options became immediately exercisable, (iii) all cancellation provisions and transfer restrictions lift, (iv) an excise tax rateFICA taxes due upon the commencement of 20% and (v) an individual tax ratepayment of 45%. Based on these assumptions, Mr. Gorman would not have been entitled to an additional payment.
her SEREP benefit. Item 2—Ratification of Appointment of Morgan Stanley’s Independent Auditor
OUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF DELOITTE & TOUCHE’S APPOINTMENT AS OUR INDEPENDENT AUDITOR.
The Audit Committee appointed Deloitte & Touche LLP (Deloitte & Touche) as independent auditor for the year ending December 31, 2013 and presents this selection to the shareholders for ratification. Deloitte & Touche will audit our consolidated financial statements that will be included in the Annual Report on Form 10-K for the year ending December 31, 2013 and will perform other permissible, pre-approved services. The Audit Committee pre-approves all audit and permitted non-audit services that Deloitte & Touche performs for the Company.
Independent Auditor’s Fees. The following table summarizes the aggregate fees (including related expenses; $ in millions) for professional services provided by Deloitte & Touche related to 2012 and 2011.
| | | | | | | | | | | | 2012 ($) | | | 2011 ($) | | Audit Fees(1) | | | 45.7 | | | | 43.4 | | Audit-Related Fees(2) | | | 8.0 | | | | 8.5 | | Tax Fees(3) | | | 2.0 | | | | 1.3 | | All Other Fees | | | — | | | | — | | | | | | | | | | | Total | | | 55.7 | | | | 53.2 | |
(1) Audit Fees services include: the audit of our consolidated financial statements included in the Company’s Annual Report on Form 10-K and reviews of the interim condensed consolidated financial statements included in our quarterly reports on Form 10-Q; services attendant to, or required by, statute or regulation; comfort letters, consents and other services related to SEC and other regulatory filings; and audits of subsidiary financial statements.
(2) Audit-Related Fees services include: due diligence associated with mergers and acquisitions or dispositions of operating businesses or entities; data verification and agreed-upon procedures related to asset securitizations; assessment and testing of internal controls and risk management processes beyond the level required as part of the consolidated audit; statutory audits and financial audit services provided relating to investment products offered by Morgan Stanley where Morgan Stanley incurs the audit fee in conjunction with the investment management services it provides; audits2016 Proxy Statement 67
Table of employee benefit plans; agreed upon procedures engagements; regulatory matters; and attest services in connection with debt covenants.Contents OWNERSHIP OF OUR STOCK EXECUTIVE EQUITY OWNERSHIP COMMITMENT (3) Tax Fees services include: U.S. federal, state and local income and non-income tax planning and advice; U.S. federal, state and local income and non-income tax compliance; non-U.S. income and non-income tax planning and advice; non-U.S. income and non-income tax compliance; and transfer pricing documentation.
Fund-Related Fees.Morgan Stanley offers registered money market, equity, fixed income and alternative funds, and other funds (collectively, Funds). Deloitte & Touche provides audit, audit-related and tax services to certain of these Funds. The aggregate fees for such services are summarized in the following table ($ in millions).
| | | | | | | | | | | | 2012 ($) | | | 2011 ($) | | Audit Fees | | | 4.4 | | | | 3.8 | | Audit-Related Fees | | | 0.2 | | | | — | | Tax Fees | | | 3.5 | | | | 3.3 | |
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A Deloitte & Touche representative will attend the annual meeting to respond to your questions and will have the opportunity to make a statement. If shareholders do not ratify the appointment, the Audit Committee will reconsider it.
Our Board unanimously recommends that you vote “FOR” the ratification of Deloitte & Touche’s appointment as our independent auditor. Proxies solicited by the Board will be voted “FOR” this ratification unless otherwise instructed.
Audit Committee Report
The Audit Committee’s charter provides that the Audit Committee is responsible for the oversight of the integrityMembers of the Company’s consolidated financial statements, the Company’s system of internal control over financial reporting, certain aspects of the Company’s risk management as described in the charter, the qualifications and independence of the Company’s independent registered public accounting firm (independent auditor), the performance of the Company’s internal auditor and independent auditor, and the Company’s compliance with legal and regulatory requirements. We have the sole authority and responsibility to appoint, compensate, evaluate and, when appropriate, replace the Company’s independent auditor. The Board has determined that each AuditOperating Committee member is independent under applicable independence standards of the NYSE and the Securities Exchange Act of 1934, as amended, and is an audit committee financial expert within the meaning of current SEC rules.
The Audit Committee serves in an oversight capacity and is not part of the Company’s managerial or operational decision-making process. Management is responsible for the financial reporting process, including the system of internal controls, for the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the U.S. (GAAP) and for the report on the Company’s internal control over financial reporting. The Company’s independent auditor, Deloitte & Touche, is responsible for auditing those financial statements and expressing an opinion as to their conformity with GAAP and expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Our responsibility is to oversee the financial reporting process and to review and discuss management’s report on the Company’s internal control over financial reporting. We rely, without independent verification, on the information provided to us and on the representations made by management, the internal auditor and the independent auditor.
The Audit Committee, among other things:
Reviewed and discussed the Company’s quarterly earnings releases, Quarterly Reports on Form 10-Q and Annual Report on Form 10-K, including the consolidated financial statements;
Reviewed the major franchise, reputational, legal and compliance risk exposures and the guidelines and policies that govern the process for risk assessment and risk management, including coordinating with the Risk Committee and the Operations and Technology Committee;
Reviewed and discussed the plan and the scope of the work of the internal auditor for 2012 and summaries of the significant reports to management by the internal auditor;
Reviewed and discussed the plan and scope of work of the independent auditor for 2012;
Reviewed and discussed reports from management on the Company’s policies regarding applicable legal and regulatory requirements; and
Met with Deloitte & Touche, the internal auditor and Company management in executive sessions.
We reviewed and discussed with management, the internal auditor and Deloitte & Touche: the audited consolidated financial statements for 2012, the critical accounting policies that are set forth in the Company’s Annual Report on Form 10-K, management’s annual report on the Company’s internal control over financial reporting and Deloitte & Touche’s opinion on the effectiveness of the Company’s internal control over financial reporting.
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We discussed with Deloitte & Touche matters that independent registered public accounting firms must discuss with audit committees under standards of the Public Company Accounting Oversight Board (PCAOB), including, among other things, matters related to the conduct of the audit of the Company’s consolidated financial statements and the matters required to be discussed by Auditing Standards AU Section 380 (Communication with Audit Committees) as adopted by the PCAOB in Rule 3200T. This review included a discussion with management and the independent auditor of the quality (not merely the acceptability) of the Company’s accounting principles, the reasonableness of significant estimates and judgments, and the disclosures in the Company’s consolidated financial statements, including the disclosures relating to critical accounting policies.
Deloitte & Touche also provided to the Audit Committee the written disclosures and the letter required by applicable requirements of the PCAOB regarding the independent auditor’s communications with the Audit Committee concerning independence and represented that it is independent from the Company. We discussed with Deloitte & Touche their independence from the Company, and considered if services they provided to the Company beyond those rendered in connection with their audit of the Company’s consolidated financial statements, reviews of the Company’s interim condensed consolidated financial statements included in its Quarterly Reports on Form 10-Q, and their opinion on the effectiveness of the Company’s internal control over financial reporting were compatible with maintaining their independence. We also reviewed and pre-approved, among other things, the audit, audit-related and tax services performed by Deloitte & Touche. We received regular updates on the amount of fees and scope of audit, audit-related and tax services provided.
Based on our review and the meetings, discussions and reports discussed above, and subject to the limitations on our role and responsibilities referred to above and in the Audit Committee charter, we recommended to the Board that the Company’s audited consolidated financial statements for 2012 be included in the Company’s Annual Report on Form 10-K. We also selected Deloitte & Touche as the Company’s independent auditor for the year ending December 31, 2013 and are presenting the selection to the shareholders for ratification.
Respectfully submitted,
Donald T. Nicolaisen, Chair
Howard J. Davies
Robert H. Herz
O. Griffith Sexton
Item 3—Company Proposal to Approve the Compensation of Executives as Disclosed in the Proxy Statement (Non-Binding Advisory Resolution)
OUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL.
As required by Section 14A of the Securities Exchange Act, this proposal seeks a shareholder advisory vote to approve the compensation of our NEOs as disclosed pursuant to Item 402 of Regulation S-K through the following resolution:
“RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the Company’s named executive officers, as disclosed in the Company’s proxy statement for the 2013 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission (which disclosure includes the Compensation Discussion and Analysis and the accompanying compensation tables and related narrative).”
Morgan Stanley’s shareholders are urged to read the CD&A, which discusses our compensation policies and procedures in detail and explains how the compensation program implements our compensation philosophy.
Morgan Stanley ties executive compensation to Company and individual performance. The CMDS Committee places performance at the forefront of the structure and administration of executive compensation. This
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performance orientation is demonstrated in the structure of executive compensation, the performance results that drive compensation decisions and the resulting executive compensation decisions for the CEO, James Gorman, and the other NEOs.
Overall, the CMDS Committee evaluated a number of performance elements for 2012 as described in the CD&A, including: the Company’s financial performance, the Company’s balance sheet strength, successful execution of major business strategies, absolute and relative shareholder returns, headcount and expense management, and broad-based compensation discipline and reductions. Based on this evaluation, the Committee:
• | | Reduced CEO Annual Performance Compensation. For 2012, the CEO was granted $6,000,000 in compensation ($800,000 base salary, $2,575,000 in deferred cash-based awards and $2,625,000 in stock option awards). On a comparable basis, this amount represented a 30% decline from 2011 annual performance compensation of $8,560,000 (excluding performance stock units granted as part of 2011 annual compensation).
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• | | Increased Proportion of CEO Comprehensive Pay Opportunity Subject to Future Long-Term Performance. The CEO was also granted a future-oriented, long-term incentive program (LTIP) award with a grant date target value of $3,750,000, the ultimate realizable value of which will be directly determined by 2013-2015 return on equity and relative total shareholder return performance. The CEO’s comprehensive pay opportunity (2012 annual performance compensation when combined with 2013-2015 LTIP award) is $9,750,000. His LTIP award represents 38% of his comprehensive pay opportunity, a substantial increase from 2011, when 18% of the CEO’s comprehensive pay opportunity ($1,940,000) was awarded in performance stock units.
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• | | Reduced CEO Comprehensive Pay Opportunity. The comprehensive pay opportunity for the CEO of $9,750,000 was reduced 7% from $10,500,000 for 2011. When viewed from the perspective of the 2012 Summary Compensation Table in this proxy statement, the CEO’s reported compensation was reduced 18% to approximately $10.7 million for 2012, down from approximately $13 million for 2011.
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• | | Delivered Significant Equity-Based Compensation. 71% of the CEO’s comprehensive pay opportunity, excluding base salary, is equity-based to further drive shareholder alignment. His equity-based compensation consists of the $3,750,000 target value LTIP award, which is payable in shares only if certain performance conditions are met over the three-year performance period, and $2,625,000 in stock options (stock options, rather than stock units, were utilized in 2012 to preserve tax-deductibility to the Company, see “Tax Deductibility” under Section III.A in the CD&A).
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• | | Awarded No Current Bonus. 100% of the CEO’s year-end bonus is deferred. The CEO’s vesting period continues to be three years for deferred equity-based compensation. The Company has additionally increased the vesting period for deferred cash-based compensation to three years – an increase of one year from the prior year’s deferral period – with payments scheduled over the period May 2013 to November 2015.
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• | | Subjected All Deferred Compensation to Clawback. All deferred compensation for the CEO is subject to clawback as described in the CD&A, including if his acts or omissions (including with respect to direct supervisory responsibilities) cause a restatement of the Company’s consolidated financial results or constitutes a violation of the Company’s global risk management principles, policies and standards.
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2012 compensation for the other NEOs was generally reduced in line with the reduction in the CEO’s compensation, and the structure of their compensation is generally consistent with the CEO’s. In addition, no hedging of Morgan Stanley equity is permitted for the CEO or other NEOs, and they are subject to an Equity Ownership Commitment. In January 2016, based on feedback from shareholders, we revised our Equity Ownership Commitment thatin order to enhance the alignment between the long-term interests of our shareholders and our Operating Committee members.
The Equity Ownership Commitment now requires themeach of our CEO, CFO, President, and COO (Covered Officers) to retain at least 75%achieve ownership of a number of shares of common stock with a value equal to a specified multiple of his base salary within five years. Our CEO is required to achieve ownership of shares of common stock and equity awards with a value equal to 10x his base salary and each other Covered Officer is required to achieve ownership of shares of common stock and equity awards with a value equal to 6x his base salary. In addition, the Equity Ownership Commitment continues to impose retention requirements for Operating Committee members. Operating Committee members are required to hold common stock and equity awards equal to a percentage of common stock received from equity awards (less allowances for the payment of any option exercise price and taxes) madegranted to them for service on the Company’s Operating Committee. Overall, while the CMDS Committee believes that the strategic and financial foundations for the Company’s future success have been put in place, compensation for the CEO and other NEOs has been reduced to reflect the Company’s 2012 performance. The structure(Equity Award Shares) as follows:
| ● | Our CEO is required to retain 75% of Equity Award Shares.
| | ● | Each of our other Operating Committee members is required to retain 50% of Equity Award Shares acquired from equity awards granted beginning in January 2016 and thereafter, and 75% of Equity Award Shares acquired from equity awards granted prior to January 2016; provided that Operating Committee members who are Covered Officers must retain 75% of all Equity Award Shares until the applicable ownership requirement is met. |
This commitment ties a portion of compensation has also been refined to increase shareholder alignment by substantially increasing the proportion of the comprehensive pay opportunity that will be delivered only if the Company delivers positive performance for shareholders over a forward-looking three-year period. 58
Although the vote on this proposal is not binding, the CMDSour Operating Committee which is comprised solely of independent directors and is responsible for making decisions regarding the amount and form of compensation paidmembers’ net worth to the Company’s senior executives, will carefully consider the shareholder vote on this matter.stock price and provides a continuing incentive for them to work towardsuperior long-term stock price performance. None of our executive officers currently have prearranged trading plans under SEC Rule 10b5-1. Executive officers also are prohibited from pledging or selling short, or engaging in hedging strategiesor trading derivatives involving, Morgan Stanley securities.
DIRECTOR EQUITY OWNERSHIP REQUIREMENT To help ensure that the range of shareholder views are well understood byAs indicated under “Director Compensation,” our independent directors generally receive an equity award upon initial election to the Board –and receive an annual equity award thereafter with a grant date fair value of $250,000 (prorated in a way that a simple “for” or “against” votethe case of the initial award) as part of their director compensation. 50% of each equity award granted to our independent directors does not allow –become payable until the Company also encourages shareholders to use anydirector retires from the Board (and may be deferred beyond retirement at the director’s election), which fosters a long-term ownership view. Directors may not enter into hedging transactions in respect of Morgan Stanley common stock or pledge Morgan Stanley common stock in connection with a numbermargin or other loan transaction.
68 Morgan Stanley 2016 Proxy Statement
Table of available direct communication mechanisms to effectively raise specific items with regard toContents OWNERSHIP OF OUR STOCK STOCK OWNERSHIP OF EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth the beneficial ownership of common stock as of February 29, 2016 by our CEO and the other executive compensation practices.officers named in the “2015 Summary Compensation Table” (our NEOs), directors, and by all our directors and executive officers as of February 29, 2016as a group. As of February 29, 2016, none of the common stock beneficially owned by our directors and current executive officers was pledged. | Name | Shares(1) | | Underlying
Stock Units(2) | | Subject to
Stock Options
Exercisable
Within 60 Days | | Total(3) | | NAMED EXECUTIVE OFFICERS | | | | | | | | | James P. Gorman | 651,725 | | 756,355 | | 966,330 | | 2,374,410 | | Jonathan Pruzan | 49,855 | | 208,205 | | 6,765 | | 264,825 | | Ruth Porat(4) | 875,481 | | 118,102 | | 205,764 | | 1,199,347 | | Gregory J. Fleming | 526,624 | | 369,678 | | 408,563 | | 1,304,865 | | Colm Kelleher | 330,760 | | 327,826 | | 772,003 | | 1,430,589 | | James A. Rosenthal | 170,766 | | 169,905 | | 495,360 | | 836,031 | | | | DIRECTORS AND DIRECTOR NOMINEES | | | | | | | | | Erskine B. Bowles | 1,000 | | 132,229 | | — | | 133,229 | | Alistair Darling | — | | 3,243 | | — | | 3,243 | | Thomas H. Glocer | 2,535 | | 31,204 | | — | | 33,739 | | Robert H. Herz | 12,969 | | 28,382 | | — | | 41,351 | | Nobuyuki Hirano(5) | — | | — | | — | | — | | Klaus Kleinfeld | 18,197 | | 25,298 | | — | | 43,495 | | Jami Miscik | 1,816 | | 9,375 | | — | | 11,191 | | Donald T. Nicolaisen | — | | 83,102 | | — | | 83,102 | | Hutham S. Olayan | 8,000 | | 122,589 | | — | | 130,589 | | James W. Owens | 14,354 | | 48,304 | | — | | 62,658 | | Ryosuke Tamakoshi(5) | — | | — | | — | | — | | Perry M. Traquina | — | | 7,818 | | — | | 7,818 | | Laura D. Tyson | 30,537 | | 46,704 | | — | | 77,241 | | Rayford Wilkins, Jr. | 7,768 | | 14,488 | | — | | 22,256 | ALL DIRECTORS AND EXECUTIVE OFFICERS AS OF
FEBRUARY 29, 2016 AS A GROUP (21 PERSONS) | 1,538,616 | | 2,376,345 | | 2,847,398 | | 6,762,359 |
| (1) | Each director, NEO and executive officer has sole voting and investment power with respect to his or her shares, except with respect to the following shares owned indirectly through family trusts, the sole beneficiaries of which are family members, and custodial accounts: Mr. Gorman – 40,115 shares, 1,400 shares of which he disclaims ownership; Mr. Fleming – 104,550 shares; Mr. Rosenthal – 170,197 shares; and Mr. Bowles – 1,000 shares.
| | (2) | Shares of common stock held in a trust (Trust) corresponding to certain outstanding restricted stock units (RSUs). Directors and executive officers may direct the voting of the shares corresponding to such RSUs. Voting by executive officers is subject to the provisions of the Trust, as described in “Information about the Annual Meeting – How Do I Submit Voting Instructions for Shares Held in Employee Plans?”. Excludes LTIP awards because executive officers may not direct the voting of any shares corresponding to such awards prior to settlement of the award.
| | (3) | Each NEO and director beneficially owned less than 1% of the shares of common stock outstanding. All executive officers and directors as a group as of February 29, 2016 beneficially owned less than 1% of the common stock outstanding.
| | (4) | Following her departure from the Company, Ms. Porat pledged 714,408 shares of common stock to a bank as collateral.
| | (5) | Messrs. Hirano and Tamakoshi were designated by MUFG and elected to the Board pursuant to the Investor Agreement. They are not compensated by Morgan Stanley for their service on the Board. See “Principal Shareholders” regarding MUFG’s beneficial ownership of Company common stock. |
Morgan Stanley 2016 Proxy Statement 69
Table of Contents OWNERSHIP OF OUR STOCK PRINCIPAL SHAREHOLDERS The Company’s current policy is to provide shareholders with an opportunity to approvefollowing table contains information regarding the compensationonly persons we know of that beneficially own more than 5% of our common stock. | | | | Shares of Common Stock
Beneficially Owned | | | | Name and Address | | | Number | | Percent(1) | | | MUFG(2) | | | 435,269,905 | | 22.4 | | | 7-1, Marunouchi 2-chome | | | | | | | | Chiyoda-ku, Tokyo 100-8330, Japan | | | | | | | | State Street(3) | | | 137,364,551 | | 7.1 | | | One Lincoln Street | | | | | | | | Boston, MA 02111 | | | | | | | | T. Rowe Price Associates, Inc. (T. Rowe Price)(4) | | | 130,034,322 | | 6.7 | | | 100 E. Pratt Street | | | | | | | | Baltimore, MD 21202 | | | | | | | | BlackRock, Inc. (BlackRock)(5) | | | 101,896,178 | | 5.3 | | | 55 East 52nd Street | | | | | | | | New York, NY 10055 | | | | | | |
| (1) | Percentages based upon the number of shares of common stock outstanding as of the record date, March 21, 2016, and the beneficial ownership of the principal shareholders as reported in SEC filings in notes 2 through 5 below. | | | (2) | Based on the amended Schedule 13D dated October 3, 2013 filed by MUFG. The amended Schedule 13D discloses that MUFG had sole dispositive and sole voting power with respect to the beneficially owned shares reported, including 3,252,753 shares held solely in a fiduciary capacity by certain affiliates of MUFG as the trustee of trust accounts or the manager of investment funds, other investment vehicles and managed accounts as of September 27, 2013 for which MUFG disclaims beneficial ownership. | | | (3) | Based on the Schedule 13G dated February 12, 2016 filed by State Street and State Street Bank and Trust Company, each acting in various fiduciary and other capacities (as of December 31, 2015). The Schedule 13G discloses that State Street had shared dispositive power as to 137,364,551 shares and shared voting power as to 136,788,017 shares; and that 76,450,828 shares beneficially owned by State Street Bank and Trust Company, a subsidiary of State Street, are held as trustee on behalf of the Trust that holds shares of common stock underlying certain restricted stock units awarded to employees under various of the Company’s equity-based plans. | | | (4) | Based on the Schedule 13G dated February 16, 2016 filed by T. Rowe Price (as of December 31, 2015). The Schedule 13G discloses that T. Rowe Price had sole dispositive power as to 129,917,922 shares and sole voting power as to 48,519,511 shares. The Schedule 13G states that T. Rowe Price affirms that the Schedule 13G shall not be construed as an admission that T. Rowe Price is the beneficial owner of the securities referred to, which beneficial ownership is expressly denied. | | | (5) | Based on the Schedule 13G dated January 22, 2016 filed by BlackRock (as of December 31, 2015). The Schedule 13G discloses that BlackRock had shared voting and shared dispositive power as to 72,444 shares, sole voting power as to 89,545,861 shares and sole dispositive power as to 101,823,734 shares. |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the named executiveSecurities Exchange Act of 1934 requires our directors and certain of our officers on an advisory basis, each year atto file reports with the annual meetingSEC indicating their holdings of, shareholders. It is expectedand transactions in, our equity securities. The Company believes that the next such vote will occur at the 2014 annual meetingour reporting persons complied with all Section 16(a) filing requirements during 2015. 70Morgan Stanley 2016 Proxy Statement
Table of shareholders.Contents Our Board unanimously recommends that you vote“FOR” this proposal. Proxies solicited by the Board will be voted“FOR” this proposal unless otherwise instructed.
