Notice of2019 Annual Meeting
and Proxy Statement
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant ☑
Filed by a Party other than the Registrant ☐
Check the appropriate box:
| ☐ | Preliminary Proxy Statement | |
| ☐ | Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| ☑ | Definitive Proxy Statement |
| ☐ | Definitive Additional Materials |
| ☐ | Soliciting Material |
Morgan StanleyMORGAN STANLEY
(Name of Registrant as Specified Inin Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
| ☑ | No fee required. | ||
| ☐ | Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. | ||
| (1) | Title of each class of securities to which transaction applies: |
| (2) | Aggregate number of securities to which transaction applies: |
| (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
| (4) | Proposed maximum aggregate value of transaction: |
| (5) | Total fee paid: |
| ☐ | Fee paid previously with preliminary materials: | ||
| ☐ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the | ||
| (1) | Amount previously paid: |
| (2) | Form, Schedule or Registration Statement No.: |
| (3) | Filing Party: |
| (4) | Date Filed: |
Notice of2019 Annual Meeting
and Proxy Statement
|
James P. Gorman
Notice of2016Annual Meetingand Proxy Statement
James P. Gorman
Dear fellow shareholders, I cordially invite you to attend Morgan Stanley’s
Morgan Stanley’s business and financial results in 2018 were the best in our history. Our mix of businesses not only provided earnings stability but also earnings growth. We will continue to grow our business by executing our strategy, and investing in our people and culture. While a robust strategy can cause a company to be successful at any point in time, a strong culture ensures enduring success over decades. Morgan Stanley reported record revenues, pretax profit* and net income* for 2018. While we experienced a weaker fourth quarter as the Our Board of Directors and management value the views of our shareholders and we have In 2018, Mary Schapiro was elected to your Board. She brings extensive finance, risk management and regulatory expertise to the Firm. This brings the proportion of women Directors to nearly a third, and underscores our commitment to diverse talent and leadership across all levels of Morgan Stanley. Ryosuke Tamakoshi is stepping down from our Board after eight years. I thank him for his dedicated service and many contributions to the Board. We are nominating Takeshi Ogasawara to replace him as an MUFG director and know we
|
Morgan Stanley 2019 Proxy Statement 1
| |
Morgan Stanley 2016 Proxy Statement1
As we do each year, the Board of Directors and executive management team evaluate our In addition to the right strategy, long-term and enduring success lies in having a strong culture and talented employees who live our values. At Morgan Stanley, our culture guides our employees, and our values inform everything we do. A diverse employee base and a talented leadership pipeline are critical to delivering the best of the
Our long-term success will also be driven by the depth of talent and leadership across our Firm. We have an experienced management team and our businesses have a 2018’s record year demonstrates the strength of the Firm. We are focused on supporting our clients and are prepared to
I hope you will read Thank you for your support of Morgan Stanley. Very truly yours, 
James P. Gorman Chairman and Chief Executive Officer | |
* See page 61 for the “Notes to the Compensation Discussion and Analysis,” which provide additional information regarding the metrics referenced and non-GAAP measures. | |
2 Morgan Stanley 20162019 Proxy Statement
| 4 | ||
| 5 | ||
CORPORATE GOVERNANCE MATTERS | 11 |
|
| 11 |
|
| 40 |
41 | ||
42 | ||
|
| 43 |
| Compensation Discussion and Analysis (CD&A) | 44 | ||
Compensation, Management Development and Succession Committee Report | 62 | ||
63 | ||
63 | ||
65 | ||
66 | ||
67 | ||
67 | ||
69 | ||
71 | ||
73 | ||
73 | ||
74 | ||
74 | ||
75 | ||
76 | ||
76 |
|
|
|
80 | |||
83 | |||
Morgan Stanley 20162019 Proxy Statement3
1585 Broadway
New York, NY 10036
NOTICE OF 20162019 ANNUAL MEETING
OF SHAREHOLDERS
TIME AND DATE2:
10:00 p.m.a.m. (EDT) on May 17, 201623, 2019
LOCATION
LOCATION
Morgan Stanley
2000 Westchester Avenue, Purchase, New York
ITEMS OF BUSINESS
Ratify the appointment of Deloitte & Touche LLP as independent auditor Approve the compensation of executives as disclosed in the proxy statement(non-binding advisory vote) Consider a shareholder proposal, if properly presented at the meeting Transact such other business as may properly come before the meeting or any postponement or adjournment thereof
| |
| |
| |
| |
| |
|
RECORD DATE
The close of business on March 21, 201625, 2019 is the date of determination of shareholders entitled to notice of, and to vote at, the annual meeting of shareholders.
ADMISSION
ADMISSION
Only record or beneficial owners of Morgan Stanley’s common stock as of the record date, the close of business on March 21, 2016,25, 2019, or a valid proxy or representative of such shareholder, may attend the annual meeting in person. Any shareholder, proxy or representative who wishes to attend the annual meeting must present the documentation described under “How Do I Attend the Annual Meeting?” Morgan Stanley reserves the right to limit the number of representatives who may attend the annual meeting on behalf of a shareholder.
By Order of the Board of Directors,
Martin M. Cohen
Corporate Secretary
April 1, 20165, 2019
VOTING It is important that all of your shares are voted. You may submit your proxy to have your shares voted over the Internet or by telephone or by returning your proxy card or voting instruction form, if you receive one in the mail. |
 |   |  | |||||
BY MOBILE DEVICE You can vote by scanning the QR Barcode on your proxy materials.
BY INTERNET You can vote BY TELEPHONE You can vote by calling the number on your proxy materials. BY MAIL You can vote by mail by completing, datingand signing your proxy card or voting instruction form and returning it in the postage-paid envelope. WEBCAST
NOTICE We are distributing to certain shareholders a Notice of Internet Availability of Proxy Materials (Notice) on or about April Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on May |
4Morgan Stanley 20162019 Proxy Statement
This overview of voting items presents certain information that you should consider before voting on the items presented at this year’s annual meeting; however, you should read the entire proxy statement carefully before voting. In this proxy statement, we refer to Morgan Stanley as the “Company,” the “Firm,” “we,” “our” or “us” and the Board of Directors as the “Board.”
Item 1 |
Election of Directors
 | ||
 | Our Board unanimously recommends that you vote“FOR” the election of all director nominees. |
Director Nominees
Director since | Non- management | Other current public boards | Morgan Stanley Committees | |||||||||||||||||
| Name | Occupation | Age | A | CMDS | NG | OT | R | |||||||||||||
| Erskine B. Bowles | President Emeritus of the | 70 | 2005 | YES | - Facebook, Inc. | M | M | |||||||||||||
| Independent Lead | University of North Carolina | - Norfolk Southern | ||||||||||||||||||
| Director | Corporation | |||||||||||||||||||
| Alistair Darling | Former Chancellor of the | 62 | 2016 | YES | - None | M(1) | ||||||||||||||
| Exchequer for the U.K. | ||||||||||||||||||||
| Thomas H. Glocer | CEO of Thomson Reuters | 56 | 2013 | YES | - Merck & Co., Inc. | M | C | |||||||||||||
| Corporation (retired) | ||||||||||||||||||||
| James P. Gorman | Chairman of the Board and CEO | 57 | 2010 | NO | - None | |||||||||||||||
| of Morgan Stanley | ||||||||||||||||||||
| Robert H. Herz | President of | 62 | 2012 | YES | - Federal National | C | M | |||||||||||||
| Robert H. Herz LLC | Mortgage Association | |||||||||||||||||||
| (Fannie Mae) | ||||||||||||||||||||
| - Workiva Inc. | ||||||||||||||||||||
| Nobuyuki Hirano | President and CEO of Mitsubishi | 64 | 2015 | YES | - Mitsubishi UFJ | M | ||||||||||||||
| UFJ Financial Group, Inc. | Financial Group | |||||||||||||||||||
| Klaus Kleinfeld | Chairman and CEO of Alcoa Inc. | 58 | 2012 | YES | - Alcoa Inc. | M | ||||||||||||||
| - Hewlett-Packard | ||||||||||||||||||||
| Enterprise Company | ||||||||||||||||||||
| Jami Miscik | Co-CEO and Vice Chair of | 57 | 2014 | YES | - EMC Corporation | M | M | |||||||||||||
| Kissinger Associates, Inc. | ||||||||||||||||||||
| Donald T. | Chief Accountant for the | 71 | 2006 | YES | - MGIC Investment | M | C | |||||||||||||
| Nicolaisen | U.S. Securities and Exchange | Corporation | ||||||||||||||||||
| Commission (retired) | - Verizon | |||||||||||||||||||
| Communications Inc. | ||||||||||||||||||||
| - Zurich Insurance | ||||||||||||||||||||
| Group | ||||||||||||||||||||
| Hutham S. Olayan | Principal and director, The | 62 | 2006 | YES | - International Business | C | ||||||||||||||
| Olayan Group | Machines Corporation | |||||||||||||||||||
| James W. Owens | Chairman and CEO of Caterpillar | 70 | 2011 | YES | - Alcoa Inc. | M | C | |||||||||||||
| Inc. (retired) | - International Business | |||||||||||||||||||
| Machines Corporation | ||||||||||||||||||||
| Ryosuke | Senior Advisor of The Bank of | 68 | 2011 | YES | - None | M | ||||||||||||||
| Tamakoshi | Tokyo-Mitsubishi UFJ, Ltd. | |||||||||||||||||||
| Perry M. Traquina | CEO and Managing Partner, | 59 | 2015 | YES | - eBay Inc. | M | ||||||||||||||
| Wellington Management | ||||||||||||||||||||
| Company LLP (retired) | ||||||||||||||||||||
| Rayford Wilkins, Jr. | CEO of Diversified Businesses of | 64 | 2013 | YES | - Valero Energy | M | M | |||||||||||||
| AT&T Inc. (retired) | Corporation | |||||||||||||||||||
Name, Age, Independence | Occupation highlights | Director | U.S.-listed public boards | Morgan Stanley Committees | ||||||||||||
| A | CMDS | N&G | OT | R | ||||||||||||
Elizabeth Corley, 62 Independent | Former global Chief Executive Officer (CEO) of Allianz Global Investors (U.K.) Ltd. (AllianzGI) | 2018 | - Pearson plc | M | ||||||||||||
Alistair Darling, 65 Independent | Former Chancellor of the Exchequer for the U.K. | 2016 | None | M | M | |||||||||||
Thomas H. Glocer, 59 Independent Lead | Former CEO of Thomson Reuters Corporation | 2013 | - Merck & Co., Inc. | M | M | |||||||||||
James P. Gorman, 60 | Chairman of the Board and CEO of Morgan Stanley | 2010 | None | |||||||||||||
Robert H. Herz, 65 Independent | President of Robert H. Herz LLC; Former Chairman of Financial Accounting Standards Board | 2012 | - Federal National - Workiva Inc. | C | M | |||||||||||
Nobuyuki Hirano, 67 Non-Management | Chairman of Mitsubishi UFJ Financial Group, Inc. (MUFG) | 2015 | - MUFG - Toyota Motor | M | ||||||||||||
Jami Miscik, 60 Independent | CEO and Vice Chair of Kissinger Associates, Inc. | 2014 | - General Motors Company | C | M | |||||||||||
Dennis M. Nally, 66 Independent | Former Chairman of PricewaterhouseCoopers International Ltd. | 2016 | None | M | M | |||||||||||
Takeshi Ogasawara, 65 Non-Management | Advisor of MUFG Bank, Ltd. | — | None | M | ||||||||||||
Hutham S. Olayan, 65 Independent | Chair, principal and director of The Olayan Group | 2006 | - International Business | C | ||||||||||||
Mary L. Schapiro, 63 Independent | Vice Chair for Global Public Policy and Special Advisor to Founder and Chairman of Bloomberg, L.P. | 2018 | - CVS Health Corporation | M | ||||||||||||
Perry M. Traquina, 62 Independent | Former CEO and Managing Partner, Wellington Management Company LLP | 2015 | - eBay Inc. - The Allstate | M | C | |||||||||||
Rayford Wilkins, Jr., 67 Independent | Former CEO of Diversified Businesses of AT&T Inc. | 2013 | - Caterpillar Inc. - Valero Energy | M | C | |||||||||||
A:Audit Committee CMDS: Compensation, Management Development and Succession Committee N&G: Nominating and Governance Committee | OT:Operations and Technology Committee R: Risk Committee | C:Chair | ||
| ||||
*(1) Effective May 17, 2016, Mr. Darling will join the Risk Committee. Retiring at IBM’s 2019 annual meeting.
Morgan Stanley 20162019 Proxy Statement5
OVERVIEW OF VOTING ITEMS
The Morgan Stanley Board of Directors
Board Tenure Balance | Board Independence | |||
Average Tenure: 4.7 years upon election
* Average tenure of director nominees is calculated based on length of completed Board service from date of initial election through the date of the annual meeting. |
| |||
| All members of all committees arenon-management, and the Board benefits from anengaged Independent Lead Director with expansive responsibilities
|
International Experience | Director Experience, Qualifications, Attributes and Skills | |||
 Europe Middle East Australia North America Asia |
Leadership (including strategic planning) (13) International / Global Perspective (11) Financial Services / Market Experience (10) Finance / Accounting Expertise (11) Risk Management (10) Operations / Technology (9) Talent (management development and succession) (10) Public Policy / Sustainability (6) Public Company Experience / Corporate Governance (10) |
 |
| ||||||
5 new directors since 2016 (upon election at annual meeting) |
31% female directors | |||||
 | 9 directors who are current or former CEOs |  | 6 directors born outside the United States | |||
Corporate Governance Highlights
| •Oversees the Company’s strategy, annual business plans, Enterprise Risk Management (ERM) framework and culture, values and conduct
| |||||||||||||
Shareholder Rights |
| |||||||||||||
Evaluations | •Annual Board, Independent Lead Director, and committee self-assessments enhance performance
| |||||||||||||
Sustainability and Giving Back | • Advance sustainable investing through our businesses • Enhanced management of our carbon footprint and environmental and social risk • Committed to giving back, one of our core values | |||||||||||||
Shareholder Engagement | • Investor input has led to proxy access and enhanced proxy disclosure of Board evaluations, director orientation / education, succession planning, Environmental, Social and Governance (ESG) matters, and enhanced alignment of compensation and performance | |||||||||||||
6Morgan Stanley 20162019 Proxy Statement
OVERVIEW OF VOTING ITEMS
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. |
 | ||
 | See page |
Item 3 |
Company Proposal to Approve the Compensation of Executives as Disclosed in the Proxy Statement (Non-Binding(Non-Binding Advisory Resolution)Vote)
| ||
| Our Board unanimously recommends that you vote“FOR” this proposal. |
See the “Compensation Discussion and Analysis” (CD&A) for additional informationrelating to the metrics referenced below and Section 5 of the CD&A for the notes referenced below.
At the start of 2015, as in prior years, the CMDS Committee established a target range of CEO compensation ($10 million to $28 million) and the factors to be considered in determining year-end compensation.
At year end, 2015 CEO compensation was set at $21 million, a 7% decrease from $22.5 million in 2014, with shareholder-aligned features: 72% deferred over three years and subject to clawback, with 39% of such deferred compensation delivered through future performance-vested equity awards.
The 2015 pay decision for the CEO was based on the CMDS Committee’s assessment of Mr. Gorman’s strong individual performance and Morgan Stanley’s progress in relation to its strategic objectives, financial performance and shareholder returns.
| | See page 44 for the “Compensation Discussion and Analysis” (CD&A) and additional information relating to the metrics referenced below and see Section 5 of the CD&A for the notes referenced below. | |||
| As in prior years, the CMDS Committee used a well-defined framework to determine CEO compensation for 2018, including establishing a target compensation range for the CEO and guidelines for the CEO performance assessment. At year end, CEO total compensation was set at $29 million, with shareholder-aligned features:
• 50% of incentive compensation is delivered through future performance-vested equity awards; and • 100% of deferred compensation is delivered in equity awards — an increased proportion from prior years. The 2018 pay decision for the CEO was based on the CMDS Committee’s assessment of Mr. Gorman’s outstanding individual performance and the following: • In 2018, the Company made substantial progress on its strategic objectives(1)(2). | |||
|
2018 - 2019 Strategic Objectives 2018 Results(3) 1 Deliver Wealth Management Pre-Tax Margin(4) of 26-28% 2 Expand Institutional Securities Penetration and Leadership 3 Position Investment Management for Growth 4 Realize Company Expense Efficiency Ratio(7) of <73% 5 Maintain Attractive Capital Return Profile Pre-Tax Margin(4) of 26.2% 8% net revenue operating growth(5); wallet share expansion across Sales & Trading and Investment Banking 9% asset management revenue operating growth(5); positive long-term net flows(6) Efficiency ratio(7) of 72.0% Maintained $6.8Bn aggregate distribution(8) ROE(9): 11.5% ROTCE(10): 13.2% ROE(9): 10%-13% ROTCE(10): 11.5%-14.5% Medium Term
Morgan Stanley 20162019 Proxy Statement7
OVERVIEW OF VOTING ITEMS
| MS Firm Financials Results (2011-2015) | MS Total Shareholder Return (TSR)(14) | |||||||||||||
| Ex-DVA ($Billion) | 2011 | 2012 | 2013 | 2014 | 2015 | % Δ 2015 vs. 2014 |  | |||||||
| +3% | ||||||||||||||
| Net Revenues(9) | 28.6 | 30.6 | 33 2 | 33.6 | 34.5 | |||||||||
| +168% | ||||||||||||||
| Pre-tax Profit(9) | 2.5 | 5.0 | 5.2 | 2.9 | (10) | 7.9 | ||||||||
| MS ROE (2011-2015)(11)(12) | ||||||||||||||
| ||||||||||||||
CEO compensation was delivered in a combination of base salary, cash bonus, deferred cash, restricted stock units (RSUs) and a long-term incentive program (LTIP) award in the form of performance stock units, as outlined in the chart below. A significant portion of CEO pay is deferred, awarded in equity, subject to future stock price performance, cancellation and clawback and, in the case of the LTIP award, subject to future achievement of specified financial goals over a three-year period.
| |||||
|
| ||||
|
| ||||
| |||||
| |||||
8 Morgan Stanley 2016 Proxy Statement
OVERVIEW OF VOTING ITEMS
Morgan Stanley’s executive compensation program is well-aligned with current best practices in corporate governance, risk management, and regulatory principles. Key features of the compensation program include:
At our 2015 annual meeting of shareholders, 88.6% of the votes cast were in favor of our annual “Say on Pay” proposal. In anticipation of the 2016 “Say on Pay” vote, we continued our engagement program, seeking feedback from shareholders and proxy advisory firms on a variety of topics. To align with feedback from our shareholders, the Board instituted the following changes:
 |
|  | ||||||||
 |
| | ||||||||
 |
• Over time, continued focus on expense discipline has led to strong operating leverage which, together with achievement of our multi-year strategic objectives, has helped the Company more than double itspre-tax profit, excluding DVA over the last five years from $5.2 billion to $11.2 billion(11)(16)(17). • Solid returns have led to sufficient capital and an attractive return profile over time while also permitting investment for future growth; in 2018 the Company executed share repurchases of $4.9 billion and increased the quarterly common stock dividend to $0.30 per share from $0.25 per share (20% increase from 2017)(8)(18). • The Company’s execution of its strategic objectives and record financial performance contributes to strong shareholder return over time; while the Company’s TSR(21) for 2018 was negative at (23%)(22), it outperformed the average of its global peers(23) and three- and five-year TSR continued to be very strong at 33% and 39%, respectively(22).
Company Institutional Securities Wealth Management Revenue Pre-Tax Profit(11) Net Income(12) Investment Banking Revenues Equity Revenues Revenues Pre-Tax Profit(11) Pre-Tax Margin(4) $40.1Bn $11.2Bn $8.7Bn $6.1Bn $9.0Bn $17.2Bn $4.5Bn 26.2% Record #1 Globally(14) | |||||||||
8 Morgan Stanley 2019 Proxy Statement
OVERVIEW OF VOTING ITEMS
2018 CEO Compensation Determination The 2018 pay decision for the CEO was made by the CMDS Committee, in consultation with the entire Board, based on its assessment of Mr. Gorman’s outstanding individual performance, the Company’s record performance in 2018 and substantial progress on the Company’s strategic objectives. The CMDS Committee also noted Mr. Gorman’s overall leadership with respect to Company culture, and among clients, shareholders, regulators and employees. | ||||||||||
| MS 2018 CEO Performance Evaluation |  | MS 2018 CEO Compensation Opportunity ($MM) | ||||||||
CEO compensation was delivered in a combination of base salary, cash bonus, time-vested deferred equity, and a performance-vested long-term equity incentive compensation award. A significant portion of CEO pay is deferred, awarded in equity, subject to future stock price performance, cancellation and clawback and, in the case of the performance-vested equity award, subject to future achievement of specified financial goals over a three-year period. The CMDS Committee believes this approach to executive compensation supports the Company’s pay for performance philosophy and key compensation objectives, and is consistent with shareholder feedback, best practices and regulatory principles. Record performance in 2018 driven by revenue growth and expense discipline Substantial progress on many 2018 - 2019 strategic objectives, including medium term ROE and ROTCE targets Outstanding leadership, with respect to Company culture, and among clients, shareholders, regulators, and employees Negative TSR performance % of Incentive Compensation $29 MM Performance- Vested Long-Term Equity Incentive Compensation: 50% Time-Vested Deferred Equity: 25% Cash Bonus: 6.9 25% Base Salary 100% Equity | | |||||||||
Shareholder Engagement At our 2018 annual meeting of shareholders, over 95% of the votes cast were in favor of our annual “Say on Pay” proposal. In anticipation of the 2019 “Say on Pay” vote, we continued our engagement program, seeking feedback from shareholders and proxy advisory firms on a variety of topics, including executive compensation, corporate governance and environmental and social goals. With respect to executive compensation, shareholders who provided feedback during our engagement program generally reported that executive compensation at Morgan Stanley was viewed as well-aligned with performance. After carefully considering shareholder feedback and other factors, the portion of CEO deferred incentive compensation awarded in equity incentive compensation was increased to 100% for 2018. |
Morgan Stanley 20162019 Proxy Statement9
OVERVIEW OF VOTING ITEMS
Item 4 |
CompanyShareholder Proposal to Amend the 2007 Equity Incentive Compensation Plan (EICP)
 | Our Board unanimously recommends that you vote “AGAINST” the shareholder proposal regarding an annual report on lobbying expenses. |
| See page 77 for the shareholder proposal and our Board’s opposition statement. |
10 Morgan Stanley 2019 Proxy Statement
Election of Directors
| Our Board unanimously recommends that you vote
DIRECTOR SUCCESSION AND NOMINATION PROCESS
The Nominating and Governance Committee’s charter provides that the committee will actively seek and identify nominees for recommendation to the Board consistent with the criteria in the Morgan Stanley Corporate Governance Policies (Corporate Governance Policies), which provide that the Board values members who:
Combine a broad spectrum of experience and expertise with a reputation for integrity; Have experience in positions with a high degree of responsibility; Are leaders in the companies or institutions with which they are affiliated; Can make contributions to the Board and management; Represent the interests of shareholders; and Possess a willingness to appropriately challenge management in a constructive manner. While the Board has not adopted a policy regarding diversity, the Corporate Governance Policies provide that the Board will take into account the diversity of a director candidate’s perspectives, background and other relevant demographics. The Nominating and Governance Committee and the Board may also determine specific skills and experience they are seeking in director candidates based on the needs of the Company at a specific The The Nominating and Governance Committee may The Corporate Governance Policies provide that the Board expects a director to advise the Chairman and Corporate Secretary if he or she plans to join the board of directors or similar governing body of another public or private company or advisory board, or experiences other changed circumstances that could diminish his or her effectiveness as a director or otherwise be detrimental to the Company. They also provide that the Board expects a director to advise and to offer to tender his or her resignation for consideration by the Board if his or her principal occupation or employer changes. In addition, the Corporate Governance Policies provide that a director candidate should not be nominated for election if the candidate would be 72 years old at the time of election. Morgan Stanley 2019 Proxy Statement 11 CORPORATE GOVERNANCE MATTERS Our Board currently consists of 13 directors, including two directors who are designated in accordance with the terms of the Investor Agreement between Morgan Stanley and MUFG, dated October 13, 2008, as amended and restated (Investor Agreement), pursuant to which Morgan Stanley agreed to take all lawful action to cause two of MUFG’s senior officers or directors to become members of Morgan Stanley’s Board. Ryosuke Tamakoshi, Senior Advisor of MUFG Bank, Ltd. (MUFG Bank), the core commercial banking unit of MUFG, who was elected to the Board, effective July 20, 2011, and subsequently elected by shareholders at the Company’s annual meetings of shareholders in 2012 through 2018, will not be standing for reelection at the 2019 annual meeting of shareholders. MUFG has designated Takeshi Ogasawara, Advisor of MUFG Bank, as a representative director under the Investor Agreement to stand for election, along with MUFG’s other representative director, Nobuyuki Hirano, at the 2019 annual meeting of shareholders. The Nominating and Governance Committee considered the experience, qualifications and skills of Mr. Ogasawara as discussed herein and unanimously recommended that the Board nominate Mr. Ogasawara as a director for election at the 2019 annual meeting of shareholders. Based on the recommendation of the Nominating and Governance Committee, the Board unanimously nominated and recommends that Mr. Ogasawara be elected as a director at the 2019 annual meeting of shareholders. As part of the Board’s ongoing review of Board composition and succession planning, the Nominating and Governance Committee’s third-party search firm recommended Mary L. Schapiro as a potential director candidate to the Nominating and Governance Committee. Upon the recommendation of the Nominating and Governance Committee, the Board unanimously elected Ms. Schapiro to the Board, effective July 1, 2018. The Board determined that Ms. Schapiro’s service as Chair of the U.S. Securities and Exchange Commission; Chair and Chief Executive Officer of the Financial Industry Regulatory Authority; and Chair of the Commodity Futures Trading Commission brings to the Board extensive regulatory and leadership experience, as well as markets and financial services perspective. DIRECTOR EXPERIENCE, QUALIFICATIONS, ATTRIBUTES AND SKILLS When the Board nominates directors for election at an annual meeting, it evaluates the experience, qualifications, attributes and skills that an individual director candidate contributes to the tapestry of the Board as a whole to assist the Board in discharging its
The Company believes that an effective board consists of a diverse group of individuals who
12 Morgan Stanley 2019 Proxy Statement CORPORATE GOVERNANCE MATTERS
The Board has nominated the 13 director nominees below for election at the 2019 annual meeting of shareholders. The Board believes that, in totality, the mix of qualifications and the diversity of attributes and skills among the nominees enhances our Board’s effectiveness and is aligned with the Company’s long-term strategy. Our directors have a combined wealth of leadership experience derived from extensive service guiding large, complex organizations as executive leaders or board members and in government and long-term strategy. The Board stands for election at each annual meeting of shareholders. Each director holds office until his or her successor has been duly elected and qualified or the director’s earlier resignation, death or removal.
Each nominee has indicated that he or she will serve if elected. We do not anticipate that any nominee will be unable or unwilling to stand for election, but if that happens, your proxy may be voted for another person nominated by the Board or the Board may reduce the number of directors to be elected.
Morgan Stanley CORPORATE GOVERNANCE MATTERS
Professional Experience: Held various leadership positions at Merrill Lynch Investment Managers (formerly Mercury Asset Management) from 1993 to 2004, including as Managing Director and Head of the EMEA Asia Pacific Mutual Fund Business. Began her career at Sun Alliance Life & Pensions Limited and subsequently served as a consultant and then partner at Coopers & Lybrand Management Consultants (U.K.) from 1985 to 1993. Served two terms as Chairwoman of the Forum of European Asset Managers and served on the board of the Financial Reporting Council from 2011 to 2017.
Pearson plc Appointed to the House of
Held several leadership positions in the U.K. government, including as Chancellor of the Exchequer from 2007 to 2010, Secretary of State for Trade and Industry from 2006 to 2007, Secretary of State for Scotland from 2003 to 2006, Secretary of State for Transport from 2002 to 2006, Secretary of State for Social Security/Work and Pensions from 1998 to 2002 and Chief Secretary to the Treasury from 1997 to 1998.
14 Morgan Stanley 2019 Proxy Statement CORPORATE GOVERNANCE MATTERS
Founder of Angelic Ventures, LP (Angelic), a family office focusing on early-stage investments in financial technology, cyber defense and media, and Managing Partner of Angelic since 2012. Served as CEO of Thomson Reuters Corporation, a news and information provider for businesses and professionals, from April 2008 through December 2011 and as CEO of Reuters Group PLC from July 2001 to April 2008. Joined Reuters Group PLC in 1993 and served in a variety of executive roles before being named CEO. Mergers and acquisitions lawyer at the law firm of Davis Polk & Wardwell LLP from 1984 to 1993. Other U.S. Listed Public Company Boards: Merck & Co., Inc. Professional Experience: Chairman of the Board and CEO of Morgan Stanley Co-President from December 2007 to December 2009, Joined Merrill Lynch & Co., Inc. (Merrill Lynch) in 1999 and served in various positions, including Chief Marketing Officer, Head of Corporate Acquisitions Strategy and Research in 2005 and President of the Global Private Client business from 2002 to 2005.
Prior to joining Merrill Lynch, was a senior partner at McKinsey & Co., serving in the firm’s financial services practice. Earlier in his career, was an attorney in Australia.