Item 4—EQUITY COMPENSATION PLAN
Company Proposal to Amend the 2007 Equity Incentive Compensation Plan to Increase Shares Available for Grant | Our Board unanimously recommends that you vote“FOR” this proposal. | | |
OUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL.
OurUpon the recommendation of the CMDS Committee, on March 24, 2016, the Board adopted an amended and restatedamendment to our 2007 Equity Incentive Compensation Plan (EICP) on March 21, 2013, upon the recommendation of the CMDS Committee. The EICP includes an amendment to increase the number of shares of common stock available to be granted under the EICP by 3020 million shares. The proposed increase in shares, represents approximately 1.5%and to add regulatory factors, risk management, expense management, and contributions to community development and sustainability projects or initiatives as performance measures that could be elements of the common shares of the Company outstanding as of February 28, 2013.performance-vested awards over time. The EICP was originally approved by shareholders on April 10, 2007.
2007 and was last amended to increase the number of shares of common stock available for grant in 2015 by 25 million shares. Under the NYSE rules, this amendment will not be effective if our shareholders do not approve it. The proposed increase in shares, which represents approximately 1.02% of the common shares of the Company outstanding as of January 31, 2016, is less than the 59 million shares the Company repurchased in 2015. If this EICP amendment is approved, the Company expects to have sufficient shares for grants to be made over the next year and to return to shareholders to request approval of additional shares at the 20142017 annual meeting of shareholders. The proposed additional performance measures will better enable performance-vested awards to qualify as tax-deductible to the Company under Section 162(m) of the Internal Revenue Code, which the Company believes to be in the best interests of the Company and shareholders. Morgan Stanley paysdelivers a significant portion of incentive compensation as equity awards, which aligns the interests of the Company’sfor eligible employees with those of its shareholders. In recent years, the Company has fundamentally restructured the way it pays its employees to more closely tie compensation to the Company’s long-term financial performance by paying a more significant portion of year-end compensation in the form of deferred equity awards (RSUs) that are impacted by future stock price performance over a multi-year period and, significantly reducing the portion of year-end compensation paid as current cash bonus. In prior years, the Company paidfor senior executives, a substantial portion of their incentive compensation in performanceperformance-vested stock units that only deliver value if the Company meets specific performance targets after three years. In January 2013,years (LTIP awards). We believe this approach to executive compensation aligns the Company granted future-oriented, multi-year, long-term incentive program (LTIP) awards to senior executives that, likeinterests of the previous performance stock units, will vestCompany’s employees with those of its shareholders and convert to shares only if the Company achieves predetermined performance goals relating to return on average common shareholders’ equityis consistent with executive motivation, best practices, and relative total shareholder return over a forward-looking three-year performance period. regulatory principles. The Board believes that this proposalthe EICP amendment is in the best interest of shareholders and supports this proposal for the following reasons: In January 2013, approximately 55.6
| ● | In January 2016, approximately 33.8 million shares underlying equity awards were granted as part of the 2015 year-end compensation process and approximately 1.1 million shares (representing the target number of performance stock units) were granted as LTIP awards. After these grants, as of January 31, 2016, approximately 33.9 million shares were available for future equity awards under the EICP and the Company’s legacy equity plans, with only 27.5 million of such shares available under the EICP. Given the significant portion of incentive compensation paid as equity awards, the number of shares currently available under the Company’s plans is not expected to be sufficient for grants that would be made over the next year until the 2017 annual meeting of shareholders.
| | ● | The Company strives to maximize employee and shareholder alignment through the use of deferred equity awards, while minimizing dilution. Since 2009, the Company has requested approval of a number of additional shares that we anticipate will be sufficient to cover only one year of grant needs. The Company has evaluated, as it does annually, whether to return to shareholders to request approval of additional shares at the 2016 annual meeting of shareholders and has determined to request 20 million shares to cover one year of grant needs, which is down from the 25 million shares approved by 92% of voting shareholders last year and less than the 59 million shares the Company repurchased in 2015.
| | ● | If the proposed amendment is not approved, the Company will not have sufficient shares for grant needs and will be compelled to increase the cash-based component of employee compensation, which is contrary to regulatory guidance and could reduce the alignment of employee and shareholder interests.
| | ● | If the proposed amendment is not approved, the Company will not have sufficient shares for grant needs and will lose a critical tool for recruiting, retaining and motivating employees. The Company would thus be at a competitive disadvantage in attracting and retaining talent. |
Morgan Stanley 2016 Proxy Statement71
Table of the 2012 year-end compensation process and approximately 1.2 million shares (representing the target number of stock units) were granted as 2013 LTIP awards. Approximately 4.6% of these shares were granted to our NEOs.After these grants, as of February 28, 2013, approximately 34 million shares were available for future equity awards under the EICP and the Company’s legacy equity plans, with only 28.4 million of such shares available under the EICP. Given the significant portion of incentive compensation paid as equity awards, the number of shares currently available under the Company’s plans will not be sufficient for grants that would be made over the next year until the 2014 annual meeting of shareholders. EQUITY COMPENSATION PLAN | ● | If the proposed amendment is not approved, the Company will have limited flexibility to grant performance-vested awards that are conditioned upon the attainment of criteria related to regulatory factors, risk management, expense management, and contributions to community development and sustainability projects or initiatives and that are tax deductible to the Company under Section 162(m) of the Internal Revenue Code.
| | ● | The terms of our equity and other annual and long-term incentive compensation awards and our employee policies are all designed to protect shareholder interests and encourage employees to focus on the long-term success of the Company. |
| ○ | Employees typically cannot fully monetize equity awards until three years after grant. For example, RSUs granted for 2015 generally vest and convert to shares after three years.
| | ○ | The Company’s equity awards generally are subject to cancellation for, among other things, engaging in competitive activity, cause (i.e., any act or omission that constitutes a breach of obligation to the Company, including failure to comply with internal compliance, ethics or risk management standards and failure or refusal to perform duties satisfactorily, including supervisory and management duties), soliciting clients or employees, and misuse of proprietary information.
| | ○ | Equity awards are subject to clawback if an employee’s act or omission (including with respect to direct supervisory responsibilities) causes a restatement of the Company’s consolidated financial results, constitutes a violation of the Company’s global risk management principles, policies and standards, or causes a loss of revenue associated with a position on which the employee was paid and the employee operated outside of internal control policies. Equity awards to senior executives are also subject to clawback if the CMDS Committee determines that the individual had significant responsibility for a material adverse outcome for the Company or any of its businesses or functions, even absent misconduct.
| | ○ | The EICP expressly prohibits the grant of stock option restoration rights and the repricing of stock options and stock appreciation rights (including any amendment to such awards that has the effect of reducing the exercise price and any cancellation of such awards in exchange for cash or another award) other than an equitable adjustment in connection with a corporate transaction. |
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The Company strives to maximize employee and shareholder alignment, while minimizing dilution. Thus, the Company is requesting 40% fewer additional shares in 2013 (30 million) than in 2012, when we requested 50 million additional shares. Fewer additional shares are necessary in 2013 because the Company’s stock price as of March 18, 2013 (the 2013 record date) is approximately 15% higher than it was on March 19, 2012 (the 2012 record date), the Company has approximately 6,000 fewer employees at January 31, 2013 than it did at the beginning of 2012 and the Company has more shares available for grant as of February 28, 2013 than it did at the beginning of 2012. As in prior years, the Company is requesting approval of additional shares to cover only one-year of grant needs.
If the proposed amendment to increase the number of shares available under the EICP is not approved, the Company will be compelled to increase significantly the cash-based component of employee compensation, which is contrary to regulatory guidance and could reduce the alignment of employee and shareholder interests.
If the proposed amendment to increase the number of shares available under the EICP is not approved, the Company will lose a critical tool for recruiting, retaining and motivating employees. The Company would thus be at a competitive disadvantage in attracting and retaining talent.
The terms of our equity and other annual and long-term incentive compensation awards and our employee policies are all designed to protect shareholder interests and encourage employees to focus on the long-term success of the Company.
Employees typically cannot fully monetize equity awards until three years after grant. For example, restricted stock units granted for 2012 generally vest over three years and generally convert to stock on the scheduled vesting dates.
The Company’s equity awards generally are subject to cancellation for, among other things, engaging in competitive activity, termination for cause, violating the Company’s compliance, ethics or risk management standards, soliciting clients or employees and misuse of proprietary information. Equity awards are also subject to clawback for, among other things, engaging in conduct (including with respect to direct supervisory responsibilities) detrimental to the Company, including causing a restatement of the Company’s consolidated financial results or violating the Company’s risk policies and standards.
The EICP expressly prohibits the grant of stock option restoration rights and the repricing of stock options and stock appreciation rights (including any amendment to such awards that has the effect of reducing the exercise price and any cancellation of such awards in exchange for cash or another award) other than an equitable adjustment in connection with a corporate transaction.
Our Board unanimously recommends that you vote“FOR”FOR” this proposal. Proxies solicited by the Board will be voted“FOR”FOR” this proposal unless otherwise instructed. Summary of theSUMMARY OF THE EICP as Proposed to Be Amended.AS PROPOSED TO BE AMENDED
A copy of the EICP as proposed to be amended is attached to this proxy statement as Annex A and the following summary is qualified in its entirety by reference thereto. Other than the amendment to the number of shares available under the EICP and the addition of performance measures for performance-based awards that are intended to qualify for tax deductibility under Section 162(m) of the Internal Revenue Code for which we are seeking approval under this Item 4, provisions related to the addition of qualifying long-term incentive awards, the payment of which is conditioned upon the achievement of performance criteria for which we are seeking shareholder approval under Item 5 – Company Proposal to Amend the 2007 Equity Incentive Compensation Plan to Provide for Qualifying Performance-Based Long-Term Incentive Awards under Section 162(m), and the addition of certain administrative provisions for which shareholder approval is not required, the EICP terms remain unchanged. The capitalized terms not otherwise defined in this summary shall have the meaning assigned to them in the EICP. Purposes and Eligibility.The primary purposes of the EICP are to attract, retain and motivate employees, to compensate them for their contributions to our growth and profits and to encourage them to own shares of our common stock to align their interests with those of shareholders. The EICP authorizes the issuance of awards (Awards) to all officers, other employees (including newly hired employees) and consultants of the Company, non-employee directors of our subsidiaries and employees and consultants of joint ventures, partnerships or
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similar business organizations in which we or one of our subsidiaries has an equity or similar interest (Eligible Individuals). As of January 31, 2013,2016, there were approximately 56,00055,000 Eligible Individuals who were employees of the Company and its subsidiaries. 72Morgan Stanley 2016 Proxy Statement
Table of Contents EQUITY COMPENSATION PLAN Administration. The CMDS Committee will administer the EICP, select the Eligible Individuals who receive Awards (Participants) and determine the form and terms of the Awards, including any vesting, exercisability, payment or other restrictions. Subject to certain limitations, the CMDS Committee may delegate some or all of its authority to one or more administrators (e.g., one or more CMDS Committee members or one or more of our officers).
| Shares Available Under the EICP |
Shares Available Under the EICP. Since initial shareholder approval of the EICP in 2007, the total number of shares of common stock that may be delivered pursuant to Awards will be 278323 million (which takes into account the proposed 3020 million share increase), of which approximately 220275.5 million were already granted as of February 28, 2013,January 31, 2016, subject to adjustment pursuant to the EICP’s share counting rules as described below and to reflect certain transactions. Shares delivered under the EICP may be either treasury shares or newly issued shares. In addition to the overall limit, the EICP limits the number of shares of common stock that may be subject to stock option and stock appreciation right (SAR) awards in any single year.
Share Counting Rules. When the CMDS Committee grants an Award, the full number of shares subject to the Award is charged against the number of shares that remain available for delivery pursuant to Awards. After grant, the number of shares subject to any portion of an Award that is canceled or that expires without having been settled in shares, or that is settled through the delivery of consideration other than shares, will be available for new Awards. If shares are tendered or withheld to pay the exercise price of an Award or to satisfy a tax withholding obligation, those tendered or withheld shares will be available for new Awards. Awards granted upon assumption of, or in substitution for, outstanding awards previously granted by, or held by employees of, a company or other entity or business acquired (directly or indirectly) by the Company or with which the Company combines are not counted against the number of shares of common stock available for delivery pursuant to Awards and are not subject to the individual limit on stock options and SARs.
| ● | Form of Awards.Awards Generally. Form of Awards. The EICP authorizes the following Awards: (i) restricted stock Awards consisting of one or more shares of common stock granted or sold to a Participant; (ii) stock unit Awards settled in one or more shares of common stock or, as authorized by the CMDS Committee, an amount in cash based on the fair market value of shares of common stock; (iii) stock option Awards consisting of the right to purchase at a specified exercise price a number of shares of common stock determined by the CMDS Committee; (iv) SARs consisting of the grant of a right to receive upon exercise of such right, in cash or common stock (or a combination thereof) as determined by the CMDS Committee, an amount equal to the increase in the fair market value of a share of common stock over the specified exercise price; (v) Qualifying Performance Awards to participants covered by Section 162(m), with the intent that such awards qualify as “performance-based compensation” under Section 162(m); and (vi) other forms of equity-based or equity-related Awards that the CMDS Committee determines to be consistent with the purposes of the EICP (Other Awards). Awards under the EICP may, at the discretion of the CMDS Committee, be made in substitution in whole or in part for cash or other compensation payable to an Eligible Individual.
Dividends and Distributions. If we pay any dividend or make any distribution to holders of our common stock, the CMDS Committee may in its discretion authorize payments (which may be in cash, common stock (including restricted stock) or stock units or a combination thereof) with respect to the shares of common stock corresponding to an Award, or may authorize appropriate adjustments to outstanding Awards, to reflect the dividend or distribution. The CMDS Committee may make any such payments subject to vesting, deferral, restrictions on transfer or other conditions. Dividends are not paid on stock options or SARs.
Restricted Stock and Stock Units. Awards under the EICP may, at the discretion of the CMDS Committee, be made in substitution in whole or in part for cash or other compensation payable to an Eligible Individual.
| | ● | Dividends and Distributions. If we pay any dividend or make any distribution to holders of our common stock, the CMDS Committee may in its discretion authorize payments (which may be in cash, common stock (including restricted stock) or stock units or a combination thereof) with respect to the shares of common stock corresponding to an Award, or may authorize appropriate adjustments to outstanding Awards, to reflect the dividend or distribution. The CMDSCommittee may make any such payments subject to vesting, deferral, restrictions on transfer or other conditions. Dividends are not paid on stock options or SARs. |
| Restricted Stock and Stock Units |
Restricted shares awarded or sold to a Participant are outstanding shares of common stock that the CMDS Committee may subject to restrictions on transfer, vesting requirements or 61
cancellation under specified circumstances. Each stock unit awarded to a Participant corresponds to one share of common stock and the CMDS Committee may subject the award to vesting requirements or cancellation under specified circumstances. Upon satisfaction of the terms and conditions of a stock Morgan Stanley 2016 Proxy Statement73
Table of Contents EQUITY COMPENSATION PLAN unit Award, applicable stock units will be payable, at the discretion of the CMDS Committee, in common stock or in cash equal to the fair market value on the payment date of one share of common stock. As a holder of stock units, a Participant will have only the rights of a general unsecured creditor of the Company. A Participant will not be a shareholder with respect to the shares underlying stock units unless and until the stock units convert to shares of common stock. | ● | General.Stock Options and SARs. General. Stock options may be either nonqualified stock options or incentive stock options (ISOs). Upon satisfaction of the conditions for exercisability, a Participant may exercise a stock option and receive the number of shares of common stock in respect of which the stock option is exercised. Upon satisfaction of the conditions for payment, each SAR will entitle a Participant to an amount, if any, equal to the amount by which the fair market value of a share of common stock on the date of exercise exceeds the SAR exercise price. At the discretion of the CMDS Committee, SARs may be payable in common stock, cash or a combination thereof.
Exercise Price. The exercise price of stock options and SARs awarded under the EICP may not be less than 100% of the fair market value of one share of common stock on the award date; however, the exercise price per share of a stock option or SAR that is granted in substitution for an award previously granted by an entity acquired by the Company or with which the Company combines may be less than the fair market value per share on the award date if such substitution complies with applicable laws and regulations.
Prohibition on Repricing of Stock Options and SARs. The CMDS Committee may not “reprice” any stock option or SAR or make any other amendment to a stock option or SAR that has the effect of reducing its exercise price or cancel a stock option or SAR in exchange for cash or another Award, unless the repricing occurs in connection with a merger, acquisition, spin-off or other similar corporate transaction. An equitable adjustment to reflect a corporate transaction is not a prohibited repricing.
Prohibition on Restoration Option and SAR Grants. The terms of a stock option or SAR may not provide for a new stock option or SAR to be granted, automatically and without payment of additional consideration in excess of the exercise price of the underlying stock option or SAR, to a Participant upon exercise of the stock option or SAR.
Individual Limit on Stock Options and SARs. The maximum number of shares of common stock that may be subject to stock options or SARs granted to or elected by a Participant in any fiscal year will be 2,000,000 shares. This limitation does not apply to shares of common stock subject to stock options or SARs granted to a Participant pursuant to any performance formula or performance measures approved by the Company’s shareholders pursuant to Section 162(m).
Maximum Term on Stock Options and SARs. No stock option or SAR may have an expiration date that is later than the tenth anniversary of the Award date.
ISO Limit. The full number of shares of common stock available for delivery under the EICP may be delivered pursuant to ISOs, except that in calculating the number of shares that remain available for ISOs, certain share counting provisions will not apply.
Qualifying Performance Awards. Please see the discussion in Item 5 “– Summary of the Material Terms of the Performance Goals under the EICP as Proposed to be Amended” regarding performance-based awards that are intended to qualify for tax deductibility under Section 162(m). Upon satisfaction of the conditions for exercisability, a Participant may exercise a stock option and receive the number of shares of common stock in respect of which the stock option is exercised. Upon satisfaction of the conditions for payment, each SAR will entitle a Participant to an amount, if any, equal to the amount by which the fair market value of a share of common stock on the date of exercise exceeds the SAR exercise price. At the discretion of the CMDS Committee, SARs may be payable in common stock, cash or a combination thereof.
| | ● | Exercise Price. The exercise price of stock options and SARs awarded under the EICP may not be less than 100% of the fair market value of one share of common stock on the award date; however, the exercise price per share of a stock option or SAR that is granted in substitution for an award previously granted by an entity acquired by the Company or with which the Company combines may be less than the fair market value per share on the award date if such substitution complies with applicable laws and regulations.
| | ● | Prohibition on Repricing of Stock Options and SARs. The CMDS Committee may not “reprice” any stock option or SAR or make any other amendment to a stock option or SAR that has the effect of reducing its exercise price or cancel a stock option or SAR in exchange for cash or another Award, unless the repricing occurs in connection with a merger, acquisition, spin-off or other similar corporate transaction. An equitable adjustment to reflect a corporate transaction is not a prohibited repricing.
| | ● | Prohibition on Restoration Option and SAR Grants. The terms of a stock option or SAR may not provide for a new stock option or SAR to be granted, automatically and without payment of additional consideration in excess of the exercise price of the underlying stock option or SAR, to a Participant upon exercise of the stock option or SAR.
| | ● | Individual Limit on Stock Options and SARs. The maximum number of shares of common stock that may be subject to stock options or SARs granted to or elected by a Participant in any fiscal year will be 2,000,000 shares. This limitation does not apply to shares of common stock subject to stock options or SARs granted to a Participant pursuant to any performance formula or performance measures approved by the Company’s shareholders pursuant to Section 162(m).
| | ● | Maximum Term on Stock Options and SARs. No stock option or SAR may have an expiration date that is later than the tenth anniversary of the Award date.
| | ● | ISO Limit. The full number of shares of common stock available for delivery under the EICP may be delivered pursuant to ISOs, except that in calculating the number of shares that remain available for ISOs, certain share counting provisions will not apply. |
| Qualifying Performance Awards |
These awards are intended to be granted to any individual designated by the CMDS Committee by not later than 90 days following the start of the relevant performance period (or such other time as may be required or permitted by Section 162(m)) as an individual whose compensation for such fiscal year may be subject to the limit on deductible compensation imposed by Section 162(m). | ● | Eligible Participants. Grants of performance-based long-term incentive awards (other than stock options and stock appreciation rights) that are intended to be qualified performance-based awards under Section 162(m) (Qualifying Awards) will be limited to our officers for whom compensation may not otherwise be tax-deductible under Section 162(m). Currently, the Company expects to grant Awards to some or all members of the Company’s Operating Committee. There are currently 16such officers.
| | ● | Performance Measures. The performance measures for Qualifying Awards may vary by participant and by award, and may be based upon the attainment of specific amounts of, or changes in, one or more of the following: earnings (before or after taxes); earnings per share; shareholders’ equity or return on shareholders’ equity; risk-weighted assets or |
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Table of Contents EQUITY COMPENSATION PLAN 62return on risk-weighted assets; capital, capital ratios or return on capital; book value or book value per share; operating income (before or after taxes); operating margins or pre-tax margins; stock price or total shareholder return; market share (including market share of revenue); debt reduction or change in rating; cost reductions; regulatory factors; risk management; expense management; or contributions to community development or sustainability projects or initiatives.