Morgan Stanley 2019 Proxy Statement 15 CORPORATE GOVERNANCE MATTERS
Professional Experience: President of Robert H. Herz LLC, providing consulting services on financial reporting and other matters, since September 2010. Chairman of the Financial Accounting Standards Board from July 2002 to September 2010 and a part-time member of the International Accounting Standards Board from January 2001 to June 2002. Member of the Standing Advisory Group of the Public Company Accounting Oversight Board since 2012 and served on the Accounting Standards Oversight Council of Canada from 2011 to March 2017. Partner in PricewaterhouseCoopers LLP (PwC), an accounting firm, from 1985 to 2002. Other U.S. Listed Public Company Boards: Federal National Mortgage Association (Fannie Mae) and Workiva Inc. Professional Experience: Chairman of MUFG, one of the world’s leading financial groups, since April 2019 and Director of MUFG Bank, the core commercial banking unit of MUFG, since June 2005. President and Group CEO of MUFG from April 2013 to March 2019 and Chairman of MUFG Bank from April 2016 to March 2019. Director of MUFG since June 2010 and Deputy President from October 2010 to March 2012. President and CEO of MUFG Bank from April 2012 to March 2016 and Deputy President of MUFG Bank from June 2009 to March 2012. Managing Officer of MUFG from 2009 to 2010, Senior Managing Director from 2008 to 2009 and Managing Director from 2006 to 2008 of MUFG Bank. Numerous senior-level positions in Japan and abroad since joining The Mitsubishi Bank, Limited in 1974, including in the Corporate Planning Office and Corporate Banking Division of The Bank of Tokyo-Mitsubishi, Ltd. Previously served as a director of Morgan Stanley
MUFG and Toyota Motor Corporation
16 Morgan Stanley 2019 Proxy Statement CORPORATE GOVERNANCE MATTERS
Professional Experience: CEO and Vice Chair of Kissinger Associates, Inc. (Kissinger), a New York-based strategic international consulting firm that assesses and navigates emerging market geopolitical and macroeconomic risks for its clients, since March 2017. Co-CEO and Vice Chair of Kissinger from 2015 to 2017 and President and Vice Chair of Kissinger from 2009 to 2015. Global head of sovereign risk at Lehman Brothers from 2005 to 2008. Central Intelligence Agency from 1983 to 2005, serving as Deputy Director for Intelligence from 2002 to 2005. Co-Chair of the President’s Intelligence Advisory Board from 2014 to 2017 and served as Senior Advisor for Geopolitical Risk at Barclays Capital. Other U.S. Listed Public Company Boards: General Motors Company Other U.S. Listed Public Company Boards in the Past Five Years:EMC Corporation Professional Experience: Chairman of PricewaterhouseCoopers International Ltd., the coordinating and governance entity of the PwC network, from 2009 to July 2016. Chairman and Senior Partner of the U.S. firm of PricewaterhouseCoopers LLP (PwC) from May 2002 to June 2009. Joined PwC in 1974 and became a partner in 1985, serving in numerous leadership positions within PwC, including National Director of Strategic Planning, Audit and Business Advisory Services Leader and Managing Partner. Morgan Stanley 2019 Proxy Statement 17 CORPORATE GOVERNANCE MATTERS
Advisor to MUFG Bank since June 2016. Director of Bank of Ayudhya Public Company Limited (Krungsri), a subsidiary of MUFG Bank in Thailand, from January 2014 to June 2018. Deputy President of MUFG Bank from May 2012 to June 2016, Chief Compliance Officer of MUFG Bank from May 2009 to May 2012. Began his professional career at The Tokai Bank, Ltd., one of the legacy banks of MUFG Bank, in 1977.
Served as President and CEO of The Olayan Group’s U.S. operations for almost 30 years until December 2017, overseeing all investment activities in the Americas. Member of the Executive Advisory Board of General Atlantic and a former director of Thermo Electron Corporation. Other U.S. Listed Public Company Boards:
18 Morgan Stanley 2019 Proxy Statement CORPORATE GOVERNANCE MATTERS
Professional Experience: Vice Chair for Global Public Policy and Special Advisor to the Founder and Chairman of Bloomberg L.P. since October 2018. Vice Chair of the Advisory Board of Promontory Financial Group LLC (Promontory), a leading strategy, risk management and regulatory compliance firm, from January 2014 to October 2018. Managing director of Promontory from March 2013 to January 2014. Chair of the Securities and Exchange Commission (SEC) from January 2009 to December 2012. Chair and CEO of the Financial Industry Regulatory Authority (FINRA) from 2006 to 2008, and served in numerous other key executive positions at FINRA and its predecessor from 1996 to 2006, including Vice Chair and President of NASD Regulation. Chair of the Commodity Futures Trading Commission (CFTC) from 1994 to 1996. Other U.S. Listed Public Company Boards: CVS Health Corporation Other U.S. Listed Public Company Boards in the Past Five Years: General Electric Company Professional Experience: Chairman, CEO and Managing Partner of Wellington Management Company LLP (Wellington), a global, multi-asset investment management firm, serving from 2004 through June 2014 as CEO and Managing Partner and from 2004 through December 2014 as Chairman. Partner, Senior Vice President and Director of Global Research at Wellington from 1998 to 2002 and President from 2002 to 2004. Joined Wellington in 1980 and served in a number of executive roles before being named Chairman, CEO and Managing Partner. Other U.S. Listed Public Company Boards: The Allstate Corporation and eBay Inc. Morgan Stanley 2019 Proxy Statement 19 CORPORATE GOVERNANCE MATTERS
Professional Experience: CEO of Diversified Businesses of AT&T Inc. (AT&T), the telecommunications company, responsible for international investments, AT&T Interactive, AT&T Advertising Solutions and Customer Information Services from October 2008 to March 2012. During his career, he served in numerous other management roles at AT&T, including as Group President and CEO of SBC Enterprise Business Services, Group President of SBC Marketing and Sales, and President and CEO of Pacific Bell Telephone Company and Nevada Bell Telephone Company. Began his career at Southwestern Bell Telephone in 1974. Other U.S. Listed Public Company Boards: Caterpillar Inc. and Valero Energy Corporation Other U.S. Listed Public Company Boards in the Past Five Years: Our Board unanimously recommends that you vote“FOR” the election of all director nominees. Proxies solicited by the Board will be voted“FOR” each nominee unless otherwise instructed. 20 Morgan Stanley CORPORATE GOVERNANCE MATTERS CORPORATE GOVERNANCE Morgan Stanley is committed tobest-in-class governance practices, which are embodied in our Corporate Governance Policies available atwww.morganstanley.com/ Board Structure and Independence Our Board represents a tapestry of complementary skills, attributes and perspectives and includes individuals with financial services experience and a diverse international background. Directors may not stand for election if they will be 72 years old at the time of election. Our Board conducts an ongoing review of Board composition and succession planning, resulting in substantial refreshment of the Board and a diversity of skills, attributes and perspectives on the Board. Upon election at the annual meeting, the average tenure of the members of the Board will be approximately 4.7 years. Our Board has a majority of independent directors. Our Chairman is the only member of management who serves as a director. Our Independent Lead Director is selected from and by the independent directors and has expansive duties set forth in our Corporate Governance Policies. The Independent Lead Director chairs regularly scheduled executive sessions without the Chairman present. See “Board Leadership Structure and Role in Risk Oversight.” Rotation of Board Leadership and Committee Appointments The Independent Lead Director and committee chairs serve for approximately three to five years to provide for rotation of Board leadership and committee chairs while maintaining experienced leadership. In accordance with the Board’s rotation policy, the Board appointed Mr. Glocer as Independent Lead Director, effective September 1, 2017. In accordance with the Board’s policy regarding the periodic rotation of committee appointments, the Board has approved the following committee appointments since the beginning of 2018: Mr. Wilkins was appointed a member of CMDS Committee and concluded service on the Operations and Technology Committee. Ms. Corley was appointed a member of the Nominating and Governance Committee. Ms. Schapiro was appointed a member of the Operations and Technology Committee. Mr. Ogasawara will be appointed a member of the Operations and Technology Committee upon his election at the annual meeting. Strategy and Annual Business Plans The Board oversees the Company’s strategy and annual business plans. The Board: Conducts an annual strategy offsite with the CEO, Operating Committee and senior management to review the Company’s long-term strategy. Receives regular reporting regarding strategy at Board meetings as well as by the CEO and Operating Committee outside of regularly scheduled meetings. Reviews the Company’s annual strategic presentation to shareholders, which summarizes the Company’s progress on the prior year’s strategic plan, provides an overview of long-term strategic priorities and includes specific financial andnon-financial goals. The Company’s 2019 strategic presentation is available atwww.morganstanley.com/about-us-ir. Culture, Values and Conduct and Risk Management The Board also oversees the Company’s practices and procedures relating to culture, values and conduct. The Board oversees the Company’s global ERM framework and is responsible for helping to ensure that the Company’s risks are Morgan Stanley 2019 Proxy Statement 21 CORPORATE GOVERNANCE MATTERS managed in a sound manner. The Board regularly reviews the Company’s risks and the responsibilities of management and the Board committees to assist the Board in its risk oversight. The Board has a separate committee responsible for operations and technology, including cybersecurity risk, and the Board receives briefings on cybersecurity. See “Board Leadership Structure and Role in Risk Oversight” and “Board Oversight of Cybersecurity Risk.” Access to the Company’s Regulators, Employees and Independent Advisors Independent directors, including the Chairs of the Audit Committee and Risk Committee, meet with our primary regulator, the Federal Reserve, and other global regulators as requested. Directors also have complete and open access to senior members of management and other employees of the Company. For instance: Board members meet with local management and independent control functions throughout the world and have visited several of our global offices. The Independent Lead Director and committee chairs meet with management between regularly scheduled meetings for discussion of key items and to develop Board and committee agendas and provide feedback regarding information reported to the Board and on other topics to be reviewed. The Company’s Chief Financial Officer (CFO), Chief Legal Officer (CLO) and Chief Risk Officer (CRO), as well as the heads of the Company’s operating units and other officers, regularly attend Board meetings and maintain an ongoing dialogue with Board members between Board meetings. The CMDS Committee, in conjunction with the entire Board, annually reviews succession plans for the CEO and senior executives. The Board, the Independent Lead Director and each committee have the right at any time to retain independent financial, legal or other advisors at the Company’s expense. Alignment with Shareholder Interests The director equity ownership requirement helps to align director and shareholder interests. Directors also may not enter into hedging transactions in respect of Morgan Stanley common stock or pledge Morgan Stanley common stock in connection with a margin or other loan transaction. See “Director Equity Ownership Requirement.” Director Orientation and Continuing Education Director education about Morgan Stanley, our strategy, control framework, regulatory environment and our industry begins when a director is elected to our Board and continues throughout his or her tenure on the Board. The Nominating and Governance Committee oversees an orientation program for new directors, which includes an overview of director duties and our Corporate Governance Policies, presentations by senior management, including the President, the CFO, CLO and CRO, on the Company’s strategy and regulatory framework, its primary business lines and control framework, and aone-on-one session with the Chairman and CEO. As directors are appointed to new committees or assume a leadership role, such as committee chair, they receive additional orientation sessions specific to such responsibilities. We also conduct educational briefings on business, governance, regulatory and control matters, and reimburse directors for reasonable costs incurred attending educational sessions on subjects that would assist them in discharging their duties. Senior Management Succession and Development Planning The CMDS Committee oversees CEO and senior management succession and development planning, which covers unexpected as well as planned events and is formally reviewed, in conjunction with the entire Board, at least annually. Our CEO and our Chief Human Resources Officer review recommendations and evaluations of potential internal CEO and senior management successors, and review their qualifications, skills, accomplishments and developmental areas. Potential internal CEO and senior management successors regularly attend Board meetings and engage with Board members periodically between Board meetings, including during preparatory meetings, client-related events and visits to our offices around the world. These interactions provide the Board with the knowledge of the Company’s executive talent that is critical to the Company’s succession planning. 22 Morgan Stanley 2019 Proxy Statement CORPORATE GOVERNANCE MATTERS Annual Evaluation of Board, Committees and Independent Lead Director Overview of Evaluation Process The Board believes that establishing and maintaining a constructive evaluation process is essential to maintaining Board effectiveness and best corporate governance practices. Accordingly, the Nominating and Governance Committee reviews and approves the evaluation process annually so that the evaluation process continues to be effective in identifying areas to enhance the performance and effectiveness of the Board, the Independent Lead Director and the Board committees. Multi-Step Evaluation Process
1 Based upon N&G Committee's recommendation, Board approves annual evaluation process Candid One-On-One Discussions Held Between 2 Independent Lead Director and each Board member to assess Board performance and, as necessary, individual director performance N&G Committee Chair and each Board member to assess Independent Lead Director performance Committee Chairs and each Committee member to assess Committee performance Executive Sessions 3 Board and Committee Closed Door Executive Sessions Communicate and Implement Feedback 4 Results Reported to full Board 5 Board and committee policies and practices are revised as appropriate and results of assessment are considered in establishing future Board and committee agendas Morgan Stanley 2019 Proxy Statement 23 CORPORATE GOVERNANCE MATTERS This process is aided by written discussion guides used to facilitate the assessments. These guidelines are updated annually to reflect significant new developments and areas of focus as the Nominating and Governance Committee determines appropriate and encompass many factors, including:
Our Board and management value the views of
24 Morgan Stanley 2019 Proxy Statement CORPORATE GOVERNANCE MATTERS Corporate Political Activities Policy Statement Our Corporate Political Activities Policy Statement aims to ensure transparency of the Company’s practices and procedures regarding political activities and oversight by senior management and the Board. Our Corporate Political Activities Policy Statement: Prohibits Morgan Stanley from making U.S. political contributions. Provides that Morgan Stanley informs its principal U.S. trade associations not to use payments made by Morgan Stanley for election-related activity at the federal, state or local levels. Provides that principal U.S. trade association memberships and expenditures relating to such memberships are reviewed annually with the Government Relations Department and the Nominating and Governance Committee. Provides a link to examples of principal U.S. trade associations that the Company belongs to on the Company’s website. Addresses oversight of lobbying activities, as well as expenditures related thereto, by the Vice Chairman of the Company who reports to the Chairman and CEO, and oversight of significant lobbying priorities and expenditures by the Nominating and Governance Committee. Confirms that Morgan Stanley discloses publicly all U.S. federal lobbying costs as required by law, including dues attributable to lobbying by U.S. trade associations. Provides that the Nominating and Governance Committee oversees the Corporate Political Activities Policy Statement and the activities addressed by it. Morgan Stanley 2019 Proxy Statement 25 CORPORATE GOVERNANCE MATTERS Sustainability at Morgan Stanley Morgan Stanley endeavors to advance sustainability by considering ESG matters throughout our operations and businesses. We offer financial solutions and advisory services that provide positive long-term benefits for clients and shareholders, as well as for the environment and global communities. The Morgan Stanley Institute for Sustainable Investing’s (Institute) advisory board helps to ensure that our sustainability strategy is comprehensive, rigorous and innovative. ESG initiatives are overseen by the Nominating and Governance Committee and reported to the Board. Key areas of focus and highlights for 2018 include:
26 Morgan Stanley 2019 Proxy Statement CORPORATE GOVERNANCE MATTERS Morgan Stanley is committed to giving back to the communities where we live and work through long-lasting partnerships, community-based delivery and engaging our best asset – our employees. The impact of our philanthropic initiatives includes:
Communication by Shareholders and Other Interested Parties with the Board of Directors As set forth under “Communications with the Board” in the Corporate Governance Policies, shareholders and other interested parties may contact the Board, thenon-management or independent directors, an individual director (including the Independent Lead Director or Chairman) or a committee of the Board, by writing to them at Morgan Stanley, Suite D, 1585 Broadway, New York, New York 10036. Such communications will be handled in accordance with the procedures approved by the Company’s independent directors. Additional Corporate Governance Information Available on Corporate Governance Webpage
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ||
| ||
In addition to the Corporate Governance Policies and other policies described above, our corporate governance webpage includes the following:
•Bylaws and Certificate of Incorporation | • Corporate Political Activities Policy Statement | |||
•Code of Ethics and Business Conduct | • Operating Committee Equity Ownership Commitment | |||
•Policy Regarding Shareholder Rights Plan | ||||
| ||
•Charters for Board Committees | ||
• Environmental and Social Policies | •Information Regarding the Integrity Hotline | |
Hard copies of the materials described above are available without charge to any shareholder who requests them by writing to Morgan Stanley, Suite D, 1585 Broadway, New York, New York 10036.
22
Morgan Stanley 20162019 Proxy Statement 27
CORPORATE GOVERNANCE MATTERS
The Board has adopted Director Independence Standards, which are more stringent than the independence requirements outlined in the NYSE rules in certain respects, and delineate relationships that are deemed to impair independence and categories of relationships that are not deemed material for purposes of director independence (Director Independence Standards). The Director Independence Standards, which are part of our Corporate Governance Policies available atwww.morganstanley.com/about/company/governance,about-us-governance, provide that, for a director to be considered independent, a director must meet the following categorical standards:
1. Employment and commercial relationships affecting independence
A. Current Relationships | A director will not be independent if: (i) the director is a current partner or current employee of Morgan Stanley’s internal or external auditor; (ii) an immediate family member of the director is a current partner of Morgan Stanley’s internal or external auditor; (iii) an immediate family member of the director (a) is a current employee of Morgan Stanley’s internal or external auditor and (b) personally works on Morgan Stanley’s audit; (v) the director’s spouse, parent, sibling or child is currently employed by Morgan Stanley. | |
B. Relationships within Three Years | A director will not be independent if, within the preceding three years: (i) the director is or was an employee of Morgan Stanley; (ii) an immediate family member of the director is or was an executive officer of Morgan Stanley; (iii) the director or an immediate family member of the director (a) was a partner or employee of Morgan Stanley’s internal or external auditor and (b) personally worked on Morgan Stanley’s audit within that time; (iv) the director or an immediate family member of the director received more than $120,000 in direct compensation in any12-month period from Morgan Stanley, other than (a) director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service) and (b) compensation paid to an immediate family member of the director who is an employee (other than an executive officer) of Morgan Stanley; or (v) a present Morgan Stanley executive officer is or was on the compensation committee of the board of directors of a company that concurrently employed the Morgan Stanley director or an immediate family member of the director as an executive officer. |
28 Morgan Stanley 2019 Proxy Statement
CORPORATE GOVERNANCE MATTERS
2. Relationships not deemed material for purposes of director independence
In addition to the provisions above, each of which must be fully satisfied with respect to each independent director, the Board must affirmatively determine that the director has no material relationship with Morgan Stanley. To assist the Board in this determination, it has adopted the following categorical standards of relationships that are not considered material for purposes of determining a director’s independence. Any determination of independence for a director that does not meet these categorical standards will be based upon all relevant facts and circumstances and the Board shall disclose the basis for such determination in the Company’s proxy statement.
A. Equity Ownership | A relationship arising solely from a director’s ownership of an equity or limited partnership interest in a party that engages in a transaction with Morgan Stanley, so long as such director’s ownership interest does not exceed 5% of the total equity or partnership interests in that other party. | |
B. Other Directorships | A relationship arising solely from a director’s position as (i) director or advisory director (or similar position) of another company orfor-profit corporation or organization or (ii) director or trustee (or similar position) of atax-exempt organization. |
Morgan Stanley 2016 Proxy Statement23
CORPORATE GOVERNANCE
C. Ordinary Course Business | A relationship arising solely from transactions, including financial services transactions such as underwriting, banking, lending or trading in securities, commodities or derivatives, or from other transactions for products or services, between Morgan Stanley and a company of which a director is an executive officer, employee or owner of 5% or more of the equity of that company, if such transactions are made in the ordinary course of business and on terms and conditions and under circumstances (including, if applicable, credit or underwriting standards) that are substantially similar to those prevailing at the time for comparable transactions, products or services for or with unaffiliated third parties. | |
D. Contributions | A relationship arising solely from a director’s status as an executive officer of atax-exempt organization, and the contributions by Morgan Stanley (directly or through the Morgan Stanley Foundation or any similar organization established by Morgan Stanley) to the organization are less than the greater of $1,000,000 or 2% of the organization’s consolidated gross revenues during the organization’s preceding fiscal year (matching of employee charitable contributions is not included in Morgan Stanley’s contributions for this purpose). | |
E. Products and Services | A relationship arising solely from a director utilizing products or services of Morgan Stanley in the ordinary course of business and on substantially the same terms as those prevailing at the time for comparable products or services provided to unaffiliated third parties. | |
F. Professional, Social and Religious Organizations and Educational Institutions | A relationship arising solely from a director’s membership in the same professional, social, fraternal or religious association or organization, or attendance at the same educational institution, as an executive officer or director. | |
G. Family Members | Any relationship or transaction between an immediate family member of a director and Morgan Stanley shall not be deemed a material relationship or transaction that would cause the director not to be independent if the standards in this Section 2 would permit the relationship or transaction to occur between the director and Morgan Stanley. |
The Board has determined that 11ten of our 1413 director nominees (Messrs. Bowles,(Ms. Corley, Messrs. Darling, Glocer Herz and Kleinfeld,Herz, Ms. Miscik, Mr. Nicolaisen, Ms.Nally, Mss. Olayan and Schapiro, and Messrs. Owens, Traquina and Wilkins) are independent in accordance with the Director Independence Standards. The Board has also determined that Messrs. Davies and Kidder,Erskine Bowles, who retired from the Board during 2015,effective February 1, 2018 and James Owens, who retired from the Board effective May 24, 2018, were independent during the time they served on the Board in 2015 and Dr. Tyson, who is not standing for reelection at the annual meeting of shareholders, is independent. Mr. Gorman, our Chairman and CEO, and Messrs. Hirano and Tamakoshi, who were designated pursuant to the Investor Agreement with MUFG, have not been determined independent. Mr. Tanaka, who also retired from the Board during 2015, was designated pursuant to the Investor Agreement with MUFG and was not determined independent during the time he served on the Board in 2015.2018.
To assess independence, the Board was provided with information about relationships between the independent directors (and their immediate family members and affiliated entities) and Morgan Stanley and its affiliates, including information about the director’sdirectors’ professional experience and affiliations. In making its determination as to the
Morgan Stanley 2019 Proxy Statement 29
CORPORATE GOVERNANCE MATTERS
independent directors, the Board reviewed the categories of relationships between Morgan Stanley and the directors described above and the following specific relationships under those Director Independence Standards:
Commercial relationships (such as financial services offered by the Company to clients in the ordinary course of the Company’s business) in the last three years between | ||
| ||
24Morgan Stanley 2016 Proxy Statementand entities where the directors are employees or executive officers, or their immediate family members are executive officers (Mr. Bowles and Mss. Corley, Olayan and Schapiro). In each case the fees the Company received were in compliance with the Director Independence Standards and the NYSE rules, and did not exceed the greater of $1 million or 2% of such other entity’s consolidated gross revenues in any of the last three years and were considered immaterial to director independence.
Director’s utilization of Morgan Stanley products and services offered by the Company as a client of the Company (such as Wealth Management brokerage accounts and investments in funds sponsored by the Company) in the ordinary course of the Company’s business on terms and conditions substantially similar to those provided to unaffiliated third parties (Messrs. Glocer and Herz, Ms. Miscik, Mr. Nally, Ms. Olayan and Messrs. Owens, Traquina and Wilkins). In each case the provision of such products and services was in compliance with the Director Independence Standards and the NYSE rules and was considered immaterial to director independence.
Director Attendance at Annual Meeting
CORPORATE GOVERNANCE
The Corporate Governance Policies state that directors are expected to attend annual meetings of shareholders. All 15 directors who were on the Board at the time, andincluding all current directors who were nominees at the time, attended the 20152018 annual meeting of shareholders.
Board Meetings |
Board Meetings
Our Board met 16 times during 2015.2018. Each current director attended at least 75% of the total number of meetings of the Board and committees on which such director served that were held during 20152018 while the director was a member. In addition to Board and committee meetings, our directors also discharge their duties through, among other things, informalless formal group communications, including discussions, briefings and discussionseducational sessions, with the Independent Lead Director, Chairman of the Board and CEO, members of senior management and others as appropriate regarding matters of interest.
Committees
The Board’s standing committees, their membership and the number of meetings in 20152018 are set forth below. Charters for each of our standing committees are available at our corporate governance webpage atwww.morganstanley.com/about/company/governance.about-us-governance.
All members of the Audit Committee, the CMDS Committee and the Nominating and Governance Committee satisfy the standards of independence applicable to members of such committees, including NYSE listing standards.
Each member of the CMDS Committee is a“non-employee director” as defined in Section 16 of the Securities Exchange Act of 1934.
The Board has determined that all members of the Audit Committee are independent and “financially literate” within the meaning of the NYSE listing standards and a majority of the members of the Audit Committee, including the Chair, Robert H. Herz, are “audit committee financial experts” within the meaning of the SEC rules.
All members of the Risk Committee and the Operations and Technology Committee arenon-employee directors and a majority of the members of such committees satisfy the independence requirements of the Company and the NYSE, and the Risk Committee membership satisfies other applicable legal and regulatory criteria.
30 Morgan Stanley 2019 Proxy Statement
CORPORATE GOVERNANCE MATTERS
AUDIT COMMITTEE
| ||
| ||
| ||
| ||
AUDIT(1)
| Current Members Robert H. Herz (Chair) Alistair Darling Dennis M. Nally Perry M. Traquina 19Meetings Held in | Primary Responsibilities | ||
| Oversees the integrity of the Company’s consolidated financial statements and system of internal controls. | ||
•Oversees risk management and risk assessment guidelines in coordination with the Board, • Reviews the major legal and compliance risk exposures of the | |||
•Selects, determines the compensation of, evaluates and, when appropriate, replaces the independent auditor. | |||
• Reviews and assesses the qualifications, independence and performance of the independent auditor, andpre-approves audit and permittednon-audit services. | |||
•Oversees the performance of the head of the Company’s | |||
•After review, recommends to the Board the acceptance and inclusion of the annual audited consolidated financial statements in the Company’s Annual Report onForm 10-K. | |||
•See also “Audit Matters.” |
Morgan Stanley 2016 Proxy Statement25
CORPORATE GOVERNANCE
COMPENSATION, MANAGEMENT DEVELOPMENT AND SUCCESSION(2)
COMPENSATION, MANAGEMENT DEVELOPMENT AND SUCCESSION (CMDS) COMMITTEE(1) | |||
Current Members Hutham S. Olayan (Chair) Thomas H. Glocer Dennis M. Nally Rayford Wilkins, Jr. 8Meetings Held in | Primary Responsibilities | ||
•Annually reviews and approves the corporate goals and objectives relevant to the compensation of the CEO and evaluates his performance in light of these goals and objectives. | |||
•Determines the compensation of executive officers and other officers and employees as appropriate. | |||
•Administers the Company’s equity-based compensation plans and cash-based nonqualified deferred compensation plans. | |||
•Oversees plans for management development and succession. | |||
•Reviews and discusses the Compensation Discussion and Analysis with management and recommends to the Board its inclusion in the proxy statement. | |||
• Oversees the Company’s incentive compensation arrangements, including with appropriate input from the CRO, to help ensure that such arrangements are consistent with the safety and soundness of the Company and do not encourage excessive risk-taking, and are otherwise consistent with applicable related regulatory rules and guidance. | |||
•Reviews and approves the Company’s equity retention and ownership policies for executive officers and other officers and employees, as appropriate. | |||
•See also “Compensation Governance and Risk Management.” | |||
Morgan Stanley 2019 Proxy StatementNOMINATING AND 31
CORPORATE GOVERNANCE(3) MATTERS
NOMINATING AND GOVERNANCE COMMITTEE | |||
Current Members Rayford Wilkins, Jr. (Chair) Elizabeth Corley Robert H. Herz 4Meetings Held in | Primary Responsibilities | ||
• Oversees succession planning for the Board and Board leadership appointments. •Reviews the overall size and composition of the Board | |||
•Identifies and recommends candidates for election to the Board. | |||
| |||
• Oversees the orientation program for newly elected directors. •Reviews annually the Corporate Governance Policies. | |||
•Oversees and approves the process and guidelines for the annual evaluation of performance and effectiveness of the Independent Lead Director, the Board and its committees. | |||
•Reviews and approves related person transactions in accordance with the Company’s Related Person Transactions Policy. | |||
• Reviews the director | |||
•Reviews the Company’s Corporate Political Activities Policy | |||
| |||
•Oversees the Company’s philanthropic programs and social responsibility, environmental and | |||
26Morgan Stanley 2016 Proxy Statement
CORPORATE GOVERNANCE
OPERATIONS AND TECHNOLOGY
OPERATIONS AND TECHNOLOGY COMMITTEE(2) | |||
Current Members Jami Miscik (Chair) Thomas H. Glocer Mary L. Schapiro Ryosuke Tamakoshi 6Meetings Held in | Primary Responsibilities | ||
•Oversees the Company’s operations and technology strategy, including trends that may affect such strategy. | |||
•Reviews the major operations and technology risk exposures of the Company, including information security, fraud and cybersecurity risks, and the steps management has taken to monitor and control such exposures. | |||
•Reviews the operations and technology budget and significant operations and technology expenditures and investments. | |||
| |||
•Oversees risk management and risk assessment guidelines and policies regarding operations and technology risk. | |||
•Oversees the Company’s business continuity planning. • See also “Board Leadership Structure and Role in Risk Oversight — Board Oversight of Cybersecurity Risk.” | |||
32 RISK(4)Morgan Stanley 2019 Proxy Statement
CORPORATE GOVERNANCE MATTERS
RISK COMMITTEE | |||
Current Members Perry M. Traquina (Chair) Alistair Darling Nobuyuki Hirano Jami Miscik 8Meetings Held in | Primary Responsibilities | ||
•Oversees the Company’s global ERM framework. | |||
• Oversees the Company’s capital, liquidity and funding planning and strategy. •Oversees the major risk exposures of the Company, including market, credit, operational, | |||
• Oversees the risk identification framework. •Oversees the Company’s risk appetite statement, including risk tolerance levels and limits, and | |||
| |||
•Reviews the contingency funding plan, effectiveness of the Company’s Basel III advanced systems, Comprehensive Capital Analysis and | |||
•Oversees risk management and risk assessment policies and guidelines. | |||
•Oversees the performance of the CRO | |||
•See also “Board Leadership Structure and Role in Risk | |||
| (1) | Effective |
| (2) | Effective July 1, 2018, Ms. Schapiro joined the Operations and Technology Committee, and Mr. | |
| Effective | ||
Morgan Stanley 2016 Proxy Statement27Board Leadership Structure and Role in Risk Oversight
CORPORATE GOVERNANCE
| Board Leadership Structure |
Board Leadership Structure
The Board is responsible for reviewing the Company’s leadership structure. As set forth in the Corporate Governance Policies, the Board believes that the Company and its shareholders are best served by maintaining the flexibility to have any individual serve as Chairman of the Board based on what is in the best interests of the Company at a given point in time, taking into consideration, among other things:
The composition of the Board;
The role of the Company’s Independent Lead Director;
The Company’s strong corporate governance practices;
The CEO’s working relationship with the Board; and
The challenges specific to the Company.