The CMDS Committee may provide that, in measuring the achievement of the performance measures, an award may include or exclude items such as unrealized investment gains and losses, extraordinary, unusual or non-recurring items, asset write-downs, effects of accounting changes, currency fluctuations, acquisitions, divestitures, reserve-strengthening, litigation, claims, judgments or settlements, the effect of changes in tax law or other such laws or provisions affecting reported results and other non-operating items, as well as the impact of changes in the fair value of certain of the Company’s long-term and short-term borrowings resulting from fluctuations in the Company’s credit spreads and other factors (commonly referred to as DVA).
| ● | Individual Award Limits. In any one calendar year, no one participant may be granted Qualifying Awards that allow for payments with an aggregate value determined by the CMDS Committee to be in excess of $10 million. For purposes of calculating this limit, the value of Qualifying Awards that are denominated in shares will be determined by reference to the volume-weighted average price of a share of the Company on the first date of grant of such awards. For purposes of the foregoing, the CMDS Committee will determine the calendar year or years in which amounts under these Qualifying Awards are deemed paid, granted or received. |
Other Awards. The CMDS Committee may establish the terms and provisions of other forms of Awards not described above that the CMDS Committee determines to be consistent with the purpose of the EICP and the interests of the Company.
Transferability. Unless otherwise permitted by the CMDS Committee, no Award will be transferable other than by will or by the laws of descent and distribution. During the lifetime of a Participant, an ISO will be exercisable only by the Participant.
| Amendment and Termination |
Amendment and Termination. The Board or the CMDS Committee may modify, amend, suspend or terminate the EICP in whole or in part at any time and may modify or amend the terms and conditions of any outstanding Award. However, no modification, amendment, suspension or termination may materially adversely affect a Participant’s rights with respect to any Award previously made without that Participant’s consent, except that the CMDS Committee may at any time, without a Participant’s consent, amend or modify the EICP or any Award under the EICP to comply with law, accounting standards, regulatory guidance or other legal requirements. The CMDS Committee may create subplans as may be necessary or advisable to comply with non-U.S. legal or regulatory provisions. Notwithstanding the foregoing, neither the Board nor the CMDS Committee may accelerate the payment or settlement of any Award that constitutes a deferral of compensation for purposes of Section 409A of the Internal Revenue Code except to the extent the acceleration would not result in a Participant incurring interest or additional tax under Section 409A.
Term. No Awards may be made after May 15, 2017.
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Section 162(m)Table of the Internal Revenue CodeContents.
EQUITY COMPENSATION PLAN | Section 162(m) of the Internal Revenue Code |
Section 162(m) limits the federal income tax deduction for compensation paid to the Chief Executive Officer and the three other most highly compensated executive officers (other than the Chief Financial Officer) of a publicly held corporation to $1 million per fiscal year, with exceptions for certain performance-based compensation. Such performance-based compensation may consist of awards determined by the CMDS Committee under a formula or performance criteria approved by the Company’s shareholders. Our shareholders approved the formula governing annual incentive compensation currently used by the CMDS Committee at our annual meeting on March 22, 2001 and is seeking to amend the existing formula (please see Item 6 of this proxy statement).May 14, 2013. Awards of stock options, SARs or SARsperformance-based long-term incentive awards granted by the CMDS Committee under the EICP will also qualify for the performance-based compensation exception to Section 162(m). If Item 5 is approved by shareholders, then qualifying performance-based long-term incentive awards will also qualify for the performance-based compensation exception to Section 162(m). EICP Benefits. Awards under the EICP will be authorized by the CMDS Committee in its sole discretion. Therefore, it is not possible to determine the benefits or amounts that will be received by any particular employees or group of employees in the future or that would have been received in 20122015 had the amendment of the EICP then been in effect.
| U.S. Federal Income Tax Consequences |
U.S. Federal Income Tax Consequences. The following is a general summary as of the date of this proxy statement of the U.S. federal income tax consequences associated with the EICP. The federal tax laws are complex and subject to change and the tax consequences for any Participant will depend on his or her individual circumstances.
| ● | Stock Units.Stock Units. A Participant who receives stock units will be taxed at ordinary income tax rates on the then fair market value of the shares of common stock distributed at the time of settlement of the stock units and a corresponding deduction will be allowable to the Company at that time (subject to Section 162(m)). The Participant’s tax basis in the shares will equal the amount taxed as ordinary income, and on subsequent disposition the Participant will realize long-term or short-term capital gain or loss.
| | ● | Restricted Stock. A Participant who is awarded restricted stock will not be taxed at the time an Award is granted unless the Participant makes the special election with the Internal Revenue Service pursuant to Section 83(b) of the Internal Revenue Code as discussed below. Upon lapse of the risk of forfeiture or restrictions on transferability applicable to the shares comprising the Award, the Participant will be taxed at ordinary income tax rates on the then fair market value of the shares of common stock distributed at the time of settlement of the stock units and a corresponding deduction will be allowable to the Company at that time (subject to Section 162(m)). The Participant’s tax basis in the shares will equal the amount taxed as ordinary income, and on subsequent disposition the Participant will realize long-term or short-term capital gain or loss. Restricted Stock. A Participant who is awarded restricted stock will not be taxed at the time an Award is granted unless the Participant makes the special election with the Internal Revenue Service pursuant to Section 83(b) of the Internal Revenue Code as discussed below. Upon lapse of the risk of forfeiture or restrictions on transferability applicable to the shares comprising the Award, the Participant will be taxed at
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| ordinary income tax rates on the then fair market value of the shares. The Company is required to withhold tax on the amount of income so recognized, and a deduction corresponding to the amount of income recognized will be allowable to the Company (subject to Section 162(m)). The Participant’s tax basis in the shares will be equal to the ordinary income so recognized. Upon subsequent disposition of the shares, the Participant will realize long-term or short-term capital gain or loss.
| | Pursuant to Section 83(b) of the Internal Revenue Code, the Participant may elect within 30 days of receipt of the Award to be taxed at ordinary income tax rates on the fair market value of the shares comprising such Award at the time of Award (determined without regard to any restrictions which may lapse) less any amount paid for the shares. In that case, the Participant will acquire a tax basis in the shares equal to the ordinary income recognized by the Participant at the time of Award. No tax will be payable upon the lapse or release of the restrictions or at the time the shares first become transferable, and any gain or loss upon subsequent disposition will be a capital gain or loss. In the event of a forfeiture of shares of common stock with respect to which a Participant previously made a Section 83(b) election, the Participant will generally not be entitled to a loss deduction.
| | ● | Nonqualified Stock Options. The grant of a nonqualified stock option will not result in the recognition of taxable income by the Participant or in a deduction to the Company. Upon exercise, a Participant will recognize ordinary income in an amount equal to the excess of the fair market value of the shares of common stock purchased over the exercise price, and a tax deduction is allowable to the Company equal to the amount of such income (subject to Section 162(m)). Gain or loss upon a subsequent sale of any shares received upon the exercise of a nonqualified stock option generally would be taxed as either long-term or short-term capital gain or loss, depending upon the holding period of the shares sold. Certain additional rules apply if the exercise price for an option is paid in shares previously owned by the Participant. |
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Table of Contents Pursuant to Section 83(b) of the Internal Revenue Code, the Participant may elect within 30 days of receipt of the Award to be taxed at ordinary income tax rates on the fair market value of the shares comprising such Award at the time of Award (determined without regardEQUITY COMPENSATION PLAN
| ● | ISOs. Upon the grant or exercise of an ISO within the meaning of Section 422 of the Internal Revenue Code, no income will be realized by the Participant for federal income tax purposes and the Company will not be entitled to any restrictions which may lapse) less any amount paid for the shares. In that case, the Participant will acquire a tax basis in the shares equal to the ordinary income recognized by the Participant at the time of Award. No tax will be payable upon the lapse or release of the restrictions or at the time the shares first become transferable, and any gain or loss upon subsequent disposition will be a capital gain or loss. In the event of a forfeiture of shares of common stock with respect to which a Participant previously made a Section 83(b) election, the Participant will generally not be entitled to a loss deduction. However, the excess of the fair market value of the shares of common stock as of the date of exercise over the exercise price will constitute an adjustment to taxable income for purposes of the alternative minimum tax. If the shares are not disposed of within the one-year period beginning on the date of the transfer of such shares to the Participant or within the two-year period beginning on the date of grant of the stock option, any profit realized by the Participant upon the disposition of such shares will be taxed as long-term capital gain and no deduction will be allowed to the Company. If the shares are disposed of within the one-year period from the date of transfer of such shares to the Participant or within the two-year period from the date of grant of the stock option, the excess of the fair market value of the shares on the date of exercise or, if less, the fair market value on the date of disposition, over the exercise price will be taxable as ordinary income to the Participant at the time of disposition, and a corresponding deduction will be allowable to the Company. Certain additional rules apply if the exercise price for a stock option is paid in shares previously owned by the Participant.
| | ● | SARs. The grant of SARs will not result in the recognition of taxable income by the Participant or in a deduction to the Company. Upon exercise, a Participant will recognize ordinary income in an amount equal to the then fair market value of the shares of common stock or cash distributed to the Participant. The Company is entitled to a tax deduction equal to the amount of such income (subject to Section 162(m)). Gain or loss upon a subsequent sale of any shares received upon the exercise of SARs generally would be taxed as long-term or short-term capital gain or loss, depending upon the holding period of the shares sold. |
EQUITY COMPENSATION PLAN INFORMATION Nonqualified Stock Options. The grant of a nonqualified stock option will not result in the recognition of taxable income by the Participant or in a deduction to the Company. Upon exercise, a Participant will recognize ordinary income in an amount equal to the excess of the fair market value of the shares of common stock purchased over the exercise price, and a tax deduction is allowable to the Company equal to the amount of such income (subject to Section 162(m)). Gain or loss upon a subsequent sale of any shares received upon the exercise of a nonqualified stock option generally would be taxed as either long-term or short-term capital gain or loss, depending upon the holding period of the shares sold. Certain additional rules apply if the exercise price for an option is paid in shares previously owned by the Participant.
ISOs. Upon the grant or exercise of an ISO within the meaning of Section 422 of the Internal Revenue Code, no income will be realized by the Participant for federal income tax purposes and the Company will not be entitled to any deduction. However, the excess of the fair market value of the shares of common stock as of the date of exercise over the exercise price will constitute an adjustment to taxable income for purposes of the alternative minimum tax. If the shares are not disposed of within the one-year period beginning on the date of the transfer of such shares to the Participant or within the two-year period beginning on the date of grant of the stock option, any profit realized by the Participant upon the disposition of such shares will be taxed as long-term capital gain and no deduction will be allowed to the Company. If the shares are disposed of within the one-year period from the date of transfer of such shares to the Participant or within the two-year period from the date of grant of the stock option, the excess of the fair market value of the shares on the date of exercise or, if less, the fair market value on the date of disposition, over the exercise price will be taxable as ordinary income to the Participant at the time of disposition, and a corresponding deduction will be allowable to the Company. Certain additional rules apply if the exercise price for a stock option is paid in shares previously owned by the Participant.
SARs. The grant of SARs will not result in the recognition of taxable income by the Participant or in a deduction to the Company. Upon exercise, a Participant will recognize ordinary income in an amount equal to the then fair market value of the shares of common stock or cash distributed to the Participant. The Company is entitled to a tax deduction equal to the amount of such income (subject to Section 162(m)). Gain or loss upon a subsequent sale of any shares received upon the exercise of SARs generally would be taxed as long-term or short-term capital gain or loss, depending upon the holding period of the shares sold.
Equity Compensation Plan Information. The following table provides information about outstanding awards and shares of common stock available for future awards under all of Morgan Stanley’s equity compensation plans as of December 31, 2012.2015. Morgan Stanley has not made any grants of common stock outside of its equity compensation plans.
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The following information is intended to update and supplement the table and, we believe, is useful for a better understanding of “Item 4 – Company Proposal to Amend the 2007 Equity Incentive Compensation Plan to Increase Shares Available for Grant” and “Item 5 – Company Proposal to Amend the 2007 Equity Incentive Compensation Plan to Provide for Qualifying Performance-Based Long-Term Incentive Awards under Section 162(m).Plan.” As of February 28, 2013, (i) the number of shares available for grant under the Company’s plans that can be used for the purpose of granting employee equity awards was approximately 34 million, with only 28.4 million of such shares available under the EICP; (ii) the number of outstanding full value awards (including restricted stock units, performance stock units at target and LTIP awards at target) was approximately 143.8 million; (iii) the number of outstanding stock options was approximately 36 million; (iv) the weighted average exercise price of outstanding stock options was $49.3379; and (v) the weighted average remaining life of outstanding stock options was 2.3589 years. | ● | As of January 31, 2016, (i) the number of shares available for grant under the Company’s plans that can be used for the purpose of granting employee equity awards was approximately 33.9 million, with only 27.5 million of such shares available under the EICP; (ii) the number of outstanding full value awards (including restricted stock units and performance stock units at target) was approximately 112.5 million; (iii) the number of outstanding stock options was approximately 16.6 million; (iv) the weighted average exercise price of outstanding stock options was $52.2419; and (v) the weighted average remaining life of outstanding stock options was 1.2134 years. |
| | Plan Category | | (a) | | (b) | | (c) | | | | | Number of securities
to be issued
upon exercise of
outstanding options,
warrants and rights
(#)(1) | | Weighted-average
exercise price of
outstanding options,
warrants and rights
($)(2) | | Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding securities
reflected in column (a))
(#) | | | | Equity compensation plans approved
by security holders | | 127,987,171 | | 52.2551 | | 96,709,828 | (3) | | | Equity compensation plans not approved
by security holders | | 494,618 | | — | | — | (4) | | | Total | | 128,481,789 | | 52.2551 | | 96,709,828 | (5) | |
| (1) | | | | | | | | | | | | | Includes outstanding stock option, restricted stock unit and performance stock unit awards. The number of outstanding performance stock unit awards is based on the target number of units granted to senior executives. | | | | (2) | Reflects the weighted-average exercise price with respect to outstanding stock options and does not take into account outstanding restricted stock units and performance stock units, which do not provide for an exercise price. |
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Table of Contents EQUITY COMPENSATION PLAN
| (3) | Includes the following: | | | | | | | (a) | | | (b) | | | (c) | | Plan Category
| | | | Number of securities to be issued
upon exercise of
outstanding options, warrants
and rights
(#)(1) | | | Weighted-average exercise
price of outstanding options,
warrants and rights
($) | | | Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding securities
reflected in column (a))
(#) | | Equity compensation plans approved by security holders
| | | 168,688,884 | | | | 48.3663 | (2) | | | 114,901,113 | (3) | Equity compensation plans not approved by security holders
| | | 2,555,320 | | | | — | | | | 0 | (4) | | | Total
| | | 171,244,204 | | | | 48.3663 | (2) | | | 114,901,113 | (5) |
(1) Includes outstanding stock option, restricted stock unit and performance stock unit awards. The number of outstanding performance stock unit awards is based on the target number of units granted to senior executives, although the executive may ultimately earn up to two times the target number of such units, or nothing, based on the Company’s performance over the three-year performance period.
(2) Reflects the weighted-average exercise price with respect to outstanding stock options and does not take into account outstanding restricted stock units and performance stock units, which do not provide for an exercise price.
(3) Includes the following:
| (a) | 39,182,870 shares available under the Morgan Stanley Employee Stock Purchase Plan (ESPP). Pursuant to this plan, which is qualified under Section 423 of the Internal Revenue Code, eligible employees were permitted to purchase shares of common stock at a discount to market price through regular payroll deduction. The CMDS Committee approved the discontinuation of the ESPP, effective June 1, 2009, such that no further contributions to the plan will be permitted following such date, until such time as the CMDS Committee determines to recommence contributions under the plan. |
| | | (b) | 66,701,14950,848,524 shares available under the EICP (without taking into account the proposed amendment to the EICP). Awards may consist of stock options, stock appreciation rights, restricted stock, restricted stock units to be settled by the delivery of shares of common stock (or the value thereof), performance-based units, other awards that are valued by reference to or otherwise based on the fair market value of common stock, and other equity-based or equity-related awards approved by the CMDS Committee.
|
| | | (c) | 7,936,8475,948,994 shares available under the Employee Equity Accumulation Plan (EEAP), which includes 732,857733,757 shares available for awards of restricted stock and restricted stock units. Awards may consist of stock options, stock appreciation rights, restricted stock, restricted stock units to be settled by the delivery of shares of common stock (or the value thereof), other awards that are valued by reference to or otherwise based on the fair market value of common stock, and other equity-based or equity-related awards approved by the CMDS Committee.
|
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| | | (d) | 355,243 shares available under the Tax Deferred Equity Participation Plan (TDEPP). Awards consist of restricted stock units, which are settled by the delivery of shares of common stock. |
| | | (e) | 725,004374,197 shares available under DECAP. This plan provides for periodic awards of shares of common stock and stock units to non-employee directors and also allows non-employee directors to defer the cash fees they earn for services as a director in the form of stock units.
|
(4) As of December 31, 2012, no shares remained available for future issuance under the Financial Advisor and Investment Representative Compensation Plan (FAIRCP), which was terminated effective December 31, 2011, and the Morgan Stanley 2009 Replacement Equity Incentive Compensation Plan for Morgan Stanley Smith Barney Employees (REICP), which was terminated effective December 31, 2012. However, awards remained outstanding under these plans as of December 31, 2012. The material features of the FAIRCP and the RECIP, which were not approved by shareholders under SEC rules, are as follows:
| | | (4) | As of December 31, 2015, no shares remained available for future issuance under the Financial Advisor and Investment Representative Compensation Plan (FAIRCP), which was terminated effective December 31, 2011, and the Morgan Stanley 2009 Replacement Equity Incentive Compensation Plan for Morgan Stanley Smith Barney Employees (REICP), which was terminated effective December 31, 2012. However, awards remained outstanding under these plans as of December 31, 2015. The material features of the FAIRCP and the REICP, which were not approved by shareholders under SEC rules, are as follows: | | | (a) | FAIRCP: Financial advisors and investment representatives in the Global Wealth Management Group were eligible to receive awards under FAIRCP in the form of cash, restricted stock and restricted stock units settled by the delivery of shares of common stock. |
| | | (b) | REICP: REICP was adopted in connection with the Morgan Stanley Wealth Management joint venture and without stockholder approval pursuant to the employment inducement award exception under the NYSE Corporate Governance Listing Standards. The equity awards granted pursuant to the REICP were limited to awards to induce certain Citigroup Inc. employees to join the new Morgan Stanley Wealth Management joint venture by replacing the value of Citigroup awards that were forfeited in connection with the employees’ transfer of employment to Morgan Stanley Wealth Management. Awards under the REICP were authorized in the form of restricted stock units, stock appreciation rights, stock options and restricted stock and other forms of stock-based awards. | | | The foregoing descriptions do not purport to be complete and are qualified in their entirety by reference to the FAIRCP and REICP plan documents which, along with all plans under which awards were available for grant in 2015, are included as exhibits to the 2015 Form 10-K. | | | (5) | As of December 31, 2015, 57,152,761 shares were available under the Company’s plans that could be used for the purpose of granting employee equity awards (EICP, EEAP and TDEPP). In January 2016, approximately 33.8 million shares were granted as part of 2015 employee incentive compensation and approximately 1.1 million shares (representing the target number of performance stock units) were granted as 2016 LTIP awards. |
78Morgan Stanley 2016 Proxy Statement
Table of Contents SHAREHOLDER PROPOSALS The Company sets forth below two shareholder proposals and the proponents’ supporting statements. The Board and the Company accept no responsibility for the text of these proposals and supporting statements. The Board recommends that you vote against each of the two shareholder proposals. A proposal may be voted on at the annual meeting only if properly presented by the shareholder proponent or the proponent’s qualified representative. Shareholder Proposal Regarding a Change in the Treatment of Abstentions for Purposes of Vote Counting  | Our Board unanimously recommends that you vote“AGAINST” this proposal. | | |
Newground Social Investment, SPC, 10033 – 12th Ave, NW, Seattle, Washington 98177, on behalf of the Equality Network Foundation, the beneficial owner of 86 shares of common stock, and Boston Common Asset Management, 84 State Street, Suite 940, Boston, Massachusetts 02109, on behalf of the Boston Common U.S. Equity Fund, the beneficial owner of 16,245 shares of common stock, have notified the Company that they intend to present the following proposal and related supporting statement at the annual meeting. RESOLVED: Shareholders of Morgan Stanley hereby request the Board to take or initiate the steps necessary to amend the Company’s governing documents to provide that all non-binding matters presented by shareholders shall be decided by a simple majority of the votes cast FOR and AGAINST an item. This policy shall apply to all such matters unless shareholders have approved higher thresholds, or applicable laws or stock exchange regulations dictate otherwise. SUPPORTING STATEMENT: A simple-majority voting formula includes FOR and AGAINST votes, but not abstentions. Under management’s present system, on shareholder resolutions abstentions count as AGAINST votes. This disadvantages shareholders in three ways: | 1. | Every abstention on a shareholder item is treated as an AGAINST vote. | | | Regardless of an abstaining voter’s intent, Morgan Stanley treats every abstention as ifagainst shareholder items, while not counting them against management-sponsored Director elections. | | | | | 2. | Counting abstentions suppresses outcomes. | | | By simple math, including abstentions in a formula depresses the vote result. | | | | | Counting abstentions against shareholder items is burdensome and inconsistent, because Morgan Stanley does not place this same burden on management-sponsored Director elections. | | | | 3. | Counting abstentions distorts communication among shareholders and Morgan Stanley. | | | This distortion happens at the annual general meeting (“AGM”) of shareholders – the only time each year that owners can directly interact with Board or management. | | | | | Morgan Stanley’s voting policies create misimpressions that endure. Shareholders and the media may not be informed about voting practices at the AGM, so voting distortions are widely reported in the press and imprinted on the minds of shareholders and the public. These same distortions impact Board awareness of shareholder concern/interest. |
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Table of Contents SHAREHOLDER PROPOSALS
Three facts: | ● | A CalPERS study found that 48% of S&P 500 and Russell 1000 companies employ a simple-majority standard – showing this to be a mainstream practice.
| | ● | Under this proposal, shareholders retain the right to ‘send a message’ with their abstention – in fact, message-sending may be more effective because Morgan Stanley will not use abstentions to depress reported outcomes on shareholder proposals.
| | ● | Any suggestion that management- and shareholder-sponsored items are treated “identically” or “equally” is false, because management-sponsored item No. 1 – Director elections – does not count abstentions. |
Notable supporters of a simple-majority standard: | ● | The US Securities and Exchange Commission (Staff Legal Bulletin No. 14, Question F.4.): “Only votes FOR and AGAINST a proposal are included in the calculation of the shareholder vote of that proposal. Abstentions… are not included in this calculation.”
| | ● | Institutional Shareholder Services (“ISS” – the nation’s leading proxy reporting service): “a simple majority of voting shares should be all that is necessary to effect change regarding a company and its governance provisions.”
| | ● | The Council of Institutional Investors (Governance Policy 3.7): “Uninstructed broker votes and abstentions should be counted only for purposes of a quorum.” |
Vote to enhance shareholder value and good governance at Morgan Stanley: vote FOR Item 5 – Simple Majority Vote-Counting. STATEMENT OF THE BOARD RECOMMENDING A VOTE AGAINST THIS PROPOSAL The foregoing descriptions doBoard believes that this proposal is not purport to be completein the best interest of Morgan Stanley or its shareholders and are qualified in their entirety by reference to the FAIRCP and REICP plan documents which, along with all plans under which awards were available for grant in 2012, are included as exhibits to the 2012 Form 10-K. (5) As of December 31, 2012, approximately 75 million shares were available under the Company’s plans that could be usedopposes this proposal for the purpose of granting employee equity awards (EICP, EEAPreasons discussed below:
Our voting standard appliesidentically and TDEPP). In January 2013, approximately 55.6 million shares were granted as part of 2012 employee incentive compensation and approximately 1.2 million shares (representing the target number of stock units) were granted as 2013 LTIP awards. Item 5—Company Proposalequally to Amend the 2007 Equity Incentive Compensation Plan to Provide for Qualifying Performance-Based Long-Term Incentive Awards under Section 162(m)Company-sponsored proposalsand shareholder proposals.
| ● | We are committed to the highest standards of integrity and the best interests of our shareholders by ensuring consistency, fairness and transparency in the application of our vote counting standard.
| | ● | At this year’s annual meeting, our shareholders are being asked to vote on both Company-sponsored proposals, such as say on pay and approval of an amendment to our 2007 Equity Incentive Compensation Plan, and shareholder proposals, including this proposal. Forboth, abstentions will be counted and will have the same effect as a vote against.
| | ● | The SEC’s proxy disclosure rules defer to state law and require registrants such as Morgan Stanley to “[d]isclose the method by which votes will be counted, including the treatment and effect of abstentions and broker non-votesunder applicable state law as well as registrant charter and bylaw provisions” (emphasis added). |
OUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL.
Our Board adopted an amended and restated 2007 Equity Incentive Compensation Plan (EICP) on March 21, 2013, upon the recommendation of the CMDS Committee. The EICP includes an amendment intended to ensure that performance-based long-term incentive awards are tax-deductible to the Company under Section 162(m) of the Internal Revenue Code of 1986 (as amended) and the implementing regulations. This amendment requires shareholder approval at the 2013 annual meeting of shareholders and, if approved, will be effective for performance periods starting on or after January 1, 2014. The EICP was originally approved by shareholders on April 10, 2007. A fundamental aspect of the Company’s executive compensation program is its emphasis on pay-for-performance and incentives that reward long-term performance. Shareholder approval of this Item 5 will provide the CMDS Committee with added flexibility to grant performance-based awards, such as the future-oriented,
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long-term incentive program (LTIP) awards granted in 2013 and discussed in the CD&A, that are tax deductible to the Company under Section 162(m). This Item 5voting standard is consistent with the Company’s refined executive compensation structure,treatment of abstentions under Delaware law.
| ● | We are incorporated in Delaware and, accordingly, Delaware law governs the voting standards for action by our shareholders.
| | ● | Our bylaws follow the general default voting standard under Delaware law and we believe that a majority of Delaware corporations in the S&P 500 adhere to this default voting standard, which is consistent with the proponents’ acknowledgement that less than 50% of S&P 500 and Russell 1000 companies have adopted the voting standard requested by the proposal. |
80Morgan Stanley 2016 Proxy Statement
Table of Contents SHAREHOLDER PROPOSALS
Our voting standards are clearly separates annual incentive compensation for prior-year performance from future-oriented, long-term incentive compensation that is based on performance over a forward-looking, multi-year period. In that regard, this Item 5 complements the Company’s existing Section 162(m) formula for annual incentive compensation, which the Company seeks to amend at Item 6 ofexplained in this proxy statement to better align withand honor the actual operating performanceintent of the Company and to reflect changes in the authoritative accounting literature. Together, the proposed amendments will maximize the tax-deductibility to the Company of both annual and long-term incentive compensation under Section 162(m), which is advantageous to the Company, and therefore toour shareholders. | ● | As disclosed under the heading “What Vote Is Required and How Will My Votes Be Counted?” herein, abstentions are treated consistently for Company-sponsored proposals and shareholder proposals.
| | ● | The only exception to this practice is for the election of directors. Consistent with Delaware law and many Fortune 500 companies, abstentions have no effect in our director elections, which we believe is consistent with best corporate governance, applies equally to candidates that have been nominated by the Company or a shareholder and is clearly disclosed in our proxy statement.
| | ● | Our methodology honors the intent of our shareholders who consciously “abstain” and expect their abstentions to be included in the vote tabulation in the manner that is described in our proxy statement. We do not believe it is in the best interest of our shareholders or effective corporate governance to disregard these views. |
Section 162(m) limits the tax deductibility of compensation in excess of $1 million paid by a publicly traded corporation to the corporation’s chief executive officer and the three highest compensated officers (other than the chief financial officer) unless the compensation is qualified as “performance-based compensation” as defined under Section 162(m). One of the requirements for compensation to qualify as “performance-based” under Section 162(m) is shareholder approval every five years of the material terms of the performance criteria pursuant to which the compensation is paid. For purposes of Section 162(m), the material terms of the performance criteria are (i) the employees eligible to receive awards under the EICP, (ii) a description of the business criteria on which the performance criteria are based (performance measures), and (iii) the maximum compensation that can be paid to an employee under the performance goal during any specified period (individual award limits). Approval of this Item 5 will constitute approval of the material terms of the performance criteria as summarized below.
Notwithstanding the adoption of the amendment to the EICP to allow for performance-based awards and its submission toOur shareholders the Company reserves the right to pay its employees, including recipients of performance-based awards under the EICP, amounts which may or may not be tax-deducible under Section 162(m) or other provisions of the Internal Revenue Code.have recently supported our vote counting methodology.
| ● | We do not believe there is justification for the proponent’s request to treat Company-sponsored and shareholder proposals differently.
| | ● | Not counting abstentions would lower the approval standard for proposals and the Board believes that as a matter of good governance a proposal should receive more “for” votes than the sum of “against” and “abstain” votes in order to constitute shareholder approval.
| | ● | A vote-counting proposal similar to the proponents’ proposal (but which would have applied to both Company-sponsored and shareholder proposals) was submitted to a shareholder vote at the 2015 annual meeting of shareholders and received minimal shareholder support (4.6%, calculated under both the proponents’ proposed vote counting method and our current method). |
Our Board unanimously recommends that you vote “FOR”AGAINST” this proposal. Proxies solicited by the Board will be voted “FOR”AGAINST” this proposal unless otherwise instructed. Shareholder Proposal Regarding a Policy to Prohibit Vesting of Deferred Equity Awards for Senior Executives Who Resign to Enter Government Service | Our Board unanimously recommends that you vote“AGAINST” this proposal. | | |
SummaryThe Reserve Fund of the Material TermsAmerican Federation of Labor and Congress of Industrial Organizations, 815 Sixteenth Street, N.W., Washington, D.C. 20006, beneficial owner of 875 shares of common stock, has notified the Performance Criteria underCompany that it intends to present the EICP as Proposedfollowing proposal and related supporting statement at the annual meeting.
RESOLVED: Shareholders of Morgan Stanley (the “Company”) request that the Board of Directors adopt a policy prohibiting the vesting of equity-based awards for senior executives due to be Amended.a voluntary resignation to enter government service (a “Government Service Golden Parachute”). Eligible Participants. GrantsFor purposes of performance-based long-term incentive awards (other thanthis resolution, “equity-based awards” include stock options, andrestricted stock appreciation rights) that are intended to be qualified performance-based awards under Section 162(m) (Qualifying Awards) will be limited to our officers for whom compensation may not otherwise be tax-deductible under Section 162(m). Currently, the Company expects to grant Awards to some or all members of the Company’s Operating Committee. There are currently 12 such officers. The broader population of eligible participants for grants of other awards under the EICP is described under Item 4 “ – Summary of the EICP as Proposed to Be Amended – Purposes and Eligibility.”
Performance Measures. The performance measures for Qualifying Awards may vary by participant and by award, and may be based upon the attainment of specific amounts of, or changes in, one or more of the following: earnings (before or after taxes); earnings per share; shareholders’ equity or return on shareholders’ equity; risk-weighted assets or return on risk-weighted assets; capital, capital ratios or return on capital; book value or book value per share; operating income (before or after taxes); operating margins or pre-tax margins; stock price or total shareholder return; market share (including market share of revenue); debt reduction or change in rating; or cost reductions.
The CMDS Committee may provide that, in measuring the achievement of the performance measures, an award may include or exclude items such as unrealized investment gains and losses, extraordinary, unusual or non-recurring items, asset write-downs, effects of accounting changes, currency fluctuations, acquisitions,
67
divestitures, reserve-strengthening, litigation, claims, judgments or settlements, the effect of changes in tax law or other such laws or provisions affecting reported results and other non-operating items, as well as the impact of changes in the fair value of certain of the Company’s long-term and short-term borrowings resulting from fluctuations in the Company’s credit spreads and other factors (commonly referred to as “DVA”).
The foregoing objectives may be applicable to the Company as a whole, onestock awards granted under an equity incentive plan. “Government service” includes employment with any U.S. federal, state or more of its subsidiaries, divisions, business unitslocal government, any supranational or business lines,international organization, any self-regulatory organization, or any combination of the foregoing, and may be applied on an absolute basisagency or be relative to other companies, industries or indices (e.g., stock market indices) or be based upon any combination of the foregoing. In addition to the performance measures, the CMDS Committee may also condition paymentinstrumentality of any such award upongovernment or organization, or any electoral campaign for public office.
Morgan Stanley 2016 Proxy Statement81
Table of Contents SHAREHOLDER PROPOSALS
This policy shall be implemented so as not to violate existing contractual obligations or the attainmentterms of conditions, such as completionany compensation or benefit plan currently in existence on the date this proposal is adopted, and it shall apply only to equity awards or plan amendments that shareholders approve after the date of the 2016 annual meeting. SUPPORTING STATEMENT: Our Company provides its senior executives with vesting of equity-based awards after their voluntary resignation of employment from the Company to pursue a career in government service. In other words, our Company gives a “golden parachute” for entering government service. For example, Company Chairman and CEO James Gorman was entitled to $9.35 million in vesting of equity awards if he had a government service termination on December 31, 2013. At most companies, equity-based awards vest over a period of time to compensate executives for their labor during the commensurate period. If an executive voluntarily resigns before the vesting criteria are satisfied, unvested awards are usually forfeited. While government service notwithstandingis commendable, we question the practice of our Company providing accelerated vesting of equity-based awards to executives who voluntarily resign to enter government service. The vesting of equity-based awards over a period of time is a powerful tool for companies to attract and retain talented employees. But contrary to this goal, our Company’s equity incentive compensation plan’s award certificates contain a “Governmental Service Termination” clause that provides for the performance measure or measures specifiedvesting of equity awards for executives who voluntarily resign to pursue a government service career (subject to certain conditions). We believe that compensation plans should align the interests of senior executives with the long-term interests of the Company. We oppose compensation plans that provide windfalls to executives that are unrelated to their performance. For these reasons, we question how our Company benefits from providing Government Service Golden Parachutes. Surely our Company does not expect to receive favorable treatment from its former executives? For these reasons, we urge shareholders to vote FOR this proposal. STATEMENT OF THE BOARD RECOMMENDING A VOTE AGAINST THIS PROPOSAL The Board believes that this proposal is not in the award are satisfied. Individual Award Limits. The EICP, as amended, will provide that, in any one calendar year, no one participant may be granted Qualifying Awards that allow for payments with an aggregate value determined by the CMDS Committee to be in excessbest interest of $10 million. For purposes of calculating this limit, the value of Qualifying Awards that are denominated in shares will be determined by reference to the volume-weighted average price of a share of the Company on the first date of grant of such awards. For purposes of the foregoing, the CMDS Committee will determine the calendar yearMorgan Stanley or years in which amounts under these Qualifying Awards are deemed paid, granted or received.
With respect to Qualifying Awards, the CMDS Committee is not permitted to pay a participant more than the maximum amount indicated by the EICP, but will have discretion to pay less than the maximum amount. Prior to awarding any Qualifying Awards, the CMDS Committee will evaluate performance and determine the maximum amount payable under the award. In making any determination to pay less than the maximum amount, the CMDS Committee is authorized in its discretion to take into account factors it determines are appropriate, including, but not limited to, company, business unit and individual performance.
As described under Item 4 “ – Summary of the EICP as Proposed to Be Amended – Stock Options and SARs,” stock options and stock appreciation rights are issued at no less than fair market value, and, therefore, qualify as performance-based compensation under Section 162(m) if subject to a separate shareholder approved limit on the number of shares underlying such awards that may be granted to any one participant over a specified period and stock options and stock appreciation rights.
Summary of the EICP as Proposed to Be Amended.
A summary of the EICP as proposed to be amended, including the U.S. federal income tax consequences associated with the EICP, under this Item 5 to allow for performance-based awards under Section 162(m) and under Item 4 to increase the shares available for grant is included under Item 4. A copy of the EICP as proposed to be amended is attached to this proxy statement as Annex A and the above-referenced summary is qualified in its entirety by reference thereto.
Item 6—Company Proposal to Amend the Section 162(m) Performance Formula Governing Annual Incentive Compensation for Certain Officers
OUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL.
On March 21, 2013, upon the recommendation of the CMDS Committee, our Board adopted an amended and restated performance formula (Performance Formula) that governs annual incentive compensation (bonuses) for certain of our officers under Section 162(m) of the Internal Revenue Code of 1986 (as amended) and the implementing regulations. This amendment requires shareholder approval at the 2013 annual meeting of shareholders and if approved, will be effectiveopposes this proposal for performance periods starting on or after January 1, 2014. If the Performance Formula, as amendedreasons discussed below:
Our Governmental Service Termination clause serves to avoid conflicts of interest and restated, is not approved by our shareholders,administered in a way that protects the Performance Formula in the form approved by shareholders on March 22, 2001 will remain in effect. 68
Section 162(m) limits the tax deductibilityinterests of compensation in excess of $1 million paid by a publicly traded corporation to the corporation’s chief executive officer and the three highest compensated officers (other than the chief financial officer) unless the compensation is qualified as “performance-based compensation” as defined under Section 162(m). The Company’s existing shareholder-approved Performance Formula imposes a maximum bonus cap for designated participants of 0.5% of the Company’s Pre-Tax Earnings (defined as Morgan Stanley’s income from continuing operations before income taxes as reported in the consolidated financial statements adjusted as provided under the Performance Formula) for that fiscal year (other than awards, such as stock options, that are otherwise “performance-based”).
The existing Performance Formula was approved by the shareholders of the Company on March 22, 2001, before the concept of debt valuation adjustment (DVA) was established under GAAP. Morgan Stanley believes that most investors assess its results excluding DVA. As a result, Morgan Stanley also reports earnings information excluding the impact of DVA, to allow better comparability of year-to-year operating performance. As discussed in the CD&A, the Company’s 2012 results reflected over $4 billion of negative DVA as a result of Morgan Stanley’s credit spreads improving over the course of the year, an improvement that was a positive result for both the Company and its shareholders. If
| ● | Our Governmental Service Termination clause applies equally to all Morgan Stanley employees who receive deferred incentive compensation awards, not just to senior executives.
| | ● | The clause permits the vesting of an employee’s deferred incentive compensation awards granted in respect of service in prior years. In the case of performance-based RSUs, which are granted under the Company’s long-term incentive program for senior executives, only a pro rata portion of the award earned based on pre-established objective performance measures will vest, and the remainder of the award will be cancelled.
| | ● | All awards vested under the Governmental Service Termination clause are subject to clawback if the employee triggers a cancellation event, which includes competitive activity.
| | ● | The clause serves to avoid conflicts of interest by only applying where an employee is required by his or her new government employer to divest Morgan Stanley award holdings to avoid such a conflict.
| | ● | To receive Governmental Service Termination treatment, an employee must (i) provide the Company with satisfactory proof of a conflict of interest that necessitates divestiture of his or her awards and (ii) sign an agreement to repay the awards if he or she triggers a cancellation event under the original award terms, which includes competitive activity. |
82Morgan Stanley 2016 Proxy Statement
Table of Contents SHAREHOLDER PROPOSALS
Our Governmental Service Termination clause reinforces Morgan Stanley’s culture of public service and aligns the current Performance Formula had excluded DVA,interests of our employees with the long-term interests of the Company would have been able to grant the NEOs’ 2012 annual performance compensation in the form of restricted stock units that were tax-deductible to the Company, rather than tax-deductible stock options. To prevent DVA from having an impact, either positive or negative, on the Section 162(m) Performance Formula and to align the Performance Formula with the current authoritative accounting literature, the Company is seeking approval from shareholders of an amendment to modify the definition of “Pre-Tax Earnings” under the Performance Formula as follows:
Provide for adjustment to eliminate the impact of changes in the fair value of certain of the Company’s long-term and short-term borrowings resulting from fluctuations in the Company’s credit spreads and other factors (commonly referred to as “DVA”) so that the results of the Performance Formula better align with the actual operating performance of the Company; and
Remove adjustments for expenses classified as “Provisions for Restructuring” and expenses related to “Goodwill Amortization,” both of which are no longer recognized under the authoritative accounting literature.
Application of the Performance Formula does not alter the CMDS Committee’s discretion with respect to annual bonuses for participating officers. Accordingly, the CMDS Committee may reduce each participant’s actual bonus to an amount below the maximum bonus but may not increase such bonus above the maximum bonus. Notwithstanding the adoption of the Performance Formula and its submission to shareholders the Company reserves the right to pay its employees, including recipients of annual bonuses pursuant to the Performance Formula, amounts which may or may not be tax-deductible under Section 162(m) or other provisions of the Internal Revenue Code.in attracting and retaining talented employees.
| ● | Morgan Stanley has a strong culture of public service and is committed to providing skills and resources to create a lasting civic impact. Our employees may be uniquely positioned to contribute meaningfully through governmental service. The Governmental Service Termination clause avoids penalizing those highly qualified employees, at any level in the Company, who desire to leave the private sector to pursue governmental service.
| | ● | The Governmental Service Termination clause helps maintain strong employee relations and avoids a potential perception of unfairness. Employees who leave to work in the private sector often have their unvested awards granted in respect of service in prior years “bought out” by their new employer. The clause promotes equitable treatment of employees seeking public sector employment and removes a financial impediment to public service.
| | ● | The Governmental Service Termination clause is consistent with our compensation philosophy, including the need to remain competitive in recruiting and retaining talent. We believe that this clause enhances our ability to attract key employees and avoids penalizing those who may wish to enter or return to governmental service after leaving Morgan Stanley. |
Our Board unanimously recommends that you vote“FOR”AGAINST” this proposal. Proxies solicited by the Board will be voted“FOR”AGAINST” this proposal unless otherwise instructed. Summary of the Performance Formula as Proposed to Be Amended
A copy of the Performance Formula as proposed to be amended is attached to this proxy statement as Annex B and the following summary is qualified in its entirety by reference thereto. Other than the definition of “Pre-Tax Earnings,” for which we are seeking shareholder approval, and the addition of certain administrative provisions for which shareholder approval is not required, the terms of the Performance Formula remain unchanged by this amendment.
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Purpose and Eligibility. The Performance Formula authorizes the issuance of awards (Awards) to participants. For a given fiscal year of the Company, only individuals designated by the CMDS Committee by no later than 90 days following the start of such year (or such other time as may be required or permitted by Section 162(m) of the Code) as an individual whose compensation for such fiscal year may be subject to the limit on tax-deductible compensation imposed by Section 162(m) of the Code are eligible to participate in the Performance Formula. Currently, the Company expects to grant Awards to some or all members of the Company’s Operating Committee. There are currently 12 such officers.
Administration. The CMDS Committee will administer the Performance Formula, including, determining the participants and the terms and conditions of any Award and interpreting the provisions.
Annual Bonus. The Performance Formula as proposed to be amended provides that, commencing with the fiscal year of the Company beginning January 1, 2014 and for each fiscal year thereafter, the maximum annual bonus amount payable to an individual designated by the CMDS Committee as a participant for a fiscal year will be equal to 0.5% of the Company’s Pre-Tax Earnings for that fiscal year.