The Board has determined that the appointment of a strong Independent Lead Director (as described below), together with a combined Chairman and CEO, serveserves the best interests of the Company and its shareholders. By serving in both positions, the CEOChairman and ChairmanCEO is able to draw on his detailed knowledge of the Company to provide the Board, in coordination with the Independent Lead Director, leadership in focusing its discussions and review of the Company’s strategy. In addition, a combined role of CEOChairman and ChairmanCEO ensures that the Company presents its message and strategy to shareholders, employees and clients with a unified voice. The Board believes that it is in the best interest of the Company and its shareholders for Mr. Gorman to serve as Chairman and CEO at this time, considering the strong role of our Independent Lead Director and other corporate governance practices providing independent oversight of management as set forth below.
Independent Lead Director
The Corporate Governance Policies provide for an independent and active Independent Lead Director who is appointed and reviewed annually by the independent directors with clearly defined leadership authority and responsibilities.
Morgan Stanley 2019 Proxy Statement 33
CORPORATE GOVERNANCE MATTERS
Our Independent Lead Director, Erskine B. Bowles,Thomas H. Glocer, was appointed by our other independent directors and hasas part of his formal duties and responsibilities including:shall:
Board Governance and Leadership | Advising the Chairman and CEO | Board Effectiveness and Succession Planning | ||||||||||
• Preside at all meetings of the Board at which the Chairman is not present | ||||||||||||
• Have the authority to call, and lead,non-management director sessions • Help facilitate communication among the Chairman, the CEO and thenon-management and independent directors, | ||||||||||||
| directors
| ||||||||||||
• Solicit thenon-management directors for advice on agenda items for meetings of the Board and executive sessions to help facilitate Board focus on key issues and topics of interest to the Board • Be available, if requested, to meet with the Company’s primary regulators • Be available, if requested by major shareholders, for consultation and direct communication in accordance with the Corporate Governance Policies | • Communicate with the Chairman and the CEO between meetings and act as a “sounding board” and advisor • Advise the Chairman and the CEO of the Board’s informational needs • Collaborate with the Chairman and the CEO in developing the agenda for meetings of the Board • Approve Board meeting agendas • Have authority to request inclusion of additional agenda • Communicate with the Chairman and | |||||||||||
• Lead the annual evaluation of the performance and effectiveness of the Board including consultation with eachnon-management director regarding Board performance and effectiveness and, as necessary, individual director performance • Help facilitate the efficient and effective functioning and performance of the Board • Help facilitate discussion and open dialogue amongnon-management directors during Board meetings, executive sessions and outside of Board meetings • Consult with the Chair of the Nominating and Governance Committee on Board succession planning and Board Committee appointments • Coordinate with the Chair of the Nominating and Governance Committee on recruiting and interviewing candidates for • Consult with the Chair of the CMDS Committee on the annual evaluation of the performance of the CEO | ||||||||||||
28Morgan Stanley 2016 Proxy Statement
CORPORATE GOVERNANCE
Independent Oversight of Management
The Company’s corporate governance practices and policies ensure substantial independent oversight of management. For instance:
The Board has a majority of independent andnon-management directors. Ten of the 13 director nominees are independent as defined by the NYSE listing standards and the Company’s more stringent Director Independence Standards. Twelve of the 13 director nominees arenon-management directors. All of the Company’s directors are elected annually.
The Board’s key standing committees are composed solely ofnon-management directors. The Audit Committee, the CMDS Committee and the Nominating and Governance Committee are each composed solely of independent directors. The Operations and Technology Committee and the Risk Committee are chaired by independent directors, consist of a majority of independent directors and include onlynon-management directors. The committees provide independent oversight of management.
The Board’snon-management directors meet regularly in executive session. Thenon-management directors meet regularly in executive session without management present and, consistent with the NYSE listing standards, at least annually, the independent directors meet in executive session. These sessions are chaired by the Independent Lead Director.
34 Morgan Stanley 2019 Proxy Statement
CORPORATE GOVERNANCE MATTERS
Board Role in Risk Oversight
Effective risk management is vital to the success of Morgan Stanley. The Board has oversight for the Company’s global ERM framework, which integrates the roles of the Company’s risk management functions into a holistic enterprise to facilitate the incorporation of risk assessment into decision-making processes across the Company, and is responsible for helping to ensure that the Company’s risks are managed in a sound manner. The Board regularly reviews the Company’s risks and the responsibilities of management and the Board committees to assist the Board in its risk oversight.
|
 | | | | | |||||||||
Morgan Stanley 2016 Proxy Statement29
CORPORATE GOVERNANCE
TheRisk Committeeassists Board committees assist the Board in oversight of the oversight of:
risks set forth below, coordinating as appropriate. In fulfilling its duties, the Risk Committee receives reports:
The Risk Committee reports toaddition, the entire Board receives reporting on a regularquarterly basis regarding cross-enterprise risks, including strategic, reputational, and the entire Board attends quarterly Risk Committee meetings.
TheAudit Committeeassists the Boardculture, values and the Risk Committee in the oversight of the major legal and compliance risk exposures of the Company and the steps management has taken to monitor and control such exposure, as well as, in coordination with the Risk Committee and the Operations and Technology Committee, guidelines and policies that govern the process for risk assessment and risk management.
TheOperations and Technology Committeehas responsibility for oversight of operations and technology risk, including cybersecurity (also reviewed with the Board).
TheCMDS Committeereviews the Company’s incentive compensation arrangements, including with the CRO, to help ensure that such arrangements are consistent with the safety and soundness of the Company and do not encourage excessive risk-taking, and are otherwise consistent with applicable related regulatory rules and guidance.
conduct risk. The committees report to the entire Board on a regular basis.basis and have overlapping directors, invite Chairs of other committees and other directors to attend meetings, as appropriate given topics of discussion, and hold joint meetings as necessary to discharge their duties.
Coordination Among Board Committees Regarding Risk Oversight Strategic risk Culture, values and conduct risk Reputational risk Legal risk Compliance risk Performance assessment and compensation of Global Audit Director Operations risk Technology risk Cybersecurity risk (also reviewed with full Board) Information security Risk Fraud risk Risk management Framework Risk appetite Statement Credit risk Market risk Operational risk Liquidity and funding risk Performance assessment and compensation of CEO and other executive officers Management succession planning Risk review of incentive compensation arrangements Governance risk Board succession Planning Board of Directors Audit Committee Risk Committee Operations and Technology Committee CMDS Committee Nominating and Governance Committee Model risk Capital Performance assessment and compensation of CRO
The Board has also authorized theFirm Risk Committee,, a management committee appointed and chaired by the CEO that includes the most senior officers of the Company, including the CRO, Chief Legal OfficerCLO and CFO, to oversee the Company’s global ERM framework. The Firm Risk Committee’s responsibilities include oversight of the Company’s risk management principles, procedures and limits and the monitoring of capital levels and material market, credit, operational, model, liquidity, and funding, legal, compliance operational, franchise and regulatoryreputational risk matters, and other risks, as appropriate, and the steps management has taken to monitor and manage such risks. The Company’s risk management is further discussed in Part II, Item 7A of the Company’s Annual Report on Form10-K for the year ended December 31, 2015 (20152018 (2018 Form10-K).
Board Oversight of Cybersecurity Risk
Cybersecurity risk is overseen by the Board as well as the Operations and Technology Committee. The Operations and Technology Committee has primary responsibility for oversight of information and cybersecurity operations. In accordance with its charter, the Operations and Technology Committee receives regular reporting at each quarterly meeting from senior officers in the Information and Technology Department and the Firm Risk Management Department on information security, fraud and cybersecurity risk as well as the steps management has taken to monitor and control
Morgan Stanley 2019 Proxy Statement 35
CORPORATE GOVERNANCE MATTERS
such exposures. Such reporting includes updates on the Company’s cybersecurity program, the external threat environment and the Company’s programs to address and mitigate the risks associated with the evolving cybersecurity threat environment.
The Operations and Technology Committee also receives an annual independent assessment of key aspects of the Company’s cybersecurity program from an external party and holds joint meetings with the Audit Committee and Risk Committee as necessary and appropriate. The Chair of the Operations and Technology Committee regularly reports to the full Board on cybersecurity risks and other matters reviewed by the Operations and Technology Committee. The full Board also receives separate presentations on cybersecurity risk. The Board (or a committee thereof) reviews and approves the Global Cybersecurity Program Policy, the Global Information Security Program Policy and the Global Technology Policy at least annually. Senior management, including the senior technology officers mentioned above, also discuss cybersecurity developments with the Chairs of the Operations and Technology Committee and the Risk Committee between Board and committee meetings, as necessary.
Assessment of Leadership Structure and Risk Oversight
The Board has determined that its leadership structure is appropriate for the Company. Mr. Gorman’s role as CEO, his existing relationship with the Board, his understanding of Morgan Stanley’s businesses and strategy, and his professional experience and leadership skills uniquely position him to serve as Chairman and CEO, while the Company’s Independent Lead Director position enhances the overall independent functioning of the Board. The Board believes that the combination of the Chairman and CEO, the Independent Lead Director and the Chairs of the Audit, CMDS, RiskNominating and Governance, Operations and Technology, Committees provideand Risk committees provides the appropriate leadership to help ensure effective risk oversight by the Board.
30Morgan Stanley 2016 Proxy StatementCompensation Governance and Risk Management
CORPORATE GOVERNANCE
The CMDS Committee actively engages in its duties and follows procedures intended to ensure excellence in compensation governance. The CMDS Committee:
Retains an independent compensation consultant and evaluates the independence of such consultant and other advisors as required by any applicable law, regulation or listing standard. The CMDS Committee’s compensation consultant, Pay Governance, 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. In performing these services, Pay Governance met regularly with the CMDS Committee, including without management present, and separately with the CMDS Committee Chair. Pay Governance does not provide any other services to the Company or its executive officers. The Company has affirmatively determined that no conflict of interest has arisen in connection with the work of Pay Governance as compensation consultant for the CMDS Committee.
Regularly reviews (i) Company performance with respect to execution of strategic objectives and evaluates executive performance in light of such performance; (ii) executive compensation strategy, including 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; and (iii) market trends and legislative and regulatory developments affecting compensation in the U.S. and globally.
Together with the CRO, oversees the Company’s incentive compensation arrangements to help ensure that such arrangements are consistent with the safety and soundness of the Company and do not encourage excessive risk-taking, and are otherwise consistent with applicable related regulatory rules and guidance. The CRO attends CMDS Committee meetings at least annually, and on an as needed basis, and reviews the Company’s incentive compensation arrangements from a risk perspective. The CRO reported to the CMDS Committee his conclusion that the Company’s current compensation programs for 2018 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.
Approves senior executive annual incentive compensation after a comprehensive review and evaluation of Company, business unit and individual performance for the year, and reviews these compensation decisions with our Board.
Together with senior management, oversees the Company’s controls regarding theyear-end compensation process, which have been designed to be consistent with our regulators’ principles for safety and soundness, including policies and procedures for compensation plan governance, funding and allocating the incentive compensation pool and the use of discretion in determining individual incentive compensation awards; processes for identifying “risk-taking” employees; and processes to administer incentive compensation clawback and cancellation features.
36 Morgan Stanley 20162019 Proxy Statement31
CORPORATE GOVERNANCE MATTERS
The following table contains information with respect to the annual compensation (including deferred compensation) of ournon-employee directors earned during 20152018 with respect to his or hertheir Board service.