“Pre-Tax Earnings” means Income from continuing operations before income taxes as reported in Morgan Stanley’s consolidated financial statements adjusted to eliminate: (1) the cumulative effect of changes in accounting policy (which include changes in generally accepted accounting principles) adopted by Morgan Stanley for the relevant fiscal year, (2) gains or losses classified as “Extraordinary Items,” and (3) the impact2016 Proxy Statement83
Table of changes in the fair value of certain of the Company’s long-term and short-term borrowings resulting from fluctuations in the Company’s credit spreads and other factors (commonly referred to as “DVA”). In each instance, the above-referenced adjustment to Pre-Tax Earnings must be calculated, as appropriate, in accordance with generally accepted accounting principles.Contents INFORMATION ABOUT THE ANNUAL MEETING
QUESTIONS AND ANSWERS The CMDS Committee may not pay a participant more than the maximum amount indicated by the Performance Formula, but will have discretion to pay less than the maximum amount. Prior to awarding any annual bonuses under the Performance Formula, the CMDS Committee evaluates the Company’s performance and determines the maximum amount payable under the Performance Formula. Following the completion of each fiscal year, the Committee will certify in writing the maximum annual bonus and the actual annual bonus amounts payable to each participant.
Participants will be paid following the end of the applicable fiscal year after such certification by the CMDS Committee in the form of (i) cash (including deferred cash), (ii) equity-based awards granted under a Company equity compensation plan and subject to the terms and provisions of such plan, (iii) notes, (iv) other property as the CMDS Committee may determine or (v) any combination of the foregoing.
Termination and Amendment. Subject to the provisions of Section 162(m) of the Code, the CMDS Committee may terminate, alter, amend or modify the Performance Formula or any program under the Performance Formula in whole or in part at any time. To the extent necessary or advisable to comply with the legal requirements of any non-U.S. jurisdiction in which the Company implements the Performance Formula, the Company may supplement the Performance Formula with an international supplement.
Plan Benefits. Because the Performance Formula as proposed to be amended will not be utilized until the 2014 performance year, the amounts payable under the Performance Formula are not determinable. Had the Performance Formula as proposed to be amended been in effect for 2012, the annual bonuses that would have been paid are not determinable because the CMDS Committee would have been permitted to use its discretion to determine each participant’s annual bonus at any amount below the maximum bonus.
Our Board unanimously recommends that you vote“FOR” this proposal. Proxies solicited by the Board will be voted“FOR” this proposal unless otherwise instructed.
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Information about the Annual Meeting
Why Did I Receive a One-Page Notice regardingRegarding the Internet Availability of Proxy Materials? Pursuant to SEC rules, we are mailing to certain of our shareholders a Notice about the availability of proxy materials on the Internet instead of paper copies of the proxy materials. This process allows us to expedite our shareholders’ receipt of proxy materials, lower the costs of distribution and reduce the environmental impact of our annual meeting. All stockholdersshareholders receiving the Notice will have the ability to access the proxy materials and submit a proxy over the Internet.It is important that you submit your proxy to have your shares voted. Instructions on how to access the proxy materials over the Internet or to request a paper copy of the proxy materials may be found in the Notice. The Notice is not a proxy card and cannot be returned to submit your vote. You must follow the instructions on the Notice to submit your proxy to have your shares voted. How Do I Attend the Annual Meeting? Only record or beneficial owners of Morgan Stanley’s common stock as of the record date, the close of business on March 18, 2013,21, 2016, or a valid proxy or representative of such shareholder, may attend the annual meeting in person if they comply with the admission requirements below. Guests of shareholders will not be admitted to the annual meeting.If you do not comply with the requirements set forth below, you willnot be admitted to the meeting. • | ● | Valid Photo Identification. Any shareholder, or valid proxy or representative of such shareholder, must present a valid, current form of government issued photo identification, such as a driver’s license or passport, that matches the name on the documentation described below.
| | ● | Proof of Ownership.
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| ● | If you hold shares in street name (such as through a broker or bank), then you must present proof of ownership, such as a brokerage statement or letter from your bank or broker, demonstrating that you held Morgan Stanley common stock as of the record date, March 21, 2016.
| | ● | If you hold shares in registered form,your record holder’s ownership as of the record date, March 21, 2016, must be verified on the list of registered shareholders maintained by our transfer agent.
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If you hold shares in street name (such as through a broker or bank), then you must present proof of ownership, such as a brokerage statement or letter from your bank or broker, demonstrating that you held Morgan Stanley common stock as of the record date, March 18, 2013.
If you hold shares in registered form,your record holder’s ownership as of the record date, March 18, 2013, must be verified on the list of registered shareholders maintained by our transfer agent.
• | | Proof of Representation.If you are a representative of a shareholder, then you must present valid legal documentation that demonstrates your authority to represent that shareholder.We reserve the right to limit the number of representatives who may represent a shareholder at the meeting.
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If you hold a proxy to vote shares at the annual meeting for a shareholder who holds shares in street name (such as through a broker or bank), then you must present:
valid photo identification as described above,
| • | ● | If you hold a proxy to vote shares at the annual meeting for a shareholder who holds shares in street name (such as through a broker or bank), then you must present:
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| ● | Valid photo identification as described above;
| | ● | A written legal proxy from the broker or bank holding the shares to the street name holder that is assignableand signed by the street name holder; and
| | ● | Proof of ownership, such as a brokerage statement or letter from the bank or broker, demonstrating that the street name holder andwho appointed you legal proxy held Morgan Stanley common stock as of the record date, March 21, 2016. |
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| ● | If you hold a proxy to vote shares at the annual meeting for a shareholder who is a record holder, then |
| ● | You must present valid photo identification as described above;
| | ● | You must present a written legal proxy to you signed by the record holder; and
| | ● | The record holder’s ownership as of the record date, March 21, 2016, must be verified on the list of registered shareholders maintained by our transfer agent. |
| ● | Compliance with Annual Meeting Rules of Conduct. All attendees must acknowledge that they have received and agree to abide by our Rules of Conduct. Luggage, large backpacks and other large packages are not permitted in the annual meeting and briefcases and small handbags (including purses) are subject to search. Unless expressly agreed to by Morgan Stanley, the use of PDAs, cell phones, cameras, tablets, laptops and other recording, electronic or mobile devices is strictly prohibited at the meeting.Attendees that disrupt or impede the meeting or breach the Rules of Conduct may be removed from the meeting. |
proof of ownership, such as a brokerage statement or letter from the bank or broker, demonstrating that the street name holder who appointed you legal proxy held Morgan Stanley common stock as of the record date, March 18, 2013.
If you hold a proxy to vote shares at the annual meeting for a shareholder who is a record holder, then
you must present valid photo identification as described above,
you must present a written legal proxy to you signed by the record holder, and
the record holder’s ownership as of the record date, March 18, 2013, must be verified on the list of registered shareholders maintained by our transfer agent.
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Compliance with Annual Meeting Rules of Conduct.All attendees must acknowledge that they have received and agree to abide by our Rules of Conduct. Luggage, large backpacks and other large packages are not permitted in the annual meeting and briefcases and small handbags (including purses) are subject to search. Unless expressly agreed to by Morgan Stanley, the use of PDAs, cell phones, cameras, tablets, laptops and other recording, electric or mobile devices are strictly prohibited at the meeting.Attendees that disrupt or impede the meeting or breach the Rules of Conduct may be removed from the meeting.
Who Can Vote at the Annual Meeting? You may vote all shares of Morgan Stanley’s common stock that you owned as of the close of business on March 18, 2013,21, 2016, the record date for the determination of shareholders entitled to notice of, and to vote at, the annual meeting. Each share of common stock entitles you to one vote on each matter voted on at the annual meeting. On the record date, 1,960,823,0771,939,609,706 shares of common stock were outstanding. What isIs the Quorum to Hold the Meeting? The holders of a majority of the voting power of the outstanding shares of common stock, represented in person or by proxy, constitute a quorum for the annual meeting of stockholders.shareholders. Broker non-votes and abstentions are counted for purposes of determining whether a quorum is present. Is My Vote Confidential? Our Amended and Restated Bylaws (Bylaws)bylaws provide that your vote is confidential and will not be disclosed to any officer, director or employee, except in certain limited circumstances such as when you request or consent to disclosure. Voting of the shares held in the 401(k) Plan also is confidential. How Do I Submit Voting Instructions for Shares Held Through a Broker? If you hold shares through a broker, follow the voting instructions you receive from your broker. If you want to vote in person at the annual meeting, you must obtain a legal proxy from your broker and present it at the annual meeting. If you do not submit voting instructions to your broker, your broker may still be permitted to vote your shares in certain cases. NYSE member brokers may vote your shares as described below. • | ● | Non-discretionary Items.All items, other than the ratification of the appointment of Morgan Stanley’s independent auditor, are “non-discretionary” items. It is critically important that you submit your voting instructions if you want your shares to count for non-discretionary items.Your shares will remain unvoted for such items if your NYSE member broker, including Morgan Stanley & Co. IncorporatedLLC (MS&Co.) and Morgan Stanley Smith Barney LLC (MSSB LLC)(MSSB), does not receive voting instructions from you.
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• | ● | Discretionary Item.The ratification of the appointment of Morgan Stanley’s independent auditor is a “discretionary” item. NYSE member brokers that do not receive instructions from beneficial owners may vote on this proposal in the following manner: (1) Morgan Stanley’s subsidiaries, MS&Co. and MSSB, LLC, may vote uninstructed shares only in the same proportion as the votes cast by all other beneficial owners on the proposal; and (2) all other NYSE member brokers may vote uninstructed shares in their discretion. |
If you do not submit voting instructions, the broker will submit a proxy for your shares voting discretionary items, but will not vote non-discretionary items. This results in a “broker non-vote” for non-discretionary items. Morgan Stanley 2016 Proxy Statement 85
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How Do I Submit Voting Instructions for Shares Held in My Name? If you hold shares as a record shareholder, you may have your shares voted by submitting a proxy for your shares by mail, telephone or the Internet as described on the proxy card. If you submit your proxy via the Internet, you may incur Internet access charges. Submitting your proxy will not limit your right to vote in person at the annual meeting. A properly completed and submitted proxy will be voted in accordance with your instructions, unless you subsequently revoke your proxy. proxy in accordance with the procedures described below (see “How Can I Revoke My Proxy?”). If you submit a signed proxy card without indicating your voting instructions, the person voting the proxy will vote your shares according to the Board’s recommendations. How Do I Submit Voting Instructions for Shares Held in Employee Plans? If you hold shares in, or have been awarded stock units under, certain employee plans, you will separately receive directions on how to submit your voting instructions. Shares held in the following employee plans also are subject to the following rules. • | ● | 401(k) Plan.The Northern Trust Company (Northern Trust), the 401(k) Plan’s trustee, must receive your voting instructions for the common stock held on your behalf in the 401(k) Plan on or before May 9, 2013.12, 2016. If Northern Trust does not receive your voting instructions by that date, it will vote yoursuch shares together with other unvoted, forfeited and unallocated shares in the 401(k) Plan in the same proportion as the voting instructions that it receives from other participants in the 401(k) Plan. On March 18, 2013,21, 2016, there were 52,256,37647,359,882 shares in the 401(k) Plan.
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• | ● | Other Equity-Based Plans.State Street Bank and Trust Company acts as trustee for the Trust that holds shares of common stock underlying stock units awarded to employees under several of Morgan Stanley’s equity-based plans. Employees allocated shares held in the Trust must submit their voting instructions for receipt by the trustee on or before May 9, 2013.12, 2016. If the trustee does not receive your instructions by that date, it will vote yoursuch shares, together with shares held in the Trust that are unallocated or held on behalf of former Morgan Stanley employees and employees in certain jurisdictions outside the U.S., in the same proportion as the voting instructions that it receives for shares held in the Trust in connection with such plans. On March 18, 2013, 82,860,49521, 2016, 96,162,936 shares were held in the Trust in connection with such plans. |
How Can I Revoke My Proxy? You can revoke your proxy at any time before your shares are voted by (1) delivering a written revocation notice prior to the annual meeting to Martin M. Cohen, Corporate Secretary, Morgan Stanley, 1585 Broadway, Suite C, New York, New York 10036; (2) submitting a later proxy that we receive no later than the conclusion of voting at the annual meeting; or (3) voting in person at the annual meeting. Attending the annual meeting does not revoke your proxy unless you vote in person at the meeting. 86 Morgan Stanley 2016 Proxy Statement
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What Vote Is Required and How Will My Votes Be Counted? The following table sets forth the vote standard applicable to each proposal, as determined by the Company’s Bylawsbylaws and applicable regulatory guidance, at a meeting at which a quorum is present. | | | | | | | | | | Proposal | | Board’s
Recommendation | | Vote Required to
Adopt Proposal | | Effect of
Abstentions
| | Effect of “Broker
Non-Votes” | Election of Directors | FOR | FOR | | Majority of votes cast (for and against) with respect to such director*director* | | No Effect | | No Effect | | | | | | Ratification of
Appointment of Auditor
| FOR | FOR | | The affirmative vote of a majority of the shares of common stock represented at the annual meeting and entitled to vote thereon (for, against and abstain) | | Vote Against | | Not Applicable | | | | | | Non-Binding Advisory
Vote to Approve
Executive Compensation | FOR | FOR | | The affirmative vote of a majority of the shares of common stock represented at the annual meeting and entitled to vote thereon (for, against and abstain) | | Vote Against | | No Effect | | | | | | Amendment of the
2007 Equity Incentive
Compensation Plan to Increase Shares Available for Grant
| FOR | FOR | | Majority of votes cast (for, against and abstain), provided that the total votes cast must represent a majority of the shares entitled to vote on the proposal | | Vote Against | | No Effect | Shareholder Proposals | AGAINST | | | | Amendment of the 2007 Equity Incentive Compensation Plan to Provide for Qualifying Performance-Based Long-Term Incentive Awards under Section 162(m) | | FOR | | The affirmative vote of a majority of the shares of common stock represented at the annual meeting and entitled to vote thereon (for, against and abstain) | | Vote Against | | No Effect |
| * | | | | | Amendment of the Section 162(m) Performance Formula Governing Annual Incentive Compensation for Certain Officers | | FOR | | The affirmative vote ofUnder Delaware law, if a director does not receive a majority of votes cast in an uncontested election, the sharesdirector will continue to serve on the Board. Pursuant to the bylaws, each director has submitted an irrevocable letter of common stock represented atresignation that becomes effective, contingent on the annual meetingBoard’s acceptance, if the director does not receive a majority of votes cast in an uncontested director election. In such case, if a director does not receive a majority of votes cast, the Board will make a determination to accept or reject the resignation and entitled to vote thereon (for, against and abstain) | | Vote Against
| | No Effectpublicly disclose its decision within 90 days after the certification of the election results. |
* Under Delaware law, if a director does not receive a majority of votes cast in an uncontested election, the director will continue to serve on the Board. Pursuant to the Bylaws, each director has submitted an irrevocable letter of resignation that becomes effective, contingent on the Board’s acceptance, if the director does not receive a majority of votes cast. If a director does not receive a majority of votes cast, the Board will make a determination to accept or reject the resignation and publicly disclose its decision within 90 days after the certification of the election results.
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Other BusinessOTHER BUSINESS
We do not know of any other matters that may be presented for action at the meeting other than those described in this proxy statement. If any other matter is properly brought before the meeting, the proxy holders will vote on such matter in their discretion. How Can I Submit a Shareholder Proposal or Nominate a Director for the 20142017 Annual Meeting? Shareholders intending to present a proposal at the 20142017 annual meeting and have it included in our proxy statement for that meeting must submit the proposal in writing to Martin M. Cohen, Corporate Secretary, 1585 Broadway, Suite C, New York, New York 10036. We must receive the proposal no later than November 28, 2013. December 2, 2016. Shareholders intending to present a proposal at the 20142017 annual meeting(but not to include the proposal in our proxy statement,statement) or to nominate a person for election as a director(but not to include such nominee in our proxy materials) must comply with the requirements set forth in our Bylaws.bylaws. The Bylawsbylaws require, among other things, that our Corporate Secretary receive written notice from the record shareholder of intent to present such proposal or nomination no moreearlier than the close of business on the 120 daysth day and no lesslater than the close of business on the 90 daysth day prior to the anniversary of the preceding year’s annual meeting. Therefore, the Company must receive notice of such a proposal or nomination for the 20142017 annual meeting no earlier than the close of business on January 14, 201417, 2017 and no later than the close of business on February 13, 2014.16, 2017. The notice must contain the information required by the Bylaws,bylaws. Morgan Stanley 2016 Proxy Statement 87
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As described under “Corporate Governance—Corporate Governance Highlights—Shareholder Rights and Accountability,” we recently adopted proxy access. Under our bylaws, shareholders who meet the requirements set forth in our bylaws may nominate a person for election as a director and include such nominee in our proxy materials. The bylaws require, among other things, that our Corporate Secretary receive written notice of the nomination no earlier than the close of business on the 150th day and no later than the close of business on the 120th day prior to the anniversary of the mailing date of the proxy statement for the preceding year’s annual meeting. Therefore, the Company must receive notice of such a nomination for the 2017 annual meeting no earlier than the close of business on November 2, 2016 and no later than the close of business on December 2, 2016. Our bylaws are available atwww.morganstanley.com/about/company/governance/index.htmlgovernance or upon request to our Corporate Secretary. What Are the Costs of Soliciting Proxies for the Annual Meeting? We will pay the expenses for the preparation of the proxy materials and the solicitation by the Board of your proxy. Our directors, officers and employees, who will receive no additional compensation for soliciting, and D.F. King & Co., Inc. (D.F. King) may solicit your proxy, in person or by telephone, mail, facsimile or other means of communication. We will pay D.F. King fees not exceeding $22,000plus expenses. We will also reimburse brokers, including MS&Co., MSSB LLC and other nominees, for costs they incur mailing proxy materials. What if I Share an Address with Another Shareholder? “Householding” reduces our printing and postage costs by permitting us to send one annual report and proxy statement to shareholders sharing an address. Recordaddress (unless we have received contrary instructions from one or more of the shareholders sharing that address). Shareholders may request to discontinue or begin householding by contacting our transfer agent, Computershare ShareownerBroadridge Financial Services LLC, at (800) 622-2393542-1061 (U.S.), (201) 680-6578 (outside the U.S.) orwww.computershare.com/investor or at P.O. Box 43006, Providence, RI 02940-3006. Shareholders owning their shares through by sending a bank, broker or other holder of record maywritten request to discontinue or begin householding by contacting their record holder.Broadridge Financial Services, Inc., Householding Department, 51 Mercedes Way, Edgewood, NY 11717. Any householded shareholder may request prompt delivery of a copy of the annual report or proxy statement by contacting us at (212) 762-8131 or may write to us at Investor Relations, 1585 Broadway, New York, NY 10036. How Can I Consent to Electronic Delivery of Annual Meeting Materials? This proxy statement and the annual report are available on our website atwww.morganstanley.com/2013ams.2016ams. You can save the Company postage and printing expense by consenting to access these documents over the Internet. If you consent, you will receive noticenotification next year when these documents are available with instructions on how to view them and submit voting instructions. If you are a record shareholder, youYou may sign up for this service through Investor Centre atwww.computershare.com/investor.enroll.icsdelivery.com/ms. If you hold your shares through a bank, broker or other holder of record, contact the record holder for information regarding electronic delivery of materials. Your consent to electronic delivery will remain in effect until you revoke it. If you choose electronic delivery, you may incur costs, such as cable, telephone and Internet access charges, for which you will be responsible. 88 Morgan Stanley 2016 Proxy Statement
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AnnexANNEX A
MORGAN STANLEY
2007 EQUITY INCENTIVE COMPENSATION PLAN
(As Proposed to Be Amended)
1. Purpose. The primary purposes of the Morgan Stanley 2007 Equity Incentive Compensation Plan are to attract, retain and motivate employees, to compensate them for their contributions to the growth and profits of the Company and to encourage them to own Morgan Stanley Stock. 2. Definitions. Except as otherwise provided in an applicable Award Document, the following capitalized terms shall have the meanings indicated below for purposes of the Plan and any Award: “AdministratorAdministrator”” means the individual or individuals to whom the Committee delegates authority under the Plan in accordance with Section 5(b). “AwardAward”” means any award of Restricted Stock, Stock Units, Options, SARs, Qualifying Performance Awards or Other Awards (or any combination thereof) made under and pursuant to the terms of the Plan. “Award DateDate”” means the date specified in a Participant’s Award Document as the grant date of the Award. “Award DocumentDocument”” means a written document (including in electronic form) that sets forth the terms and conditions of an Award. Award Documents shall be authorized in accordance with Section 13(e). “BoardBoard”” means the Board of Directors of Morgan Stanley. “CodeCode” ” means the Internal Revenue Code of 1986, as amended, and the applicable rulings, regulations and guidance thereunder. “CommitteeCommittee”” means the Compensation, Management Development and Succession Committee of the Board, any successor committee thereto or any other committee of the Board appointed by the Board to administer the Plan or to have authority with respect to the Plan, or any subcommittee appointed by such Committee. With respect to any provision regarding the grant of Qualifying Performance Awards, the Committee shall consist solely of at least two “outside directors” as defined under Section 162(m) of the Code. “CompanyCompany”” means Morgan Stanley and all of its Subsidiaries. “Eligible IndividualsIndividuals”” means the individuals described in Section 6 who are eligible for Awards. “Employee TrustTrust”” means any trust established or maintained by the Company in connection with an employee benefit plan (including the Plan) under which current and former employees of the Company constitute the principal beneficiaries. “Exchange ActAct”” means the Securities Exchange Act of 1934, as amended, and the applicable rulings and regulations thereunder. “Fair Market ValueValue”” means, with respect to a Share, the fair market value thereof as of the relevant date of determination, as determined in accordance with a valuation methodology approved by the Committee. “Incentive Stock OptionOption”” means an Option that is intended to qualify for special federal income tax treatment pursuant to Sections 421 and 422 of the Code, as now constituted or subsequently amended, or pursuant to a successor provision of the Code, and which is so designated in the applicable Award Document. “Morgan StanleyStanley”” means Morgan Stanley, a Delaware corporation. A-1
“Option” orOption” or “Stock OptionOption”” means a right, granted to a Participant pursuant to Section 9, to purchase one Share. “Other AwardAward”” means any other form of award authorized under Section 12, including any such Other Award the receipt of which was elected pursuant to Section 13(a). Morgan Stanley 2016 Proxy Statement A-1
Table of Contents ANNEX A