| Director(1) | Fees Earned or Paid in Cash ($)(2) | Stock Awards ($)(3)(4) | Option Awards ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | ||||||
| Erskine B. Bowles | 119,167 | 250,000 | — | — | — | 369,167 | ||||||
| Howard J. Davies* | 35,833 | — | — | — | — | 35,833 | ||||||
| Thomas H. Glocer | 105,000 | 250,000 | — | — | — | 355,000 | ||||||
| Robert H. Herz | 106,667 | 250,000 | — | — | — | 356,667 | ||||||
| C. Robert Kidder* | 31,667 | — | — | — | 22,389(5) | 54,056 | ||||||
| Klaus Kleinfeld | 85,000 | 250,000 | — | — | — | 335,000 | ||||||
| Jami Miscik | 90,833 | 250,000 | — | — | — | 340,833 | ||||||
| Donald T. Nicolaisen | 105,000 | 250,000 | — | — | — | 355,000 | ||||||
| Hutham S. Olayan | 91,667 | 250,000 | — | — | — | 341,667 | ||||||
| James W. Owens | 105,000 | 250,000 | — | — | — | 355,000 | ||||||
| Perry M. Traquina* | 56,667 | 250,000 | — | — | — | 306,667 | ||||||
| Laura D. Tyson | 85,000 | 250,000 | — | — | — | 335,000 | ||||||
| Rayford Wilkins, Jr. | 95,000 | 250,000 | — | — | — | 345,000 |
Director | Fees Earned or Paid in Cash ($)(2) | Stock Awards ($)(3)(4) | Option Awards ($) | Change in ($) | All Other Compensation ($)(5) | Total ($) | ||||||||||||||||||
Erskine B. Bowles* | 7,917 | — | — | — | 21,269 | 29,186 | ||||||||||||||||||
Elizabeth Corley* | 85,833 | 333,333 | — | — | — | 419,166 | ||||||||||||||||||
Alistair M. Darling | 97,500 | 250,000 | — | — | — | 347,500 | ||||||||||||||||||
Thomas H. Glocer | 147,500 | 250,000 | — | — | — | 397,500 | ||||||||||||||||||
Robert H. Herz | 118,333 | 250,000 | — | — | — | 368,333 | ||||||||||||||||||
Jami Miscik | 107,500 | 250,000 | — | — | — | 357,500 | ||||||||||||||||||
Dennis M. Nally | 97,500 | 250,000 | — | — | — | 347,500 | ||||||||||||||||||
Hutham S. Olayan | 96,667 | 250,000 | — | — | — | 346,667 | ||||||||||||||||||
James W. Owens* | 31,667 | — | — | — | 12,804 | 44,471 | ||||||||||||||||||
Mary L. Schapiro* | 44,167 | 208,333 | — | — | — | 252,500 | ||||||||||||||||||
Perry M. Traquina | 118,333 | 250,000 | — | — | — | 368,333 | ||||||||||||||||||
Rayford Wilkins, Jr. | 107,500 | 250,000 | — | — | — | 357,500 | ||||||||||||||||||
| * | Mr. Bowles concluded service on the Board effective February 1, 2018 and Mr. |
| (1) | Messrs. Gorman, Hirano |
| (2) | Represents the portion of the annual Board and Board committee retainers |
In 2018, the Nominating and Governance Committee engaged Frederic W. Cook & Co., Inc. (FW Cook) to review our director compensation program and affirmatively determined that FW Cook is independent from management and that FW Cook’s engagement would not raise any conflict of interest. Effective November 1, 2018, based on the recommendation of the Nominating and Governance Committee following its review with FW Cook, the Board increased Board and committee retainers (other than Audit and Risk chairs) by $5,000, increased Audit and Risk committee chair retainers by $10,000, and amended DECAP to limit the deferral alternatives available to directors with respect to Elective Units, Current Units and Career Units (each defined below). The |
Position | ($) | |||
Board Member | 80,000 | |||
Independent Lead Director | 50,000 | |||
Committee Chairs | ||||
Audit and Risk Committees | 40,000 | |||
All Other Committees | 25,000 | |||
Committee Members | 15,000 | |||
32Morgan Stanley 2016 Proxy Statement
CORPORATE GOVERNANCE
| Directors can elect to receive |
Morgan Stanley 2019 Proxy Statement 37
CORPORATE GOVERNANCE MATTERS
Messrs. Bowles, Glocer, Owens and Traquina and Mss. Corley, Olayan and | ||
| ||
(3) | Other than with respect to Mss. Corley and Schapiro, represents the aggregate grant | |
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 | ||
Our Corporate Governance Policies include a director equity ownership requirement of five times the annual cash Board retainer. | ||
(4) | The following table sets forth the aggregate number of shares underlying DECAP stock units outstanding at December 31, |
Name | Stock Units (#) | |||
Erskine B. Bowles | 130,267 | |||
Elizabeth Corley | 7,679 | |||
Alistair M. Darling | 14,553 | |||
Thomas H. Glocer | 60,962 | |||
Robert H. Herz | 42,943 | |||
Jami Miscik | 20,059 | |||
Dennis M. Nally | 10,102 | |||
Hutham S. Olayan | 158,291 | |||
James W. Owens | 8,136 | |||
Mary L. Schapiro | 4,795 | |||
Perry M. Traquina | 36,879 | |||
Rayford Wilkins, Jr. | 24,720 | |||
(5) | At the conclusion of Mr. |
Morgan Stanley 2016 Proxy Statement33Related Person Transactions Policy
CORPORATE GOVERNANCE
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,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 transactions are not subject to the Policy,policy, including
38 Morgan Stanley 2019 Proxy Statement
CORPORATE GOVERNANCE MATTERS
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.
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 MUFG, State Street Corporation (State Street), T. Rowe Price Associates, Inc. (T. Rowe Price) and BlackRock, Inc. (BlackRock) and The Vanguard Group (Vanguard) beneficially owns 5% or more of the outstanding shares of Morgan Stanley common stock as reported under “Principal Shareholders.” During 2015,2018, we engaged in transactions in the ordinary course of business with each of MUFG, State Street, T. Rowe PriceBlackRock and BlackRockVanguard, 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.
A child of Jeffrey Brodsky, an executive officer, is anon-executive employee of the Company and received compensation in 2018 of approximately $205,000. A child of Colm Kelleher, an executive officer, is anon-executive employee of the Company and received compensation in 2018 of approximately $127,000. The compensation and benefits for these employees was determined in accordance with the Company’s standard compensation practices applicable to similarly situated employees.
In 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). 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. On April 18, 2018, the Company entered into a sales plan (the Plan) with MUFG and Morgan Stanley & Co. LLC (MS&Co.) whereby MUFG sells shares of the Company’s common stock to the Company, through its agent MS & Co., as part of the Company’s share repurchase program. The Plan is only intended to maintain MUFG’s ownership percentage of the common stock below 24.9% in order to comply with MUFG’s passivity commitments to the Board of Governors of the Federal Reserve System and will have no impact on the strategic alliance between MUFG and the Company, including the joint venture in Japan. Without the Plan, MUFG’s ownership percentage would increase as the outstanding number of shares of common stock is reduced as the Company purchases common stock from other investors under its share repurchase program.
34
Morgan Stanley 20162019 Proxy Statement 39
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 auditorregistered public accounting firm retained to audit the Company’s consolidated financial statements.statements (independent auditor). 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 evaluates whether it is appropriate to rotate the independent auditor and ensures the mandatory, regular rotation of the lead audit partner of the independent auditor and, in connection with such rotation, the Audit Committee is directly involved in the selection of the lead audit partner.partner, who may provide services to the Company for a maximum of five consecutive years. Commencing with the 2016 audit, the current lead audit partner from Deloitte & Touche LLP (Deloitte & Touche) was designated and is expected to serve in this capacity through the end of the 2020 audit.
As part of the Audit Committee’s annual review of Deloitte & Touche, the Audit Committee reviewed and considered, among other factors:
The results of management’s assessment that includes the results of a global management survey and interviews regarding overall historic and recent performance;
Deloitte & Touche’s independence from the Company, noting that Deloitte & Touche does not provide anynon-audit services to the Company other than those deemed permissible, as described under “Independent Auditor Fees”;
Deloitte & Touche’s tenure as independent auditor, including the benefits of its institutional knowledge of the Company, and the controls and processes in place (such as the mandatory rotation of audit partners) that help ensure Deloitte & Touche’s continued independence from the Company;
The professional qualifications of Deloitte & Touche and that of the lead audit partner and other key engagement partners;
Deloitte & Touche’s succession planning for senior Deloitte & Touche personnel on the engagement;
Deloitte & Touche’s historic and current quality of service, including candidnessof communication and interactions with the Audit Committee, independent judgment and professional integrity and objectivity;
Deloitte & Touche’s global capabilities and expertise in handling the breadth of the Company’s global operations and businesses, accounting policies and internal control over financial reporting;
The appropriateness of Deloitte & Touche’s feesrelative to both efficiency and audit quality;
External data on audit quality and performance, including recent Public Company Accounting Oversight Board (PCAOB) reports on Deloitte & Touche and peer firms;
The potential impact and advisability of selecting a different independent auditor; and
Whether retaining Deloitte & Touche is in the best interest of Morgan Stanley and its stockholders.
Based on this review, the Audit Committee has appointed Deloitte & Touche LLP (Deloitte & Touche) as independent auditor for the year ending December 31, 20162019 and presents this selection to the shareholders for ratification. The Audit Committee believes the continued retention of Deloitte & Touche is in the best interest of the Company and its shareholders. 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 Form10-K for the year ending December 31, 20162019 and will perform other permissible,pre-approved services. The Audit Committee pre-approves all audit and permitted non-audit services that
Deloitte & Touche performs forrepresentatives will attend the Companyannual meeting. They will be available to respond to appropriate shareholder questions and is responsible forwill have the audit fee negotiations associated withopportunity to make a statement if they desire to do so. If shareholders do not ratify the engagement of Deloitte & Touche. As part of the Audit Committee’s annual review of Deloitte & Touche,appointment, the Audit Committee reviewedwill reconsider it.
Our Board unanimously recommends that you vote“FOR” the results of management’s assessmentratification of Deloitte & Touche’s performance and discussed with Deloitte & Touche its independence 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.
The Audit Committee’s charter provides that the Audit Committee is responsible for the oversight of the integrity 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, retain, oversee, evaluate and, when appropriate, replace the Company’sour independent auditor. TheProxies solicited by the Board has determined that all members of the Audit Committee are “financially literate” within the meaning ofwill be voted“FOR” this ratification unless otherwise instructed.the 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.
40 Morgan Stanley 20162019 Proxy Statement35
AUDIT MATTERS
The Audit Committee’s charter (available atwww.morganstanley.com/about-us-governance) provides that the Audit Committee is responsible for the oversight of the integrity 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 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. As described under “Corporate Governance Matters — Corporate Governance Practices — Board Meetings and Committees,” the Board has determined that all four members of the Audit Committee are independent and “financially literate” within the meaning of the NYSE listing standards and a majority of the members of the Audit Committee, including the Chair, Robert H. Herz, are “audit committee financial experts” within the meaning of 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 planning and conducting an independent audit of 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, who generally attends each Audit Committee meeting.
The Audit Committee, among other things:
| |
| |
| |
| |
| |
| |
| |
|
Reviewed and discussed the Company’s quarterly earnings releases, Quarterly Reports onForm 10-Q and Annual Report on Form10-K, including the consolidated financial statements and significant accounting policies;
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 and coverage of the internal auditor for 2018 and reviewed and discussed summaries of the significant reports to management by the internal auditor;
Reviewed the performance, compensation and independence of the Global Audit Director;
Reviewed and discussed the plan and scope of the work of the independent auditor for 2018;
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 and received reports from 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, including the CFO, CLO, Chief Compliance Officer and Global Audit Director in private executive sessions.
We reviewed and discussed with management, the internal auditor and Deloitte & Touche: the audited consolidated financial statements for 2015,2018, the critical accounting policies that are set forth in the Company’s Annual Report onForm 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 underpursuant to auditing 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 also 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
Morgan Stanley 2019 Proxy Statement 41
AUDIT MATTERS
statements, reviews of the Company’s interim condensed consolidated financial statements included in its Quarterly Reports on Form10-Qand their opinion on the effectiveness of the Company’s internal control over financial reporting were compatible with maintaining their independence. We also reviewed andpre-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 20152018 be included in the Company’s Annual Report onForm 10-K. We also selected Deloitte & Touche as the Company’s independent auditor for the year ending December 31, 20162019 and are presenting the selection to the shareholders for ratification.
Respectfully submitted,
Robert H. Herz, ChairThomas H. GlocerDonald T. Nicolaisen
Alistair Darling
Dennis M. Nally
Perry M. Traquina
36 Morgan Stanley 2016 Proxy Statement
AUDIT MATTERS
The Audit Committee is responsible for overseeing the audit fee negotiations associated with the engagement of Deloitte & Touche. The Audit Committeepre-approves categories of audit and permittednon-audit services that Deloitte & Touche may perform for the Company and sets budgeted fee levels for such services. The Company reviews proposed engagements, in conjunction with Deloitte & Touche, to confirm the proposed engagements fit within a category ofpre-approved services and such engagements are documented and reported to the Audit Committee on a quarterly basis. Any proposed service category, engagement or budgeted fee adjustment that has not beenpre-approved by the Audit Committee may be approved by the Audit Committee Chair between regularly scheduled quarterly meetings and reported to the Audit Committee at its next quarterly meeting. Any fees for services in excess of thepre-approved budgeted fees must be specifically approved.
The following table summarizes the aggregate fees (including related expenses; $ in millions) for professional services provided by Deloitte & Touche related to 20152018 and 2014.2017.
| 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 |
| 2018 ($) | 2017 ($) | |||||||
Audit Fees(1) | 47.2 | 47.9 | ||||||
Audit-Related Fees(2) | 4.5 | 5.1 | ||||||
Tax Fees(3) | 1.4 | 1.5 | ||||||
All Other Fees | — | — | ||||||
Total | 53.1 | 54.5 | ||||||
| (1) | Audit Fees services include: the audit of our consolidated financial statements included in the Company’s Annual Report on Form10-K and reviews of the interim condensed consolidated financial statements included in our quarterly reports on Form10-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 andnon-income tax planning and advice; U.S. federal, state and local income andnon-income tax compliance;non-U.S. income andnon-income tax planning and advice;non-U.S. income andnon-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 these unconsolidated Funds. Fees paid to Deloitte & Touche by these Funds for these services were $10.4$12 million in 20152018 and $7.3$12.8 million in 2014.2017.
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”42 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 20162019 Proxy Statement37
EXECUTIVE COMPENSATION MATTERS
Company Proposal to Approve the Compensation of Executives as Disclosed in the Proxy Statement (Non-Binding(Non-Binding Advisory Resolution)Vote)
| ||
| Our Board unanimously recommends that you vote“FOR” this proposal. | |
As required by Section 14A of the Securities Exchange Act of 1934, this proposal seeks a shareholderthe below resolution gives shareholders the opportunity to cast an advisory vote to approve the compensation of our NEOs (including foras disclosed in this purpose, our former CFO, Ms. Porat) as disclosedproxy statement pursuant to Item 402 of Regulation S-K through the following resolution:S-K:
“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 20162019 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).”
AlthoughAs this “Say on Pay” vote is advisory, and isthe result will not be binding on our Board, although the CMDS Committee will take into considerationconsider the outcome of the vote when evaluating the effectiveness of our executive compensation program and making future executive compensation decisions. At the 20152018 annual meeting of stockholders, more than 88%over 95% of the votes cast favoredwere in favor of our “Say on Pay” proposal. The CMDS Committee considered our “Say on Pay” result, and, inIn light of the significant majority of votes cast in favor of the 20142017 compensation of our NEOs, did not materially change the overallCMDS Committee maintained its performance-based approach to executive compensation 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 2014,2018 and new 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 CD&A, the Board of Directors believes that our current executive compensation program appropriately links the compensation of our NEOs to our performance and properly aligns the interests of our NEOs with those of our shareholders.
We urgeAs discussed in the CD&A, the 2018 pay decision for the CEO was $29 million, with shareholder-aligned features. The Compensation Committee based its decision on its assessment of Mr. Gorman’s outstanding individual performance through the Firm’s substantial progress with respect to its strategic objectives and the Firm’s record performance in 2018. The Compensation Committee also noted Mr. Gorman’s overall leadership with respect to Firm culture, and among clients, shareholders, regulators and employees. Under Mr. Gorman’s leadership, the Firm achieved record revenues,pre-tax profit(11) and net income(12), and made substantial progress with respect to our shareholdersstrategic objectives, including delivering higher annual returns,pre-tax margin(4) in Wealth Management, and net revenue operating growth(5) and wallet share in Institutional Securities. Consistent with previous years, for 2018, 75% of CEO incentive compensation is deferred over three years and subject to read the “Overviewclawback and 50% of Voting Items,” CD&A and “Executive Compensation Tables,” which provideCEO incentive compensation is delivered in a future performance-vested equity award. In addition, 100% of CEO deferred compensation for 2018 is delivered in equity awards, an increased proportion from prior years, further aligning CEO compensation with shareholders’ interests.
For a detailed description of our executive compensation program.program, see “Overview of Voting Items,” CD&A (including Section 5 for the notes referenced above) and “Executive Compensation.”
Our Board unanimously recommends that you vote“FOR” this proposal. Proxies solicited by the Board will be voted“FOR” this proposal unless otherwise instructed.
38
Morgan Stanley 20162019 Proxy Statement 43
EXECUTIVE
COMPENSATION MATTERS
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 20152018 compensation decisions for our named executive officers (NEOs):
| James Gorman | Chief Executive Officer | |
| Colm Kelleher | President | |
| Jonathan Pruzan | Chief Financial Officer | |
| Chief Legal Officer | ||
| Head of | ||
Effective January 6, 2016, Mr. Kelleher became President of the Company, and Mr. Fleming ceased to be an executive officer. Unless otherwise noted, the term NEO as used in this CD&A does not include Ms. Porat, due to her departure from the Company, and the term “CFO” refers to Mr. Pruzan.
The CD&A is comprised of the following sections:
| Page: | ||||
| 44 | ||||
| 52 | ||||
| 52 | ||||
| 57 | ||||
| 61 | ||||
The CMDSCommittee considers multipleseveral factors in determining executive compensation to ensure that Morgan Stanley’s compensation program is shareholder-aligned, motivating and competitive, and reflects current best practices in corporate governance, risk management and regulatory principles. The CMDS Committee takes into consideration progress with respect to the 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 executive compensation program. This is demonstrated inprogram, taking into consideration progress with respect to the structure of executive compensationCompany’s strategic objectives, as informed by financial and the performance results that drive compensation decisions for our NEOs.non-financial goals. The CMDS Committee’s approach to executive pay is also informed by input from shareholders. Our commitment to this performance-based approach is demonstrated in the structure of executive compensation and our CEO pay framework.
At the start of 2015, asAs in prior years, the CMDS Committee establishedused a target range ofwell-defined framework to determine CEO compensation for 2018 and the performance factors to be considered in determining year-end compensation. Atat year end CEO total compensation was set at $21$29 million, for 2015, a 7% decrease from $22.5 million in 2014, with shareholder-aligned features:
75% of incentive compensation is deferred over three years and subject to clawback; 50% of incentive compensation is delivered through future performance-vested equity awards; and 100% of deferred compensation is delivered in equity awards — an increased proportion from prior years.
| |
|
44 Morgan Stanley 20162019 Proxy Statement
COMPENSATION MATTERS
391.1 Framework for Compensation Decisions
Set Performance Priorities Establish Target Compensation Range Assess Performance Determine Compensation In the context of Contentsthe Companys strategic objectives, the Board sets annual performance priorities Priorities include both financial and non-financial performance metrics for the Company and its business segmentsThe CMDS Committee establishes the target CEO compensation range The range is informed by prior year CEO compensation at peer financial firms, among other factors Guidelines for performance assessment are outlined The CMDS Committee assesses Company and executive performance at year end, including: Progress in achieving the Companys strategic objectives and annual performance priorities The CEOs overall leadership The CMDS Committee determines CEO compensation after year end based on its performance assessment and discussion with the Board The CMDS Committee determines CEO compensation elements that support the Companys key compensation objectives
EXECUTIVE Each year, the CMDS Committee establishes a target compensation range for the CEO and outlines guidelines for the CEO performance assessment at year end.
| MS CEO Total Compensation Range and Pay for Performance Approach | ||
At the start of 2018, the CMDS Committee, in consultation with its independent compensation consultant, established a target range for 2018 CEO pay of $28 million or more for performance exceeding expectations 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 considers compensation information for the 16 financial companies in the S&P 100 index, as described in Section 3.1 under “Benchmarking Target CEO Pay.” |
$28 Million or More $10 Million or Less CEO performance exceeds expectationsStrong Company performance and shareholder returns CEO performance meets expectationsCompany performance and shareholder returns generally in line with peers with room for continued progress CEO performance below expectations Company performance and shareholder returns are below expectations | |
Morgan Stanley 2019 Proxy Statement 45
COMPENSATION MATTERS
1.1.1.2 Performance-Based Approach to Executive Compensation and 20152018 Performance Highlights
In its assessment of 20152018 performance, the CMDS Committee considered Morgan Stanley’s progress in relation to its strategic objectives, financial performance, and shareholder returns.
Strategic Objectives(1)(2)
Each year, the Board oversees the establishment of the Company’s strategic objectives and shareholders receive an overview of these objectives, as well as a summary of progress on the prior year’s strategic objectives. In 2015,2018, the Company achieved a number of importantmade substantial progress with respect to its strategic priorities, including improvement ofobjectives for 2018–2019.
2018 2019 Strategic Objectives 2018 Results(3) Deliver Wealth Management profit margin, growth in Pre-Tax Margin(4) of26-28% Expand Institutional Securities Penetration and Leadership Position Investment Management for Growth Realize Company Expense Efficiency Ratio(7) of d73% Maintain Attractive Capital Return Profile Pre-Tax Margin(4) of 26.2% 8% net revenue operating growth(5); wallet share expansion across Sales & Trading and Investment Banking 9% asset management revenue operating growth(5); positive long-term net flows(6) Efficiency ratio(7) of 72.0% Maintained $6.8Bn aggregate distribution(8) ROE(9): 11.5% ROTCE(10): 13.2% ROE(9): 10%-13% ROTCE(10): 11.5%-14.5% Medium Term 12345
46 Morgan Stanley U.S. Bank(1), prudent expense management, and increased capital return to shareholders.2019 Proxy Statement
| |||
| |||
| |||
| |||
| |||
| |||
| |||
|
COMPENSATION MATTERS
2018 Financial Performance(1)(2)(6)(7)
The Company and certain of its businesses delivered improvedrecord financial performance in 2015. Net2018. Under Mr. Gorman’s leadership, the Company achieved record revenues and income from continuing operations before taxes (Pre-tax Profit) increased in 2015 from 2014, both as reportedearnings, with net revenues of $40.1 billion compared with $37.9 billion a year ago,pre-tax profit(11) of $11.2 billion compared with $10.4 billion a year ago and excludingnet income(12) of $8.7 billion compared with $6.1 billion a year ago. Combined with continued expense discipline, the impact of Debt Valuation Adjustment (DVA)(8). ReturnCompany delivered higher annual returns producing a return on average common equity (ROE) also increasedof 11.5%(9), up significantly from 9.4% last year(13) and within the prior year, but still has room for continued improvement.Company’s 2018–2019 strategic objective of 10%–13%(9), and return on average tangible common equity of 13.2%(10), within the Company’s 2018–2019 strategic objective of 11.5%–14.5%(10).
| MS Firm Financials Results Ex-DVA ($ 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
Company Institutional Securities Wealth Management Revenue Pre-Tax Profit(11) Net Income(12) Investment Banking Revenues Equity Revenues Revenues Pre-Tax Profit(11) Pre-Tax Margin(4) $40.1Bn $11.2Bn $8.7Bn $6.1Bn $9.0Bn $17.2Bn $4.5Bn 26.2% Record #1 Globally(14)
Morgan Stanley 20162019 Proxy Statement 47
COMPENSATION MATTERS
TableOver time, continued focus on expense discipline has led to strong operating leverage. Together with achievement of Contentsour multi-year strategic objectives, this has helped the Company more than double itspre-tax profit over the last five years. In addition, the Company has demonstrated solid returns exceeding its cost of capital, which has led to a sufficient capital base, despite share repurchases. This capital position also permits the ability to invest for future growth.
EXECUTIVE COMPENSATION
 Company Expense Efficiency Ratio(15), ex DVA(16) (%) | Pre-Tax Profit(17), ex DVA(16) ($Bn) | |||
|
|
|
Attractive Capital Return Profile | Ability to Invest for Growth | |||
|
|
48 Morgan Stanley 2019 Proxy Statement
COMPENSATION MATTERS
Shareholder Returns
Morgan Stanley’s significantThe Company’s execution of its strategic progressobjectives and improvedrecord 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,2018 contributes to Morgan Stanley’s strong shareholder return over the three-year period from 2013 to 2015,time. While Morgan Stanley’s TSR ranks first among peers.(21) for 2018 was negative(22), it outperformed the average of its global peers(23) and the Company’s three- and five-year TSR continued to be very strong(22).
1-Year (2018) TSR(21)(22) | 3-Year (2016-2018) TSR(21)(22) | 5-Year (2014-2018) TSR(21)(22) | ||
|
|
| ||
| MS | ||||
GlobalPeers | ||||
 | 3 of 9 | 3 of 9 | ||
Section 3.2 contains further details about Company performance; see also Section 5 “Notes to the Compensation Discussion and Analysis.”
Morgan Stanley 20162019 Proxy Statement41 49
EXECUTIVE
COMPENSATION MATTERS
1.2 Framework for1.3 Compensation Decisions and Performance EvaluationDetermination
At the start of 2015, the CMDS Committee, in consultation with its independent compensation consultant, established a target 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 Pay.”
The 20152018 pay decision for the CEO was made by the CMDS Committee, in consultation with the fullentire Board, based on the CMDS Committee’sits assessment of Morgan Stanley’s improvement in financial performance with room for continued improvement on ROE, Mr. Gorman’s strongoutstanding individual performance, through Morgan Stanley’s continued successful execution of the long-termCompany’s record performance in 2018 and substantial progress on the Company’s strategic objectives approved by the Board,objectives. The CMDS Committee also noted Mr. Gorman’s overall leadership with respect to Company culture, and Morgan Stanley’s shareholder returns as trailing peers in a challenging year for global financials.
among clients, shareholders, regulators and employees. As a result, the CMDS Committee determined that Company and individual performance warranted a 20152018 pay decision for Mr. Gorman of $21 million, 7% below Mr. Gorman’s 2014 pay of $22.5$29 million. The CMDS Committee believes that this decision appropriately aligns Mr. Gorman’s 2015 pay with 2015 performance.
The alignment of Mr. Gorman’s pay with Company performance can also be demonstrated over the longer-term by the fact that over the 2013 to 2015 period, Mr. Gorman’s realizable pay has increased only slightly and the Company’s three-year total TSR for the same period is 72%(15).
Section 3.2 contains more details about individual NEO performance. Section 4.1 contains the 2018 compensation decisions for each NEO, which follow a similar performance evaluation process.
| MS 2018 CEO Performance Evaluation | MS 2018 CEO Compensation Opportunity ($MM) |
1.3
Record performance in 2018 driven by revenue growth and expense discipline Substantial progress on many 2018 2019 strategic objectives, including medium term ROE and ROTCE targets Outstanding leadership, with respect to Company culture, and among clients, shareholders, regulators, and employees Negative TSR performance % of Incentive Compensation Elements$29 MM *Performance- Vested Long-Term Equity Incentive Compensation: 50% Time-Vested Deferred Equity: 25% Cash Bonus: 6.9 25% Base Salary 100% Equity
| * | $29 million is the amount the CMDS Committee awarded to the CEO in early 2019 for 2018 performance. This amount differs from the SEC required disclosure in the “2018 Summary Compensation Table.” |
Pay in a given year is typically delivered in a combination of fixed compensation (generally, base salary), cash bonus, and deferred compensation provided in a mix of deferred cash, restricted stock units (RSUs), and a long-term incentive program (LTIP) award in the form of performance stock units. A significant portion of pay is deferred, awarded in equity, subject to future stock price performance and cancellation and clawback and, in the case of LTIP awards, subject to future achievement of specified financial goals over a three-year period. These compensation elements support the Company’s key compensation objectives, discussed in Section 2, including delivering pay for sustainable performance.
The alignment of Mr. Gorman’s 2015 pay with Company performance can also be demonstrated over the longer term given that a significant portion of pay is delivered through equity-based awards that vest over time. Notwithstanding the Firm’s strong 2018 performance, Mr. Gorman’s realizable pay over 2016-2018 is lower(-4%) than his reported pay for the same period, as a result of the change in stock price, while the Company’s three-year TSR for the same period is 33%(21)(22)(24).
50 Morgan Stanley 2019 Proxy Statement
COMPENSATION MATTERS
The 2018 pay for the NEOs was delivered in a combination of thesethe compensation elements as outlined below.listed above, with the exception of Mr. Gorman who did not receive deferred cash and instead received 100% of his deferred compensation in equity awards (an increased proportion from prior years, further aligning CEO compensation with shareholders’ interests). The CMDS Committee believes this approach to executivethe elements and practices of our compensation isprogram are consistent with shareholder alignment, executive motivation,feedback, best practices, and regulatory principles.
| Deferred Incentive Compensation | • 75% of 2018 CEO incentive compensation is deferred over three years • Clawbacks cover material adverse outcomes, even absent misconduct • No automatic vesting onchange-in-control; double trigger in place | |||||||
Performance-Vested Long-Term Equity Incentive Award | • CEO performance-vested award is 50% of bonus, consistent with shareholder feedback • ROE goals were increased for awards granted as part of 2018 compensation • Shares earned can range from 0 – 1.5x target based on three year performance against ROE and TSR goals | |||||||
| Equity-Based Compensation | • Significant portion of equity-based compensation aligns employee and shareholder interests, with 100% of CEO deferred compensation awarded in equity • Meaningful share ownership and retention requirements further shareholder alignment | |||||||
| Best Practices | • Prohibitions on pledging, hedging, selling short or trading derivatives • No excise tax protection upon achange-in-control • Annual risk review • CMDS Committee retains independent compensation consultant | |||||||
Sections 4.2 and 4.3 contain more detail about the elements and key features of our compensation program.
42 Morgan Stanley 2016 Proxy Statement
EXECUTIVE COMPENSATION
| |||||
 | |||||
| |||||
| |||||
|
With the exception of Mr. Kelleher, who was identified as “Code Staff” for 2015 and whose 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 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%(over 95%) of the votes cast at the May 20152018 annual meeting of shareholders were in favor of our annual “Say on Pay” proposal. In 2015,2018, we continued our engagement program, seeking feedback from shareholders and proxy advisory firms on a variety of topics, whichincluding executive compensation, corporate governance, and environmental and social goals. The feedback that we received during the engagement program was conveyed to the CMDS Committee and the Board. Shareholders who provided feedback during our engagement program generally reported that executive compensation at Morgan Stanley was viewed as well-aligned with performance. The CMDS Committee factored shareholder feedback, including the “Say on Pay” vote results, into its consideration of executive compensation structure and determination of 2018 NEO pay levels.
After carefully considering shareholder feedback and other factors, the CMDS Committee maintained its performance-based approach to executive compensation, the portion of CEO deferred compensation awarded in equity was increased to 100% for 2018, and executive pay decreasedincreased for 20152018 after evaluation of performance against strategic and financial objectives as well as shareholder returns. The CMDS Committee also introduced minimum share ownership requirements for the
Morgan Stanley 20162019 Proxy Statement 4351
EXECUTIVE
COMPENSATION MATTERS
CEO, CFO, President,
2. Compensation Objectives and COO (see “Ownership of Our Stock – Executive Equity Ownership Commitment” for details). In response to the feedback received through shareholder engagement, the Board also amended our bylaws to implement proxy access, and we provided clearer disclosure of considerations and decisions regarding pay, 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 Voting Items” for details).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, all of which support the Company’s culture and values and shareholders’ interests:
 |
| Deliver Pay for Performance |
| |||||||||
|  | Align Executive Interests |
| |||||||||
|  | Attract and Retain |
| |||||||||
|  | Mitigate Excessive |
| |||||||||
|
3. Framework for Making Compensation Decisions
3.1 Factors Considered in Compensation Decisions
The 20152018 compensation of the NEOs was determined by the CMDS Committee after consideration of Company business 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 2018, the CMDS Committee evaluated Company and individual performance. For 2018, 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 ornon-attainment does not correspond to any specific compensation decision.