“ParticipantParticipant” ” means an individual to whom an Award has been made. “PlanPlan”” means the Morgan Stanley 2007 Equity Incentive Compensation Plan, as amended from time to time in accordance with Section 16(e). “Qualifying Performance AwardAward”” means an Award granted pursuant Section 11. “Restricted StockStock”” means Shares granted or sold to a Participant pursuant to Section 7. “SARSAR”” means a right, granted to a Participant pursuant to Section 10, to receive upon exercise of such right, in cash or Shares (or a combination thereof) as authorized by the Committee, an amount equal to the increase in the Fair Market Value of one Share over a specified exercise price. “Section 162(m) ParticipantParticipant”” means, for a given performance period, any individual designated by the Committee by not later than 90 days following the start of such performance period (or such other time as may be required or permitted by Section 162(m) of the Code) as an individual whose compensation for such performance period may be subject to the limit on deductible compensation imposed by Section 162(m) of the Code. “Section 162(m) Performance GoalsGoals”” means any performance formula that was approved by Morgan Stanley’s stockholders and the performance objectives established by the Committee in accordance with Section 11 or any other performance goals approved by Morgan Stanley’s stockholders pursuant to Section 162(m) of the Code. “Section 409A409A”” means Section 409A of the Code. “SharesShares”” means shares of Stock. “StockStock”” means the common stock, par value $0.01 per share, of Morgan Stanley. “Stock UnitUnit” ” means a right, granted to a Participant pursuant to Section 8, to receive one Share or an amount in cash equal to the Fair Market Value of one Share, as authorized by the Committee. “SubsidiarySubsidiary”” means (i) a corporation or other entity with respect to which Morgan Stanley, directly or indirectly, has the power, whether through the ownership of voting securities, by contract or otherwise, to elect at least a majority of the members of such corporation’s board of directors or analogous governing body, or (ii) any other corporation or other entity in which Morgan Stanley, directly or indirectly, has an equity or similar interest and which the Committee designates as a Subsidiary for purposes of the Plan. “Substitute AwardsAwards”” means Awards granted upon assumption of, or in substitution for, outstanding awards previously granted by, or held by employees of, a company or other entity or business acquired (directly or indirectly) by Morgan Stanley or with which Morgan Stanley combines. 3. Effective Date and Term of Plan. (a)Effective DateDate.. The Plan shall become effective upon its adoption by the Board, subject to its approval by Morgan Stanley’s stockholders. Prior to such stockholder approval, the Committee may grant Awards conditioned on stockholder approval, but no Shares may be issued or delivered pursuant to any such Award until Morgan Stanley’s stockholders have approved the Plan. If such stockholder approval is not obtained at or before the first annual meeting of stockholders to occur after the adoption of the Plan by the Board, the Plan and any Awards made thereunder shall terminateab initio and be of no further force and effect. A-2
(b)Term of Plan.No Awards may be made under the Plan after May 15, 2017. 4. Stock Subject to Plan. (a)Overall Plan LimitLimit.. The total number of Shares that may be delivered pursuant to Awards shall be 278,000,000 323,000,000as calculated pursuant to Section 4(c). The number of Shares available for delivery under the Plan shall be adjusted as provided in Section 4(b). Shares delivered under the Plan may be authorized but unissued shares or treasury shares that Morgan Stanley acquires in the open market, in private transactions or otherwise. A-2 Morgan Stanley 2016 Proxy Statement
Table of Contents ANNEX A
(b)Adjustments for Certain TransactionsTransactions.. In the event of a stock split, reverse stock split, stock dividend, recapitalization, reorganization, merger, consolidation, extraordinary dividend or distribution, split-up, spin-off, combination, reclassification or exchange of shares, warrants or rights offering to purchase Stock at a price substantially below Fair Market Value or other change in corporate structure or any other event that affects Morgan Stanley’s capitalization, the Committee shall equitably adjust (i) the number and kind of shares authorized for delivery under the Plan, including the maximum number of Shares available for Awards of Options or SARs as provided in Section 4(d), the maximum number of Incentive Stock Options as provided in Section 4(e) and the individual Qualifying Performance Award maximum under Section 11, and (ii) the number and kind of shares subject to any outstanding Award and the exercise or purchase price per share, if any, under any outstanding Award. In the discretion of the Committee, such an adjustment may take the form of a cash payment to a Participant. The Committee shall make all such adjustments, and its determination as to what adjustments shall be made, and the extent thereof, shall be final. Unless the Committee determines otherwise, such adjusted Awards shall be subject to the same vesting schedule and restrictions to which the underlying Award is subject. (c)Calculation of Shares Available for DeliveryDelivery.. In calculating the number of Shares that remain available for delivery pursuant to Awards at any time, the following rules shall apply (subject to the limitation in Section 4(e)): 1. The number of Shares available for delivery shall be reduced by the number of Shares subject to an Award and, in the case of an Award that is not denominated in Shares, the number of Shares actually delivered upon payment or settlement of the Award. 2. The number of Shares tendered (by actual delivery or attestation) or withheld from an Award to pay the exercise price of the Award or to satisfy any tax withholding obligation or liability of a Participant shall be added back to the number of Shares available for delivery pursuant to Awards. 3. The number of Shares in respect of any portion of an Award that is canceled or that expires without having been paid or settled by the Company shall be added back to the number of Shares available for delivery pursuant to Awards to the extent such Shares were counted against the Shares available for delivery pursuant to clause (1). 4. If an Award is settled or paid by the Company in whole or in part through the delivery of consideration other than Shares, or by delivery of fewer than the full number of Shares that was counted against the Shares available for delivery pursuant to clause (1), there shall be added back to the number of Shares available for delivery pursuant to Awards the excess of the number of Shares that had been so counted over the number of Shares (if any) actually delivered upon payment or settlement of the Award. 5. Any Shares underlying Substitute Awards shall not be counted against the number of Shares available for delivery pursuant to Awards and shall not be subject to Section 4(d). (d)Individual Limit on Options and SARsSARs.. The maximum number of Shares that may be subject to Options or SARs granted to or elected by a Participant in any fiscal year shall be 2,000,000 Shares. The limitation imposed by this Section 4(d) shall not include Options or SARs granted to a Participant pursuant to Section 162(m) Performance Goals. A-3
(e)ISO LimitLimit.. The full number of Shares available for delivery under the Plan may be delivered pursuant to Incentive Stock Options, except that in calculating the number of Shares that remain available for Awards of Incentive Stock Options the rules set forth in Section 4(c) shall not apply to the extent not permitted by Section 422 of the Code. 5. Administration. (a)Committee Authority GenerallyGenerally.. The Committee shall administer the Plan and shall have full power and authority to make all determinations under the Plan, subject to the express provisions hereof, including without limitation: (i) to select Participants from among the Eligible Individuals; (ii) to make Awards; (iii) to determine the number of Shares subject to each Award or the cash amount payable in connection with an Award; (iv) to establish the terms and conditions of each Award, including, without limitation, those related to vesting, cancellation, payment, exercisability, and the effect, if any, of certain events on a Participant’s Awards, such as the Participant’s termination of employment with the Company; (v) to specify and approve the provisions of the Award Documents delivered to Participants in connection with their Awards; (vi) to construe and interpret any Award Document delivered under the Plan; (vii) to prescribe, amend and rescind rules and procedures relating to the Plan; (viii) to make all determinations necessary or advisable in administering the Plan and Morgan Stanley 2016 Proxy Statement A-3
Table of Contents ANNEX A
Awards, including, without limitation, determinations as to whether (and if so as of what date) a Participant has commenced, or has experienced a termination of, employment;provided,,however,, that to the extent full or partial payment of any Award that constitutes a deferral of compensation subject to Section 409A is made upon or as a result of a Participant’s termination of employment, the Participant will be considered to have experienced a termination of employment if, and only if, the Participant has experienced a separation from service with the Participant’s employer for purposes of Section 409A; (ix) to vary the terms of Awards to take account of securities law and other legal or regulatory requirements of jurisdictions in which Participants work or reside or to procure favorable tax treatment for Participants; and (x) to formulate such procedures as it considers to be necessary or advisable for the administration of the Plan. (b)DelegationDelegation.. To the extent not prohibited by applicable laws or rules of the New York Stock Exchange or, in the case of Qualifying Performance Awards, Section 162(m) of the Code, the Committee may, from time to time, delegate some or all of its authority under the Plan to one or more Administrators consisting of one or more members of the Committee as a subcommittee or subcommittees thereof or of one or more members of the Board who are not members of the Committee or one or more officers of the Company (or of any combination of such persons). Any such delegation shall be subject to the restrictions and limits that the Committee specifies at the time of such delegation or thereafter. The Committee may at any time rescind all or part of the authority delegated to an Administrator or appoint a new Administrator. At all times, an Administrator appointed under this Section 5(b) shall serve in such capacity at the pleasure of the Committee. Any action undertaken by an Administrator in accordance with the Committee’s delegation of authority shall have the same force and effect as if undertaken directly by the Committee, and any reference in the Plan to the Committee shall, to the extent consistent with the terms and limitations of such delegation, be deemed to include a reference to an Administrator. (c)Authority to Construe and InterpretInterpret.. The Committee shall have full power and authority, subject to the express provisions hereof, to construe and interpret the Plan. (d)Committee DiscretionDiscretion.. All of the Committee’s determinations in carrying out, administering, construing and interpreting the Plan shall be made or taken in its sole discretion and shall be final, binding and conclusive for all purposes and upon all persons. In the event of any disagreement between the Committee and an Administrator, the Committee’s determination on such matter shall be final and binding on all interested persons, including any Administrator. The Committee’s determinations under the Plan need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, Awards under the Plan (whether or not such persons are similarly situated). Without limiting the generality of the foregoing, the Committee shall be A-4
entitled, among other things, to make non-uniform and selective determinations, and to enter into non-uniform and selective Award Documents, as to the persons receiving Awards under the Plan, and the terms and provisions of Awards under the Plan. (e)No LiabilityLiability.. Subject to applicable law: (i) no member of the Committee or any Administrator shall be liable for anything whatsoever in connection with the exercise of authority under the Plan or the administration of the Plan except such person’s own willful misconduct; (ii) under no circumstances shall any member of the Committee or any Administrator be liable for any act or omission of any other member of the Committee or an Administrator; and (iii) in the performance of its functions with respect to the Plan, the Committee and an Administrator shall be entitled to rely upon information and advice furnished by the Company’s officers, the Company’s accountants, the Company’s counsel and any other party the Committee or the Administrator deems necessary, and no member of the Committee or any Administrator shall be liable for any action taken or not taken in good faith reliance upon any such advice. 6. Eligibility. Eligible Individuals shall include all officers, other employees (including prospective employees) and consultants of, and other persons who perform services for, the Company, non-employee directors of Subsidiaries and employees and consultants of joint ventures, partnerships or similar business organizations in which Morgan Stanley or a Subsidiary has an equity or similar interest. Any Award made to a prospective employee shall be conditioned upon, and effective not earlier than, such person’s becoming an employee. Members of the Board who are not Company employees will not be eligible to receive Awards under the Plan. An individual’s status as an Administrator will not affect his or her eligibility to receive Awards under the Plan. A-4Morgan Stanley 2016 Proxy Statement
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7. Restricted Stock. An Award of Restricted Stock shall be subject to the terms and conditions established by the Committee in connection with the Award and specified in the applicable Award Document. Restricted Stock may, among other things, be subject to restrictions on transfer, vesting requirements or cancellation under specified circumstances. 8. Stock Units. An Award of Stock Units shall be subject to the terms and conditions established by the Committee in connection with the Award and specified in the applicable Award Document. Each Stock Unit awarded to a Participant shall correspond to one Share. Upon satisfaction of the terms and conditions of the Award, a Stock Unit will be payable, at the discretion of the Committee, in Stock or in cash equal to the Fair Market Value on the payment date of one Share. As a holder of Stock Units, a Participant shall have only the rights of a general unsecured creditor of Morgan Stanley. A Participant shall not be a stockholder with respect to the Shares underlying Stock Units unless and until the Stock Units convert to Shares. Stock Units may, among other things, be subject to restrictions on transfer, vesting requirements or cancellation under specified circumstances. 9. Options. (a)Options Generally. An Award of Options shall be subject to the terms and conditions established by the Committee in connection with the Award and specified in the applicable Award Document. The Committee shall establish (or shall authorize the method for establishing) the exercise price of all Options awarded under the Plan, except that the exercise price of an Option shall not be less than 100% of the Fair Market Value of one Share on the Award Date. Notwithstanding the foregoing, the exercise price of an Option that is a Substitute Award may be less than the Fair Market Value per Share on the Award Date, provided that such substitution complies with applicable laws and regulations, including the listing requirements of the New York Stock Exchange and Section 409A or Section 424, as applicable, of the Code. Upon satisfaction of the conditions to exercisability of the Award, a Participant shall be entitled to exercise the Options included in the Award and to have delivered, upon Morgan Stanley’s receipt of payment of the exercise price and completion of any other conditions or procedures specified by Morgan Stanley, the number of Shares in respect of which the Options A-5
shall have been exercised. Options may be either nonqualified stock options or Incentive Stock Options. Options and the Shares acquired upon exercise of Options may, among other things, be subject to restrictions on transfer, vesting requirements or cancellation under specified circumstances. (b)Prohibition on Restoration Option and SAR GrantsGrants.. Anything in the Plan to the contrary notwithstanding, the terms of an Option or SAR shall not provide that a new Option or SAR will be granted, automatically and without additional consideration in excess of the exercise price of the underlying Option or SAR, to a Participant upon exercise of the Option or SAR. (c)Prohibition on Repricing of Options and SARsSARs.. Anything in the Plan to the contrary notwithstanding, the Committee may not reprice any Option or SAR. “Reprice” means any action that constitutes a “repricing” under the rules of the New York Stock Exchange or, except as otherwise expressly provided in Section 4(b), any other amendment to an outstanding Option or SAR that has the effect of reducing its exercise price or any cancellation of an outstanding Option or SAR in exchange for cash or another Award. (d)Payment of Exercise PricePrice.. Subject to the provisions of the applicable Award Document and to the extent authorized by rules and procedures of Morgan Stanley from time to time, the exercise price of the Option may be paid in cash, by actual delivery or attestation to ownership of freely transferable Shares already owned by the person exercising the Option, or by such other means as Morgan Stanley may authorize. (e)Maximum Term on Stock Options and SARsSARs.. No Option or SAR shall have an expiration date that is later than the tenth anniversary of the Award Date thereof. 10. SARs. An Award of SARs shall be subject to the terms and conditions established by the Committee in connection with the Award and specified in the applicable Award Document. The Committee shall establish (or shall authorize the method for establishing) the exercise price of all SARs awarded under the Plan, except that the exercise price of a SAR shall not be less than 100% of the Fair Market Value of one Share on the Award Date. Notwithstanding the foregoing, the exercise price of any SAR that is a Substitute Award may be less than the Fair Market Value of one Share on the Award Date, subject to the same conditions set forth in Section 9(a) for Options that are Substitute Awards. Upon Morgan Stanley 2016 Proxy StatementA-5
Table of Contents ANNEX A
satisfaction of the conditions to the payment of the Award, each SAR shall entitle a Participant to an amount, if any, equal to the Fair Market Value of one Share on the date of exercise over the SAR exercise price specified in the applicable Award Document. At the discretion of the Committee, payments to a Participant upon exercise of an SAR may be made in Shares, cash or a combination thereof. SARs and the Shares that may be acquired upon exercise of SARs may, among other things, be subject to restrictions on transfer, vesting requirements or cancellation under specified circumstances. 11. Qualifying Performance Awards. (a) The Committee may, in its sole discretion, grant a Qualifying Performance Award to any Section 162(m) Participant. A Qualifying Performance Award shall be subject to the terms and conditions established by the Committee in connection with the Award and specified in the applicable Award Document, but in all events shall be subject to the attainment of Section 162(m) Performance Goals as may be specified by the Committee. Qualifying Performance Awards may be denominated as a cash amount, number of Shares or other securities of the Company, or a combination thereof. Subject to the terms of the Plan, the Section 162(m) Performance Goals to be achieved during any performance period, the length of any performance period, the amount of any Qualifying Performance Award granted and the amount of any payment or transfer to be made pursuant to any Qualifying Performance Award shall be determined by the Committee. The Committee shall have the discretion, by Section 162(m) Participant and by Award, to reduce (but not to increase) some or all of the amount that would otherwise be payable under the Award by reason of the satisfaction of the Section 162(m) Performance Goals set forth in the Award. In making any such determination, the Committee is authorized in its discretion to take into account additional factors that the Committee may deem relevant to the assessment of individual or company performance for the performance period. A-6
(b) In any calendar year, no one Section 162(m) Participant may be granted Awards pursuant to Section 11(a) that allow for payments with an aggregate value determined by the Committee to be in excess of $10 million;provided that, to the extent that one or more Qualifying Performance Awards granted to any one Section 162(m) Participant during any calendar year are denominated in Shares, the maximum number of Shares that may underlie such awards will be determined by reference to the volume-weighted average price of a Share of the Company on the first date of grant of such awards, subject to adjustment to the extent provided in Section 4(b). In the case of a tandem award pursuant to which a Section 162(m) Participant’s realization of a portion of such award results in a corresponding reduction to a separate portion of the award, only the number of Shares or the cash amount relating to the maximum possible realization under the award shall be counted for purposes of the limitations above (i.e.(i.e., without duplication). For purposes of the foregoing sentence, the calendar year or years in which amounts under Qualifying Performance Awards are deemed paid, granted or received shall be as determined by the Committee. (c) Section 162(m) Performance Goals may vary by Section 162(m) Participant and by Award, and may be based upon the attainment of specific or per-share amounts of, or changes in, one or more, or a combination of two or more, of the following: earnings (before or after taxes); earnings per share; shareholders’ equity or return on shareholders’ equity; risk-weighted assets or return on risk-weighted assets; capital, capital ratios or return on capital; book value or book value per share; operating income (before or after taxes); operating margins or pre-tax margins; stock price or total shareholder return; market share (including market share of revenue); debt reduction or change in rating; cost reductions; regulatory factors; risk management; expense management; or cost reductions.contributions to community development or sustainability projects or initiatives. The Committee may provide that in measuring the achievement of the performance objectives, an Award may include or exclude items such as realized investment gains and losses, extraordinary, unusual or non-recurring items, asset write-downs, effects of accounting changes, currency fluctuations, acquisitions, divestitures, reserve-strengthening, litigation, claims, judgments or settlements, the effect of changes in tax law or other such laws or provisions affecting reported results and other non-operating items, as well as the impact of changes in the fair value of certain of the Company’s long-term and short-term borrowings resulting from fluctuations in the Company’s credit spreads and other factors. The foregoing objectives may be applicable to the Company as a whole, one or more of its subsidiaries, divisions, business units or business lines, or any combination of the foregoing, and may be applied on an absolute basis or be relative to other companies, industries or indices (e.g.(e.g., stock market indices) or be based upon any combination of the foregoing. In addition to the performance objectives, the Committee may also condition payment of any such Award upon the attainment of conditions, such as completion of a period of service, notwithstanding that the performance objective or objectives specified in the Award are satisfied. A-6Morgan Stanley 2016 Proxy Statement
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(d) Following the completion of any performance period applicable to a Qualifying Performance Award, the Committee shall certify in writing the applicable performance and amount, if any, payable to Section 162(m) Participants for such performance period. The amounts payable to a Section 162(m) Participant will be paid following the end of the performance period after such certification by the Committee in accordance with the terms of the Qualifying Performance Award. (e) Without further action by the Board, this Section 11 shall cease to apply on the effective date of the repeal of Section 162(m) of the Code (and any successor provision thereof). 12. Other Awards. The Committee shall have the authority to establish the terms and provisions of other forms of Awards (such terms and provisions to be specified in the applicable Award Document) not described above that the Committee determines to be consistent with the purpose of the Plan and the interests of the Company, which Awards may provide for (i) payments in the form of cash, Stock, notes or other property as the Committee may determine based in whole or in part on the value or future value of Stock or on any amount that Morgan Stanley pays as dividends or otherwise distributes with respect to Stock, (ii) the acquisition or future acquisition of Stock, (iii) cash, Stock, notes or other property as the Committee may determine (including payment of dividend equivalents in cash or Stock) based on one or more criteria determined by the Committee unrelated to the value of Stock, or (iv) any combination of the foregoing. Awards pursuant to this Section 12 may, among other things, be made subject to restrictions on transfer, vesting requirements or cancellation under specified circumstances. A-7
13. General Terms and Provisions. (a)Awards in GeneralGeneral.. Awards may, in the discretion of the Committee, be made in substitution in whole or in part for cash or other compensation payable to an Eligible Individual. In accordance with rules and procedures authorized by the Committee, an Eligible Individual may elect one form of Award in lieu of any other form of Award, or may elect to receive an Award in lieu of all or part of any compensation that otherwise might have been paid to such Eligible Individual;provided,,however,, that any such election shall not require the Committee to make any Award to such Eligible Individual. Any such substitute or elective Awards shall have terms and conditions consistent with the provisions of the Plan applicable to such Award. Awards may be granted in tandem with, or independent of, other Awards. The grant, vesting or payment of an Award may, among other things, be conditioned on the attainment of performance objectives, including without limitation objectives based in whole or in part on net income, pre-tax income, return on equity, earnings per share, total shareholder return or book value per share. (b)Discretionary AwardsAwards.. All grants of Awards and deliveries of Shares, cash or other property under the Plan shall constitute a special discretionary incentive payment to the Participant and shall not be required to be taken into account in computing the amount of salary, wages or other compensation of the Participant for the purpose of determining any contributions to or any benefits under any pension, retirement, profit-sharing, bonus, life insurance, severance or other benefit plan of the Company or other benefits from the Company or under any agreement with the Participant, unless Morgan Stanley specifically provides otherwise. (c)Dividends and DistributionsDistributions.. If Morgan Stanley pays any dividend or makes any distribution to holders of Stock, the Committee may in its discretion authorize payments (which may be in cash, Stock (including Restricted Stock) or Stock Units or a combination thereof) with respect to the Shares corresponding to an Award, or may authorize appropriate adjustments to outstanding Awards, to reflect such dividend or distribution. The Committee may make any such payments subject to vesting, deferral, restrictions on transfer or other conditions. Any determination by the Committee with respect to a Participant’s entitlement to receive any amounts related to dividends or distributions to holders of Stock, as well as the terms and conditions of such entitlement, if any, will be part of the terms and conditions of the Award, and will be included in the Award Document for such Award. (d)DeferralsDeferrals.. In accordance with the procedures authorized by, and subject to the approval of, the Committee, Participants may be given the opportunity to defer the payment or settlement of an Award to one or more dates selected by the Participant. To the extent an Award constitutes a deferral of compensation subject to Section 409A, the Committee shall set forth in writing (which may be in electronic form), on or before the date the applicable deferral election is required to be irrevocable in order to meet the requirements of Section 409A, the conditions under which such election may be made. Morgan Stanley 2016 Proxy StatementA-7
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(e)Award Documentation and Award TermsTerms.. The terms and conditions of an Award shall be set forth in an Award Document authorized by the Committee. The Award Document shall include any vesting, exercisability, payment and other restrictions applicable to an Award (which may include, without limitation, the effects of termination of employment, cancellation of the Award under specified circumstances, restrictions on transfer or provision for mandatory resale to the Company). 14. Certain Restrictions. (a)Stockholder Rights.No Participant (or other persons having rights pursuant to an Award) shall have any of the rights of a stockholder of Morgan Stanley with respect to Shares subject to an Award until the delivery of the Shares, which shall be effected by entry of the Participant’s (or other person’s) name in the share register of Morgan Stanley or by such other procedure as may be authorized by Morgan Stanley. Except as otherwise provided in Section 4(b) or 13(c), no adjustments shall be made for dividends or distributions on, or other events relating to, Shares subject to an Award for which the record date is prior to the date such Shares are delivered. A-8
Notwithstanding the foregoing, the terms of an Employee Trust may authorize some or all Participants to give voting or tendering instructions to the trustee thereof in respect of Shares that are held in such Employee Trust and are subject to Awards. Except for the risk of cancellation and the restrictions on transfer that may apply to certain Shares (including restrictions relating to any dividends or other rights) or as otherwise set forth in the applicable Award Document, the Participant shall be the beneficial owner of any Shares delivered to the Participant in connection with an Award and, upon such delivery shall be entitled to all rights of ownership, including, without limitation, the right to vote the Shares and to receive cash dividends or other dividends (whether in Shares, other securities or other property) thereon. (b)TransferabilityTransferability.. No Award granted under the Plan shall be transferable, whether voluntarily or involuntarily, other than by will or by the laws of descent and distribution; provided that, except with respect to Incentive Stock Options, the Committee may permit transfers on such terms and conditions as it shall determine. During the lifetime of a Participant to whom Incentive Stock Options were awarded, such Incentive Stock Options shall be exercisable only by the Participant. 15. Representation; Compliance with Law. The Committee may condition the grant, exercise, settlement or retention of any Award on the Participant making any representations required in the applicable Award Document. Each Award shall also be conditioned upon the making of any filings and the receipt of any consents or authorizations required to comply with, or required to be obtained under, applicable law. 16. Miscellaneous Provisions. (a)Satisfaction of ObligationsObligations.. As a condition to the making or retention of any Award, the vesting, exercise or payment of any Award or the lapse of any restrictions pertaining thereto, Morgan Stanley may require a Participant to pay such sum to the Company as may be necessary to discharge the Company’s obligations with respect to any taxes, assessments or other governmental charges (including FICA and other social security or similar tax) imposed on property or income received by a Participant pursuant to the Award or to satisfy any obligation that the Participant owes to the Company. In accordance with rules and procedures authorized by Morgan Stanley, (i) such payment may be in the form of cash or other property, including the tender of previously owned Shares, and (ii) in satisfaction of such taxes, assessments or other governmental charges or,exclusively in the case of an Award that does not constitute a deferral of compensation subject to Section 409A,, of other obligations that a Participant owes to the Company, Morgan Stanley may make available for delivery a lesser number of Shares in payment or settlement of an Award, may withhold from any payment or distribution of an Award or may enter into any other suitable arrangements to satisfy such withholding or other obligation. To the extent an Award constitutes a deferral of compensation subject to Section 409A, the Company may not offset from the payment of such Award amounts that a Participant owes to the Company with respect to any such other obligation except to the extent such offset is not prohibited by Section 409A and would not cause a Participant to recognize income for United States federal income tax purposes prior to the time of payment of the Award or to incur interest or additional tax under Section 409A. (b)No Right to Continued EmploymentEmployment.. Neither the Plan nor any Award shall give rise to any right on the part of any Participant to continue in the employ of the Company. A-8Morgan Stanley 2016 Proxy Statement
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(c)HeadingsHeadings.. The headings of sections herein are included solely for convenience of reference and shall not affect the meaning of any of the provisions of the Plan. (d)Governing LawLaw.. The Plan and all rights hereunder shall be construed in accordance with and governed by the laws of the State of New York, without regard to any conflicts or choice of law, rule or principle that might otherwise refer the interpretation of the award to the substantive law of another jurisdiction. (e)Amendments and TerminationTermination.. The Board or Committee may modify, amend, suspend or terminate the Plan in whole or in part at any time and may modify or amend the terms and conditions of any outstanding Award (including by amending or supplementing the relevant Award Document at any time);provided, however,, A-9
that no such modification, amendment, suspension or termination shall, without a Participant’s consent, materially adversely affect that Participant’s rights with respect to any Award previously made; andprovided,,further,, that the Committee shall have the right at any time, without a Participant’s consent and whether or not the Participant’s rights are materially adversely affected thereby, to amend or modify the Plan or any Award under the Plan in any manner that the Committee considers necessary or advisable to comply with any law, regulation, ruling, judicial decision, accounting standards, regulatory guidance or other legal requirement. Notwithstanding the preceding sentence, neither the Board nor the Committee may accelerate the payment or settlement of any Award, including, without limitation, any Award subject to a prior deferral election, that constitutes a deferral of compensation for purposes of Section 409A except to the extent such acceleration would not result in the Participant incurring interest or additional tax under Section 409A. No amendment to the Plan may render any Board member who is not a Company employee eligible to receive an Award at any time while such member is serving on the Board. To the extent required by applicable law or the rules of the New York Stock Exchange, amendments to the Plan shall not be effective unless they are approved by Morgan Stanley’s stockholders. A-10
Annex B
MORGAN STANLEY
PERFORMANCE FORMULA AND PROVISIONS
(As Proposed to Be Amended)
This performance formula (the “Performance Formula”), as amended and restated, shall govern annual bonuses for performance periods starting on or after January 1, 2014 for certain officers of the Company under Section 162(m) of the Code. For annual bonuses for performance periods starting prior to January 1, 2014, the Performance Formula in effect prior to this amendment shall govern. The Performance Formula was originally set forth in the Morgan Stanley 1995 Equity Incentive Compensation Plan (the “2016 Proxy StatementA-9
1995 EICPTable of Contents”) and approved by the shareholders of
Our Core Values Since our founding in 1935, Morgan Stanley at the annual meeting of shareholders on March 22, 2001. No awards were made under the 1995 EICP after May 10, 2006;however, the Performance Formula continued to be effective as a valid shareholder-approved performance formula for annual bonus awards paid other than under the 1995 EICP. The Performance Formula, as amended and restated, was approved by the Board on March 21, 2013 subject to shareholder approval. 1. Definitions
As used herein, the following capitalized words shall have the meanings set forth below:
“Award” means an award, including without limitation, an award of restricted stock, stock units, stock options, or stock appreciation rights or another equity-based or equity-related award, granted under a Company equity compensation plan and subject to the terms and provisions of such plan.
“Board” means the Board of Directors of Morgan Stanley.
“Code” means the Internal Revenue Code of 1986, as amended, and the applicable rulings, regulations and guidance thereunder.
“Committee” means the Compensation, Management Development and Succession Committee of the Board, any successor committee thereto, or any other committee of the Board appointed by the Board to administer the Performance Formula or to have authority with respect to the Performance Formula, or any subcommittee appointed by such Committee, in each case, consisting solely of at least two “outside directors” as defined under Section 162(m) of the Code.
“Company” means Morgan Stanley and all of its Subsidiaries.
“Date of the Award” means the effective date of an Award as specified by the Committee.
“Fair Market Value” means, with respect to a Share, the fair market value thereof as of the relevant date of determination, as determined in accordance with a valuation methodology approved by the Committee.
“Maximum Annual Bonus” has the meaning set forth in Section 2.
“Morgan Stanley” means Morgan Stanley, a Delaware corporation.
“Pre-Tax Earnings” means Morgan Stanley’s income before income taxes as reported in its consolidated financial statements adjusted to eliminate: (1) the cumulative effect of changes in accounting policy (which include changes in generally accepted accounting principles) adopted by Morgan Stanley, for the relevant fiscal year; (2) gains or losses classified as “Extraordinary Items;” and (3) the impact of changes in the fair value of certain of the Company’s long-term and short-term borrowings resulting from fluctuations in the Company’s credit spreads and other factors. In each instance, the above-referenced adjustment to Pre-Tax Earnings must be calculated, as appropriate, in accordance with generally accepted accounting principles.
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“Section 162(m) Participant” means, for a given fiscal year of Morgan Stanley, any individual designated by the Committee by not later than 90 days following the start of such year (or such other time as may be required or permitted by Section 162(m) of the Code) as an individual whose compensation for such fiscal year may be subject to the limit on deductible compensation imposed by Section 162(m) of the Code.
“Share” means a share of common stock, par value $0.01 per share, of Morgan Stanley.
“Subsidiary” means (i) a corporation or other entity with respect to which Morgan Stanley, directly or indirectly, has the power, whether through the ownership of voting securities, by contract or otherwise, to elect at least a majority of the members of such corporation’s board of directors or analogous governing body, or (ii) any other corporation or other entity in which Morgan Stanley, directly or indirectly, has an equity or similar interest and which the Committee designates as a Subsidiary for purposes of the Performance Formula.
2. Annual Bonus
Commencing with the fiscal year of Morgan Stanley beginning January 1, 2014 and for each fiscal year of Morgan Stanley thereafter, each Section 162(m) Participant will be eligible to earn under the Performance Formula an annual bonus for each fiscal yearconsistently delivered first-class business in a maximum amount equal to 0.5% of Morgan Stanley’s Pre-Tax Earnings forfirst-class way. Underpinning all that fiscal year (the “Maximum Annual Bonus”). In determining the annual bonus amounts payable under the Performance Formula, the Committee may not pay a Section 162(m) Participant more than the Maximum Annual Bonus, but the Committee shall have the right to reduce the bonus amount payable to such Section 162(m) Participant to take into account additional factors that the Committee may deem relevant to the assessment of individual or corporate performance for the year.
Following the completion of each fiscal year, the Committee shall certify in writing the Maximum Annual Bonus and the bonus amounts, if any, payable to Section 162(m) Participants for such fiscal year. The bonus amounts payable to a Section 162(m) Participant will be paid following the end of the applicable fiscal year after such certification by the Committee in the form of (i) cash (including deferred cash), (ii) Awards with a value as of the Date of the Award, (iii) notes, (iv) other property as the Committee may determine or (v) any combination of the foregoing.
3. Repeal of Section 162(m) of the Code
Without further action by the Board, the Performance Formula shall cease to apply on the effective date of the repeal of Section 162(m) of the Code (and any successor provision thereto).
4. Administration
(a) Authority.
1. The Committee is responsible for administering the Performance Formula, including, without limitation, determining the Section 162(m) Participants and the terms and conditions of any Award and interpreting the provisions. Subject to the provisions of Section 162(m) of the Code, the Committee may, in its sole discretion, delegate some or all of its authority and responsibilities under the Performance Formula.
2. The Committee and any committee of the Company to which, or any officer of the Company to whom, authority to administer the Performance Formula is delegated pursuant to Section 4(a)1, and all members of any such committeewe do are referred to herein, insofar as they are acting pursuant to authority granted or delegated pursuant to the Performance Formula, as the “Administrator”. Each interpretation, determination or other action made or taken pursuant to the Performance Formula by the Administrator from time to time shall be made or taken in its sole discretion and shall be final, binding and conclusive on all persons.four core values.
B-2
(b) No Liability. The Administrator shall not be liable for anything whatsoever in connection with the administration of the Performance Formula, including, without limitation, any interpretation, determination or other action taken or not taken in administering the Performance Formula, except the Administrator’s own willful misconduct. In the performance of its functions with respect to the Performance Formula, the Administrator shall be entitled to rely upon information and advice furnished by the Company’s officers, the Company’s accountants, the Company’s counsel and any other party the Administrator deems necessary or advisable to consult, and the Administrator shall not be liable for any interpretation, determination or other action taken or not taken in reliance upon any such advice.
5. Termination and Amendment
(a) Subject to the provisions of Section 162(m) of the Code, the Committee may, at any time, terminate the Performance Formula or any program under the Performance Formula in whole or in part as to some or all Section 162(m) Participants.
(b) Subject to the provisions of Section 162(m) of the Code, the Committee may also alter, amend or modify the Performance Formula or any program under the Performance Formula at any time in its sole discretion. These amendments may include (but are not limited to) changes that the Administrator considers necessary or advisable as a result of changes in, or the adoption or interpretation of, any new legal requirement. To the extent necessary or advisable to comply with the legal requirements of any non-U.S. jurisdiction in which the Company implements the Performance Formula, the Company may supplement the Performance Formula with an international supplement.
6. Taxes and Withholding; Other Obligations
(a) Taxes and Withholding. Any vesting, payment, distribution or Award made under the Performance Formula shall be subject to the Company’s withholding of all required United States federal, state and local and foreign income and employment/payroll taxes, including without limitation Federal Insurance Contributions Act (FICA) taxes (Social Security and Medicare), and all such payments, distributions, or Awards shall be net of such tax withholding. In addition to withholding such taxes from any payment, distribution, or Award to which such taxes relate, subject to the immediately following sentence, Section 162(m) Participants authorize the Company to withhold such taxes from any payroll or other payment or compensation to the Section 162(m) Participant and to take such other action as the Company may deem advisable to enable the Company and Section 162(m) Participants to satisfy obligations for the payment of withholding taxes and other tax obligations, assessments, or other governmental charges, whether of the United States or any other jurisdiction, relating to the vesting, payment, distribution, or Award. However, the Company may not deduct or withhold such sum from any payroll or other payment or compensation, except to the extent it is not prohibited by Section 409A of the Code and would not cause the Section 162(m) Participant to recognize income for United States federal income tax purposes prior to the time of payment of any amount hereunder or to incur interest or additional tax under Section 409A of the Code. In the discretion of the Company, and subject to Section 162(m) of the Code, the Company may accelerate the payment of any amount under the Performance Formula to the extent necessary to pay (i) any FICA taxes imposed on such amount prior to the scheduled payment thereof and (ii) any income tax withholding imposed as a result of accelerated payment pursuant to the preceding clause (i).
(b) Other Obligations. The Company shall have no authority to withhold any amount from a payment or distribution pursuant the Performance Formula for the purpose of satisfying all or any part of an obligation that a Section 162(m) Participant owes to the Company, except (i) to the extent authorized under Section 6(a) relating to tax and other withholding obligations or (ii) otherwise, to the extent such withholding is not prohibited by Section 409A of the Code and would not cause the Section 162(m) Participant to recognize income for United States federal income tax purposes prior to the time of payment of any amount hereunder or to incur interest or additional tax under Section 409A of the Code.
B-3
| PUTTING CLIENTS FIRST Always keep the client’s interest first. Working with colleagues to deliver the best of the Firm to every client. Listen to what the client is saying and needs. | | 7. | Discretionary AwardsDOING THE RIGHT THING Act with integrity. Think like an owner to create long-term shareholder value. Value and reward honesty, collegiality and character. |
All grants of Awards and deliveries of Shares, cash or other property under the Performance Formula shall constitute a special discretionary incentive payment to the Section 162(m) Participant and shall not be required to be taken into account in computing the amount of salary, wages or other compensation of the Section 162(m) Participant for the purpose of determining any contributions to or any benefits under any pension, retirement, profit-sharing, bonus, life insurance, severance or other benefit plan of the Company or other benefits from the Company or under any agreement with the Section 162(m) Participant, unless Morgan Stanley specifically provides otherwise.
8. No Right to Continued Employment or Participation
Neither the Performance Formula nor any interpretation, determination or other action taken or omitted to be taken pursuant to the Performance Formula shall be construed as guaranteeing a Section 162(m) Participant’s employment with the Company, a discretionary bonus or any particular level of bonus, compensation or benefits or as giving a Section 162(m) Participant any right to continued employment, during any period, nor shall they be construed as giving a Section 162(m) Participant any right to be reemployed by the Company following any termination of employment. In addition, neither the Performance Formula nor any interpretation, determination or other action taken or omitted to be taken pursuant to the Performance Formula shall be deemed to create or confer on a Section 162(m) Participant any right to participate in the Performance Formula, or in any similar program that may be established by the Company, in respect of any fiscal year or other period.
9. Governing Law and Exclusive Jurisdiction
The Performance Formula and the related legal relations between a Section 162(m) Participant and the Company shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to any conflicts or choice of law rule or principle that might otherwise refer the interpretation of the Award to the substantive law of another jurisdiction. Following the timely and proper exhaustion of applicable internal claims and appeals procedures, the courts of New York shall have exclusive jurisdiction over the Performance Formula and any dispute arising in connection with the Performance Formula, a Section 162(m) Participant’s participation in the Performance Formula or rights under the Performance Formula.
10. Construction
The headings in this document have been inserted for convenience of reference only and are to be ignored in any construction of the Performance Formula. Use of one gender includes the other, and the singular and plural include each other.
B-4
| | | |
| | | 
Win by breaking new ground. Let the facts and different points of view broaden your perspective. Be vigilant about what we can do better. | | GIVING BACK Be generous with your expertise, your time and your money. Invest in the future of our communities and our Firm. Mentor our next generation. |
“Our DNA, our culture and our history are rooted in serving our clients.”
| – |  James P. Gorman | | Chairman and Chief Executive Officer |
 | |  | | Printed with 100% wind energy. Printed with soy-based inks. |
Table of Contents  MORGAN STANLEY
1585 BROADWAY
NEW YORK, NY 10036  VOTE BY INTERNET - www.proxyvote.com or scan the QR Barcode above
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Daylight Time on May 16, 2016. If you participate in any of the Morgan Stanley Benefit Plans, you must vote your shares no later than 11:59 p.m. EDT on May 12, 2016. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Daylight Time on May 16, 2016. If you participate in any of the Morgan Stanley Benefit Plans, you must vote your shares no later than 11:59 p.m. EDT on May 12, 2016. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
| TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | | E01532-P73633-Z67213 | KEEP THIS PORTION FOR YOUR RECORDS | | DETACH AND RETURN THIS PORTION ONLY | | THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. |
MORGAN STANLEY | | | | | | | Morgan Stanley’s Board recommends a vote “FOR” the nominees listed below: | 1. Election of Directors | | FOR AGAINST ABSTAIN | | | | FOR AGAINST ABSTAIN | 01 Erskine B. Bowles | | ¨¨¨ | | 08 Donald T. Nicolaisen | | ¨¨¨ | | | FOR AGAINST ABSTAIN | | | | FOR AGAINST ABSTAIN | 02 Howard J. Davies | | ¨¨¨ | | 09 Hutham S. Olayan | | ¨¨¨ | | | FOR AGAINST ABSTAIN | | | | FOR AGAINST ABSTAIN | 03 Thomas H. Glocer | | ¨¨¨ | | 10 James W. Owens | | ¨¨¨ | | | FOR AGAINST ABSTAIN | | | | FOR AGAINST ABSTAIN | 04 James P. Gorman | | ¨¨¨ | | 11 O. Griffith Sexton | | ¨¨¨ | | | FOR AGAINST ABSTAIN | | | | FOR AGAINST ABSTAIN | 05 Robert H. Herz | | ¨¨¨ | | 12 Ryosuke Tamakoshi | | ¨¨¨ | | | FOR AGAINST ABSTAIN | | | | FOR AGAINST ABSTAIN | 06 C. Robert Kidder | | ¨¨¨ | | 13 Masaaki Tanaka | | ¨¨¨ | | | FOR AGAINST ABSTAIN | | | | FOR AGAINST ABSTAIN | 07 Klaus Kleinfeld | | ¨¨¨ | | 14 Laura D. Tyson | | ¨¨¨ | | | | | | | |
| | | | | | | | | MARK VOTES For | | AS SHOWN Against | | USING BLACK AbstainOR BLUE INK
| | | x1. |
| Election of Directors | | | | | | | | | | | | | | | | | | | 1a. | Erskine B. Bowles | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1b. | Alistair Darling | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1c. | Thomas H. Glocer | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1d. | James P. Gorman | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1e. | Robert H. Herz | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1f. | Nobuyuki Hirano | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1g. | Klaus Kleinfeld | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1h. | Jami Miscik | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1i. | Donald T. Nicolaisen | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1j. | Hutham S. Olayan | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1k. | James W. Owens | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1l. | Ryosuke Tamakoshi | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1m. | Perry M. Traquina | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1n. | Rayford Wilkins, Jr. | | ☐ | | ☐ | | ☐ |
| | |
| | Morgan Stanley’s Board recommends a vote “FOR” Proposals 2, through 63 and 4 below: | | For | | Against | | Abstain | 2. | | | | 2. | To ratify the appointment of Deloitte & Touche LLP as independent auditor | | FOR AGAINST ABSTAIN☐
| | ☐ | | ¨☐¨¨ | 3.
| | | | | | | | | | 3. | To approve the compensation of executives as disclosed in the proxy statement (non-binding advisory resolution) | | FOR AGAINST ABSTAIN☐
| | ☐ | | ¨☐¨¨ | | | | | | | | | | | 4. | | To amendapprove the amendment of the 2007 Equity Incentive Compensation Plan to increase the number of authorized shares availableand add performance measures for grant certain awards | | ☐ | | ☐ | | ☐ | | | | | | | | | | | Morgan Stanley’s Board recommends a vote “AGAINST” Proposals 5 and 6 below: | | | | | | | | | | 5. | Shareholder proposal regarding a change in the treatment of abstentions for purposes of vote-counting | | ☐ | | ☐ | | ☐ | | | | | | | | | | | 6. | Shareholder proposal regarding a policy to prohibit vesting of deferred equity awards for senior executives who resign to enter government service | | ☐ | | ☐ | | ☐ |
| FOR AGAINST ABSTAIN
¨¨¨Sign exactly as imprinted (do not print). If shares are held jointly, EACH holder should sign. Executors, administrators, trustees, guardians and others signing in a representative capacity should indicate the capacity in which they sign. An authorized officer signing on behalf of a corporation should indicate the name of the corporation and the officer’s title.
| 5. | | To amend the 2007 Equity Incentive Compensation Plan to provide for qualifying performance-based long-term incentive awards under Section 162(m) | | FOR AGAINST ABSTAIN
¨¨¨
| | | | | 6. | | To amend the Section 162(m) performance formula governing annual incentive compensation for certain officers | | FOR AGAINST ABSTAIN
¨¨¨
|
Sign exactly as imprinted (do not print). If shares are held jointly, EACH holder should sign. Executors, administrators, trustees, guardians and others signing in a representative capacity should indicate the capacity in which they sign. An authorized officer signing on behalf of a corporation should indicate the name of the corporation and the officer’s title.
Dated , 2013 Signature Co-owner (if any) Signature
é é DETACH HERE IF YOU ARE SUBMITTING BY MAILé é
| Signature [PLEASE SIGN WITHIN BOX] | | | Date | | Signature (Joint Owners) | | Date | |
Table of Contents Notice of 2016 Morgan Stanley Annual Meeting of Shareholders
2000 Westchester Avenue, Purchase, New York 10577
May 17, 2016, 2 p.m., local time |
At the meeting, we plan to: | ● | IMPORTANTelect members of the Board of Directors;
| | ● | | YOUR PROXY MUST BE RECEIVED BY THE CLOSE OF THE POLLSratify the appointment of Deloitte & Touche LLP as independent auditor; | | ● | | ON MAY 14, 2013approve the compensation of executives as disclosed in the proxy statement (non-binding advisory resolution); | | ● | approve an amendment to the 2007 Equity Incentive Compensation Plan; | 1.
● | | INTERNET. Go to www.investorvote.com/mstl. Follow the instructions.consider two shareholder proposals; and | 2.
| | TELEPHONE.Using a touch-tone phone, call toll free 1-800-652-VOTE (8683) (in the U.S., U.S. territories and | | | Canada) or 781-575-2300 (outside the U. S.). Follow the instructions. | 3.
| ● | MAIL.Date, sign and returntransact such other business as may properly come before the card in the enclosed envelope.
meeting. |
Morgan StanleyTo view or print a copy of our Proxy Statement, Annual Report on Form 10-K or Letter to Shareholders, go towww.morganstanley.com/2016ams. You may request a copy of any of these documents by calling 1-212-762-8131.
MS 001Please vote any other cards or voting instruction forms that you may receive.
PLEASE SUBMIT YOUR PROXY BY PHONE OR BY INTERNET,
OR RETURN THIS PROXY CARD AFTER SIGNING AND DATING IT ON THE REVERSE SIDE.
THIS PROXY WILL BE VOTED AS DIRECTED. IF THIS PROXY IS SIGNED, BUT NO DIRECTION IS MADE, IT WILL BE VOTED IN
ACCORDANCE WITH THE RECOMMENDATION OF MORGAN STANLEY’S BOARD OF DIRECTORS.
 DETACH HERE IF YOU ARE SUBMITTING BY MAIL | E01533-P73633-Z67213 |
MORGAN STANLEY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE 20132016 ANNUAL MEETING OF SHAREHOLDERS, MAY 14, 201317, 2016
The undersigned hereby appoints Eric F. Grossman, James A. Rosenthal and Martin M. Cohen, and each of them, attorneys and proxies, with full power of substitution, to represent and to vote on behalf of the undersigned all of the shares of common stock of Morgan Stanley that the undersigned is entitled in any capacity to vote if personally present at the 2016 Annual Meeting of Shareholders to be held on May 17, 2016, and at any adjournments or postponements thereof, in accordance with the instructions set forth on the reverse side of this proxy card and with the same effect as though the undersigned were present in person and voting such shares. Each of the proxies is authorized in his discretion to vote for the election of another person to the Board of Directors if any nominee named herein becomes unable to serve or for good cause will not serve, upon all matters incident to the conduct of the meeting, and upon such other business as may properly come before the meeting. | | | | | | | | | | | The undersigned hereby appoints Eric F. Grossman, James A. Rosenthal and Martin M. Cohen, and each of them, attorneys and proxies, with full power of substitution, to represent and to vote on behalf of the undersigned all of the shares of common stock of Morgan Stanley that the undersigned is entitled in any capacity to vote if personally present at the 2013 Annual Meeting of Shareholders to be held on May 14, 2013, and at any adjournments or postponements thereof, in accordance with the instructions set forth on the reverse side of this proxy card and with the same effect as though the undersigned were present in person and voting such shares. Each of the proxies is authorized in his discretion to vote for the election of a
BENEFIT PLAN PARTICIPANTS I hereby direct the following to vote, in person or by proxy, all of the shares of Morgan Stanley common stock held for my benefit in Morgan Stanley benefit plans at the 2016 Annual Meeting of Shareholders to be held on May 17, 2016, and at any and all adjournments or postponements thereof, as indicated on the reverse side of this voting instruction form, and, in its (or the proxies’) discretion, for the election of another person to the Board of Directors if any nominee named herein becomes unable to serve or for good cause will not serve, upon all matters incident to the conduct of the meeting, and upon such other business as may properly come before the meeting. | | | | | | | | | | ● | PLEASE SUBMIT YOUR PROXY BY PHONE OR BY INTERNET,
OR RETURN THIS PROXY CARD AFTER SIGNING AND DATING IT.
| | | | | | | | | | | THIS PROXY WILL BE VOTED AS DIRECTED. IF THIS PROXY IS SIGNED, BUT NO | | | | | | | DIRECTION IS MADE, IT WILL BE VOTED IN ACCORDANCE WITH THE
RECOMMENDATION OF MORGAN STANLEY’S BOARD OF DIRECTORS.
| | | | | | | | | |
| | | | | | | Notice of 2013 Morgan Stanley Annual Meeting of Shareholders
2000 Westchester Avenue, Purchase, New York 10577
May 14, 2013, 9 a.m., local time
| | |
At the meeting, we plan to:
elect members of the Board of Directors;
ratify the appointment of Deloitte & Touche LLP as independent auditor;
approve the compensation of executives as disclosed in the proxy statement (non-binding advisory resolution);
approve the amendment of the 2007 Equity Incentive Compensation Plan to increase shares available for grant;
approve the amendment of the 2007 Equity Incentive Compensation Plan to provide for qualifying performance-based long-term incentive awards under Section 162(m);
approve the amendment of the Section 162(m) performance formula governing annual incentive compensation for certain officers; and
transact such other business as may properly come before the meeting.
Please help the Company reduce costs – submit your proxy by internet or telephone. If you share an address with other shareholders, you can avoid receiving multiple copies of annual meeting materials and help the Company reduce costs by consenting to householding. The Company can further reduce costs if you agree to receive future versions of our Proxy Statement and Annual Report on Form 10-K electronically over the internet. You can view or print a copy of our annual meeting materials atwww.morganstanley.com/2013ams.You can request a copy of these materials by contacting our proxy solicitor, D.F. King & Co., Inc.at800-290-6429 (in the U.S.) or 212-269-5550 (outside the U.S.). For more information regarding electronic delivery and householding, contact our transfer agent, Computershare Shareowner Services LLC, at 800-622-2393 (in the U.S.), (201) 680-6578 (outside the U.S.) orwww.computershare.com/investor.
MS 001
| | | | | | | Morgan Stanley’s Board recommends a vote “FOR” the nominees listed below:
| 1. Election of Directors | | FOR AGAINST ABSTAIN | | | | FOR AGAINST ABSTAIN | 01 Erskine B. Bowles | | ¨¨¨ | | 08 Donald T. Nicolaisen | | ¨¨¨ | | | FOR AGAINST ABSTAIN | | | | FOR AGAINST ABSTAIN | 02 Howard J. Davies | | ¨¨¨ | | 09 Hutham S. Olayan | | ¨¨¨ | | | FOR AGAINST ABSTAIN | | | | FOR AGAINST ABSTAIN | 03 Thomas H. Glocer | | ¨¨¨ | | 10 James W. Owens | | ¨¨¨ | | | FOR AGAINST ABSTAIN | | | | FOR AGAINST ABSTAIN | 04 James P. Gorman | | ¨¨¨ | | 11 O. Griffith Sexton | | ¨¨¨ | | | FOR AGAINST ABSTAIN | | | | FOR AGAINST ABSTAIN | 05 Robert H. Herz | | ¨¨¨ | | 12 Ryosuke Tamakoshi | | ¨¨¨ | | | FOR AGAINST ABSTAIN | | | | FOR AGAINST ABSTAIN | 06 C. Robert Kidder | | ¨¨¨ | | 13 Masaaki Tanaka | | ¨¨¨ | | | FOR AGAINST ABSTAIN | | | | FOR AGAINST ABSTAIN | 07 Klaus Kleinfeld | | ¨¨¨ | | 14 Laura D. Tyson | | ¨¨¨ | | | | | | | |
| | | | | MARK VOTES
AS SHOWN
USING BLACK
OR BLUE INK
| | x |
| | | | | Morgan Stanley’s Board recommends a vote “FOR” Proposals 2 through 6 below:
| 2. | | To ratify the appointment of Deloitte & Touche LLP as independent auditor
| | FOR AGAINST ABSTAIN
¨¨¨
| 3.
| | To approve the compensation of executives as disclosed in the proxy statement (non-binding advisory resolution)
| | FOR AGAINST ABSTAIN
¨¨¨
| 4. | | To amend the 2007 Equity Incentive Compensation Plan to increase shares available for grant
| | FOR AGAINST ABSTAIN
¨¨¨
| 5. | | To amend the 2007 Equity Incentive Compensation Plan to provide for qualifying performance-based long-term incentive awards under Section 162(m) | | FOR AGAINST ABSTAIN
¨¨¨
| | | | 6. | | To amend the Section 162(m) performance formula governing annual incentive compensation for certain officers | | FOR AGAINST ABSTAIN
¨¨¨
|
Sign exactly as imprinted (do not print). Executors, administrators, trustees, guardians and others signing in a representative capacity should indicate the capacity in which they sign.
Signature Dated , 2013
é é DETACH HERE IF YOU ARE SUBMITTING BY MAILé é
Please help the Company reduce costs—submit your voting instructions by internet or telephone.
| | | | | IMPORTANT
| | | YOUR INSTRUCTIONS MUST BE RECEIVED BY | | | 11:59 P.M. (EDT) ON MAY 9, 2013 | | | 1.
| | INTERNET.Go to www.investorvote.com/mstl2. Follow the instructions. | 2.
| | TELEPHONE.Using a touch-tone phone, call toll free 1-800-652-VOTE (8683) (in the U.S., U.S. territories and Canada) | | | or 781-575-2300 (outside the U.S.). Follow the instructions. | 3.
| | MAIL.Date, sign and return the voting instruction form in the enclosed envelope.
|
Morgan Stanley
MS 002
MORGAN STANLEY 2013 VOTING INSTRUCTION FORM FOR BENEFIT PLAN PARTICIPANTS
| | | | | | | | | | | I hereby direct the following to vote, in person or by proxy, all of the shares of Morgan Stanley common stock in my account(s) at the 2013 Annual Meeting of Shareholders to be held on May 14, 2013, and at any and all adjournments or postponements thereof, as indicated on the reverse side of this voting instruction form, and, in its (or the proxies’) discretion, for the election of a person to the Board of Directors if any nominee named herein becomes unable to serve or for good cause will not serve, upon all matters incident to the conduct of the meeting, and upon such other business as may properly come before the meeting.
• The Northern Trust Company (Northern Trust), as trustee under the Morgan Stanley 401(k) Plan.Plan (the "Plan").As a participant in and a named fiduciary under the Plan, I understand that (A) if I sign, date, and return this form, Northern Trust will vote or grant proxies in accordance with the Board of Directors’ recommendation as to each proposal for which I do not give voting instructions, (B) Northern Trust will vote or grant proxies for all undirected (other than pursuant to clause (A)) and/or forfeited shares, as applicable, in the same respective proportion as the shares of all participants who have timely delivered properly executed voting instructions, unless to do so would be inconsistent with Northern Trust’s duties, and (C) Northern Trust will hold my voting instructions in confidence to the extent required by applicable law or regulations or the governing instrument.
| | ● | • State Street Bank and Trust Company, as trustee under a trust agreement (Trust), in connection with the 1995 and 2007 Equity Incentive Compensation Plans, the 2009 Replacement Equity Incentive Compensation Plan for Morgan Stanley Smith Barney Employees, the Employees’ Equity Accumulation Plan, the Tax Deferred Equity Participation Plan and the Financial Advisor and Investment Representative Compensation Plan.I understand that, subject to the Trust’s terms, (A) if I sign, date and return this form, State Street will vote in accordance with the Board of Directors’ recommendation as to each proposal for which I do not give voting instructions, (B) State Street will vote with respect to all shares held in the Trust in connection with these plans for which no proper instructions are received (other than pursuant to clause (A)) in the same proportion as the shares held in connection with these plans for which it has received proper instructions, and (C) State Street will vote in its discretion, after due consideration, on all other matters that may properly come before the meeting.
• The Bank of New York Mellon (Mellon), as custodian for stock held on behalf of certain current and former Morgan Stanley employees and directors.I understand that, (A) if I sign, date and return this form, Mellon will vote or grant proxies in accordance with the Board of Directors’ recommendation as to each proposal for which I do not give voting instructions, (B) if I do not sign, date and return this form, Mellon will not vote or grant proxies with respect to my shares, and (C) Mellon will hold my voting instructions in confidence to the extent required by law.
| | | | | | | | | | ● | • State Street Bank and Trust Company, as trustee under the Trust, in connection with the Directors’ Equity Capital Accumulation Plan.I understand that, subject to the Trust’s terms, (A) if I do not sign, date and return this form, State Street will not vote or grant proxies with respect to mythese shares, and (B) if I sign, date and return this form, State Street will vote (i) in accordance with the Board of Directors’ recommendation as to each proposal for which I do not give voting instructions and (ii) in its discretion, after due consideration, on all other matters that may properly come before the meeting.
| | | | | | | | | | | | ● | • Equiniti Share Plan Trustees Limited, as trustee under a trust deed (UK SOP Trust), in connection with the Morgan Stanley UK Share Ownership Plan.I understand that, subject to the UK SOP Trust’sTrust's terms, (A) I must sign, date and return this form in order for Equiniti to vote or grant proxies with respect to mythese shares, and (B) if I sign, date and return this form, Equiniti will vote or grant proxies in accordance with the Board of Directors’Directors' recommendation as to each proposal for which I do not give voting instructions and in its discretion on all other matters that may properly come before the meeting.
| | ● | Voting instructions for benefit plan shares must be received by 11:59 P.M. (EDT) on May 9, 201312, 2016 for shares to be voted in accordance with your instructions. | | |
| | | | | | | Notice of 2013 Morgan Stanley Annual Meeting of Shareholders
2000 Westchester Avenue, Purchase, New York 10577
May 14, 2013, 9 a.m., local time
| | |
At the meeting, we plan to:
elect members of the Board of Directors;
ratify the appointment of Deloitte & Touche LLP as independent auditor;
approve the compensation of executives as disclosed in the proxy statement (non-binding advisory resolution);
approve the amendment of the 2007 Equity Incentive Compensation Plan to increase shares available for grant;
approve the amendment of the 2007 Equity Incentive Compensation Plan to provide for qualifying performance-based long-term incentive awards under Section 162(m);
approve the amendment of the Section 162(m) performance formula governing annual incentive compensation for certain officers; and
transact such other business as may properly come before the meeting.
To view or print a copy of our Proxy Statement or Annual Report on Form 10-K, go towww.morganstanley.com/2013ams.You may request a copy of any of these documents by calling 1-212-762-8131.
The shares for which you provide voting instructions with this form include your Morgan Stanley 401(k) Plan shares, if any. However, if you want to provide voting instructions for your shares in this plan differently from your other plan shares, call 1-212-296-7767 to request separate voting instruction forms for these shares.
If you also hold shares in a brokerage account or in your own name, you also will receive a separate proxy card or voting instruction form for those shares. Please be sure to provide voting instructions for these sharesseparatelyfrom (and in addition to) your employee plan shares. Be sure to follow the voting instructions on each form.
MS 002
| | | | | | | Morgan Stanley’s Board recommends a vote “FOR” the nominees listed below:
| 1. Election of Directors | | FOR AGAINST ABSTAIN | | | | FOR AGAINST ABSTAIN | 01 Erskine B. Bowles | | ¨¨¨ | | 08 Donald T. Nicolaisen | | ¨¨¨ | | | FOR AGAINST ABSTAIN | | | | FOR AGAINST ABSTAIN | 02 Howard J. Davies | | ¨¨¨ | | 09 Hutham S. Olayan | | ¨¨¨ | | | FOR AGAINST ABSTAIN | | | | FOR AGAINST ABSTAIN | 03 Thomas H. Glocer | | ¨¨¨ | | 10 James W. Owens | | ¨¨¨ | | | FOR AGAINST ABSTAIN | | | | FOR AGAINST ABSTAIN | 04 James P. Gorman | | ¨¨¨ | | 11 O. Griffith Sexton | | ¨¨¨ | | | FOR AGAINST ABSTAIN | | | | FOR AGAINST ABSTAIN | 05 Robert H. Herz | | ¨¨¨ | | 12 Ryosuke Tamakoshi | | ¨¨¨ | | | FOR AGAINST ABSTAIN | | | | FOR AGAINST ABSTAIN | 06 C. Robert Kidder | | ¨¨¨ | | 13 Masaaki Tanaka | | ¨¨¨ | | | FOR AGAINST ABSTAIN | | | | FOR AGAINST ABSTAIN | 07 Klaus Kleinfeld | | ¨¨¨ | | 14 Laura D. Tyson | | ¨¨¨ | | | | | | | |
| | | | | MARK VOTES
AS SHOWN
USING BLACK
OR BLUE INK
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| | | | | Morgan Stanley’s Board recommends a vote “FOR” Proposals 2 through 6 below:
| 2. | | To ratify the appointment of Deloitte & Touche LLP as independent auditor
| | FOR AGAINST ABSTAIN
¨¨¨
| 3.
| | To approve the compensation of executives as disclosed in the proxy statement (non-binding advisory resolution)
| | FOR AGAINST ABSTAIN
¨¨¨
| 4. | | To amend the 2007 Equity Incentive Compensation Plan to increase shares available for grant
| | FOR AGAINST ABSTAIN
¨¨¨
| 5. | | To amend the 2007 Equity Incentive Compensation Plan to provide for qualifying performance-based long-term incentive awards under Section 162(m) | | FOR AGAINST ABSTAIN
¨¨¨
| | | | | | 6. | | To amend the Section 162(m) performance formula governing annual incentive compensation for certain officers | | FOR AGAINST ABSTAIN
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Please help the Company reduce costs—submit your voting instructions by Internet or telephone.
Sign exactly as imprinted (do not print). If shares are held jointly, EACH holder should sign. Executors, administrators, trustees, guardians and others signing in a representative capacity should indicate the capacity in which they sign. An authorized officer signing on behalf of a corporation should indicate the name of the corporation and the officer’s title.
Dated , 2013 Signature Co-owner (if any) Signature
é é DETACH HERE IF YOU ARE SUBMITTING BY MAILé é
Morgan Stanley
MS 003
| | | | | | | | | | | | | | | MORGAN STANLEY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE 2013 ANNUAL MEETING OF SHAREHOLDERS, MAY 14, 2013
The undersigned hereby appoints Eric F. Grossman, James A. Rosenthal and Martin M. Cohen, and each of them, attorneys and proxies with full power of substitution, to represent and to vote on behalf of the undersigned all of the shares of common stock of Morgan Stanley that the undersigned is entitled in any capacity to vote if personally present at the 2013 Annual Meeting of Shareholders to be held on May 14, 2013, and at any adjournments or postponements thereof, in accordance with the instructions set forth on the reverse side of this proxy card and with the same effect as though the undersigned were present in person and voting such shares. Each of the proxies is authorized in his discretion to vote for the election of a person to the Board of Directors if any nominee named herein becomes unable to serve or for good cause will not serve, upon all matters incident to the conduct of the meeting, and upon such other business as may properly come before the meeting.
| | | | | | | | | PLEASE RETURN THIS PROXY CARD AFTER SIGNING AND DATING IT.
THIS PROXY WILL BE VOTED AS DIRECTED. IF THIS PROXY IS SIGNED, BUT NO DIRECTION IS
MADE, IT WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATION OF MORGAN
STANLEY’S BOARD OF DIRECTORS.
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