For 2018, the CMDS Committee reviewed performance priorities in the following areas:
| o |
| ||
|
Financial performance, including ROE |
| o | Shareholder return |
| o | Capital and liquidity strength |
| o | Company Expense Efficiency Ratio(7) |
| o | Business performance |
44 Morgan Stanley 2016 Proxy Statement
EXECUTIVE COMPENSATION
| o |
| ||
|
| o |
|
| o |
|
| o | Talent development, including diversity |
| o | Board assessment of |
Compensation Market Data The Company uses 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 52 Morgan Stanley 2019 Proxy Statement COMPENSATION MATTERS (Comparison Group) to understand market practices and trends, evaluate the competitiveness of our compensation programs, and inform compensation decisions. Our Comparison Group consists of companies that either directly compete with the Company for business and/or talent or are global organizations with scope, size, or other characteristics similar to those of the Company. During 2018, 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 2018 compensation for the CEO of $28 million or more for performance exceeding expectations 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 2017 compensation levels for the 16 financial companies in the S&P 100 index (AIG, Allstate, American Express, BlackRock, Bank of New York Mellon, Capital One Financial, MasterCard, MetLife, Paypal, US Bancorp, VISA, and the five U.S. companies within the Comparison Group), which are intended to reflect institutions of similar size, scope, and complexity. The CMDS Committee then utilized the range of results as a benchmark from which to set the target range for 2018 compensation for the CEO. Relative Pay Considerations 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 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. 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 its 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 and Board reviewed proposed NEO incentive compensation with Mr. Gorman, and the CMDS Committee reviewed CEO compensation with the Board (other than Mr. Gorman). 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, while 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. For example, the Company is subject to the Federal Reserve Board’s (Federal Reserve) 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, as well as the remuneration code of the U.K. Financial Conduct Authority and the U.K. Prudential Regulation Authority Rulebook, which prescribes the compensation structure for certain employees who are identified as material risk takers. Tax Deductibility Section 162(m) of the Internal Revenue Code (Section 162(m)) limits the tax deductibility of compensation for certain executive officers that is more than $1 million. Prior to the enactment of the Tax Cuts and Jobs Act, Section 162(m)
| |
| |
| |
| |
| |
|
Morgan Stanley 20162019 Proxy Statement 4553
COMPENSATION MATTERS
EXECUTIVE COMPENSATION
| |
|
3.2 Evaluating Company and Individual Performance for Alignment with Executive Compensation
In determining the annual performanceincentive compensation of the CEO and other NEOs, the CMDS Committee weighed the Company’s achievement of its long-term strategic objectives, overall financial performance, progress toward long-term strategic objectives, and, as applicable, business unit performance. In 2018, 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 TSRthe Company’s record financial performance, driven by growth in revenues and expense discipline, and the Company’s achievement of the ROE and ROTCE targets(14)(9)(10) 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 considered these results, as well as the performance indicated below, in determining compensation for our NEOs.
Strategic Objectives
During 2018, the Company achieved record revenues,pre-tax profit(11), and net income(12) and made substantial progress on its strategic objectives in connection with its overall strategy to continue to enhance shareholder returns, as well as other milestones:
Company |
| |
oPBT(11) growth of $0.8 billion (an increase of 8% from 2017) | ||
oBy executing on strategic objectives, over time the Company |
| ||
oStrong returns and sufficient capital supported investment, with share repurchases of up to $4.9 billion and an increase in the quarterly common stock dividend to $0.30 per share from $0.25 per share (an increase of 20% from 2017)(8)(18) | ||
oAchieved both ROE and ROTCE targets with an 11.5% ROE (an increase of 22% from 2017)(19)and a 13.2% ROTCE (an increase of 22% from 2017)(19)(20) | ||
Business Segments | oExpanded Institutional Securities market penetration and leadership, achieving 8% net revenue operating growth(5) and increased wallet share across Investment Banking and Sales & Trading | |
oInvestment Banking achieved record net revenues and ranked #1 in Global Completed M&A, Global IPOs and Global Equity(25) | ||
oAchievement of #1 ranking in Institutional Securities Equities revenue wallet share for the fifth consecutive year(14) | ||
oWealth Management achieved record revenues, PBT(11) andpre-tax margin of 26.2%(4), reflecting continued operating leverage while investing in technology and digital offerings | ||
oContinued execution of U.S. Bank strategy in Wealth Management and Institutional Securities | ||
| ||
| ||
| ||
|
54 Morgan Stanley 2019 Proxy Statement
COMPENSATION MATTERS
Company Financial Performance(1)(2)
Management reviewed the Company’s forecasted 2018 financial performance with the CMDS Committee in December 2018, and the CMDS Committee assessed full-year actual financial results before finalizing compensation decisions in January 2019.
| ||
Company |
|
|
|
46 Morgan Stanley 2016 Proxy Statement
EXECUTIVE COMPENSATION
of oResults reflect revenue and | ||
InstitutionalSecurities |
| |
oResults were driven by record performance in Investment Banking and | ||
WealthManagement |
oResults reflect strong management fees and continued execution of our U.S. Bank(26) strategy generating increased | |
InvestmentManagement | oPBT of $464 million in 2018 compared with $456 million in the prior year(11) oResults reflect strong asset management fees and |
Individual Performance
In addition to the performance factors discussed above, the Committee considered the following individual contributions of the CEO and each other NEO:
James Gorman Chief Executive Officer |
|
|
| ||
Colm Kelleher President |
Leadership representing the Company on a global basis, including: playing a pivotal role representing the Company with sovereigns, clients, and regulators; overseeing Institutional Securities and Wealth Management, primarily responsible for record financial performance in 2018, with particularly strong results in global Equities, Investment Banking and Wealth Management; continued execution of the Company’s strategy, including with respect to |
Morgan Stanley 2019 Proxy Statement 55
COMPENSATION MATTERS
Jonathan Pruzan Chief Financial Officer | Leadership of Finance, including: strengthening the | |
Eric Grossman Chief Legal Officer |
| |
| ||
| ||
Daniel Simkowitz Head of Investment Management | Leadership of Investment Management, including: contributing to strong year over year growth in management fees, net revenues and positive long-term flows(6); driving growth across a broad range of strategies with attractive economic and secular growth prospects including solutions, alternatives, high conviction equities and fixed income; deeply engaging with a global client base by strengthening coverage models, building strategic partnerships and collaborating on specific themes including ESG investing; focusing on integration of Mesa West Capital LLC (a premier commercial real estate credit platform), inorganic growth opportunities, and organic growth through product innovation, launching new products and scaling existing strategies across the business; engaging management across the organization, with a focus on |
56 Morgan Stanley 20162019 Proxy Statement
COMPENSATION MATTERS
474. Compensation Decisions and Program
EXECUTIVE COMPENSATION
|
4.1 Compensation Decisions
The table below shows the CMDS Committee’s 2018 compensation decisions for 2015 for the NEOs, and is different from the SEC required disclosure in the “2015“2018 Summary Compensation Table.”
| 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 |
| Mr. Gorman | Mr. Kelleher | Mr. Pruzan | Mr. Grossman | Mr. Simkowitz | ||||||||||||||||
Base Salary
|
$
|
1,500,000
|
|
$
|
1,200,000
|
|
$
|
1,000,000
|
|
$
|
1,000,000
|
|
$
|
1,000,000
|
| |||||
Cash Bonus
|
$
|
6,875,000
|
|
$
|
6,200,000
|
|
$
|
4,340,000
|
|
$
|
3,590,000
|
|
$
|
4,340,000
|
| |||||
Deferred Cash-based Award(a)
|
$
|
—
|
|
$
|
4,650,000
|
|
$
|
4,330,000
|
|
$
|
3,455,000
|
|
$
|
4,330,000
|
| |||||
Deferred Equity Award (RSUs)(b)
|
$
|
6,875,000
|
|
$
|
6,510,000
|
|
$
|
1,430,000
|
|
$
|
1,305,000
|
|
$
|
1,430,000
|
| |||||
2019-2021 Performance-vested LTIP Award(c)
|
$
|
13,750,000
|
|
$
|
7,440,000
|
|
$
|
2,900,000
|
|
$
|
2,150,000
|
|
$
|
2,900,000
|
| |||||
Total:
|
$
|
29,000,000
|
|
$
|
26,000,000
|
|
$
|
14,000,000
|
|
$
|
11,500,000
|
|
$
|
14,000,000
|
| |||||
| (a) | Deferred cash-based awards under the |
| (b) | |
Mr. Gorman received | |
The target number of performance stock units underlying the LTIP award granted to Mr. Gorman is | |
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 approved a separation and release agreement with Mr. Fleming dated January 22, 2016 that provides that his 2015 bonus compensation be comprised of the elements in the table above, and that he is entitled to receive benefits as described in “Potential Payments upon Termination or Change-in-Control.”
48 Morgan Stanley 20162019 Proxy Statement 57
EXECUTIVE
COMPENSATION MATTERS
4.2 Annual Compensation Program Elements
The following chart provides a brief summary of the principal elements of the Company’s 2015 annual2018 compensation program for our NEOs. Each NEO receives a base salary and is eligible to receive discretionary annual performanceincentive compensation for prior-year performance. Annual performanceincentive compensation is intended to reward NEOs for achievement of the Company’s financial and strategic objectives over the prior year and is delivered in a mix of a cash bonus aand deferred compensation in the form of deferred equity award, and, afor NEOs other than the CEO, deferred cash-based award.awards. 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”.Program.”
| Purpose | Features | |||
Base |
oIntended to be competitive with salaries for comparable positions at |
oUnchanged for NEOs in 2018 | ||
Cash Bonus |
|
oHigher compensated employees continue to be subject to higher deferral | ||
Deferred Equity Award |
oTerms of |
| ||
|
|
| ||
|
oProvide a cash oTerms of awards support retention objectives and | ||
| Performance-Vested Award — LTIP | o Link realized value to future performance against strategic goals and shareholder returns oTerms of | |
58 Morgan Stanley 20162019 Proxy Statement49
EXECUTIVE
COMPENSATION MATTERS
4.3 Long-Term Incentive Program
The 2016-20182019–2021 LTIP awards tie a meaningful portion of each NEO’s compensation to the Company’s long-term financial performance and reinforce the NEO’s accountability for the achievement of the Company’s financial and strategic goals by directly linking the ultimate realizable award value to prospective performance against core financial measures over a three-year period.
General Terms
The 2019-2021 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, 2019 and ending December 31, 2021. These performance goals are consistent with, and drive, Morgan Stanley’s long-term strategy, reflective in the strategic objectives in Section 1.1 and the performance priorities in Section 3.1. While each participant was awarded a target number of performance stock units, the actual number of units earned could vary from zero, if performance goals are not met, to up 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 CMDS Committee increased the return on equity goals for the 2019–2021 LTIP award from 10% to 11% to earn the target payout of 1 times this portion of the award, from 11.5% to 12.5% to earn a maximum payout of 1.5 times this portion of the award, and from less than 5% to less than 6% for cancellation of this portion of the award without payout.
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:
MS Average ROE* | Multiplier | Relative TSR** | Multiplier | |||||||||
12.5% or more | 1.50 | 25% or more | 1.50 | |||||||||
11% | 1.00 | 0% | 1.00 | |||||||||
6% | 0.50 | -50% | 0.50 | |||||||||
Less than 6% | 0.00 | Less than-50% | 0.00 | |||||||||
| ||
| ||
| 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, |
| ** | Relative TSR is determined by subtracting the Index Group TSR from the MS TSR; however, if performance for the period is negative, the multiplier may not exceed 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“2018 Grants of Plan-Based Awards, Table,” each of our NEOs (including Ms. Porat, but excluding Mr. Pruzan) received an LTIP award in 20152018 on similar terms as described above. Additionally, as described in note 3 to the “2015“2018 Option Exercises and Stock Vested, Table,” LTIP awards granted in 20132016 (2016 LTIP award) vested at 134.77%105.91% of target, based on performance over the three-year performance period ended December 31, 2015.2018. Since the inception of the program in 2009, the average of the payouts of all LTIP awards up to and including the 2016 LTIP awards is 88% of target.
Morgan Stanley 2019 Proxy Statement 59
COMPENSATION MATTERS
4.4 Additional Compensation and Benefits Information
| ||
50Clawback Policies and Procedures
Throughout the year, employee conduct matters that are escalated through the Company’s Global Conduct Risk Program are reviewed to determine whether they present situations 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 the Employee Discipline Oversight Committee (a committee of senior management currently composed of the CFO, CLO, CRO, Chief Human Resources Officer (CHRO), and Chief Compliance Officer) and reported to the CMDS Committee. In addition, the Global Incentive Compensation Discretion Policy adopted by the CMDS Committee sets forth standards for managers on the use of discretion when making annual compensation decisions and considerations for assessing risk management and outcomes. Further, the Company’s control functions conduct a semi-annual review of employee conduct with respect to risk and control matters, and are asked to identify inappropriate behavior that may not be captured through other Company processes. The results of the reviews are reflected in performance feedback and considered in compensation decisions.
No Severance orChange-in-Control TaxGross-Up Protection
NEOs are not contractually entitled to cash severance payments upon termination of employment or to any golden parachute excise tax protection upon achange-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 offeringon-call services and an annual executive health care assessment. Upon retirement, NEOs are eligible for Company-paid retiree health coverage for themselves and eligible dependents following any termination of employment.
Pension and Retirement
Company-provided retirement benefits in the U.S. include atax-qualified 401(k) plan (401(k) Plan) and a frozentax-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. Pension and retirement benefits provided to NEOs are discussed in further detail under “2018 Pension Benefits.”
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 permitting him to reimburse the Company for the incremental cost of his personal use of the Company’s aircraft. Mr. Kelleher, in connection with his relocation from the U.K. to the U.S. in 2016, receives a housing allowance and tax preparation services. Personal benefits provided to NEOs are discussed in further detail under “2018 Summary Compensation Table.”
Share Usage
Morgan Stanley pays a significant portion of incentive compensation as deferred equity awards, which aligns the 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. The Company’s share repurchase program offsets the dilutive impact of these additional shares.
60 Morgan Stanley 20162019 Proxy Statement
EXECUTIVE
COMPENSATION MATTERS
The following notes are an integral part of the Company’s financial and operating performance described in this CD&A:
| (1) | |
Morgan Stanley 2016 Proxy Statement51
EXECUTIVE COMPENSATION
| A detailed analysis of the Company’s financial and operational performance for | |
Information provided in this CD&A may include certainnon-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 | |
2018 Results represent results against the 2018—2019 Strategic Objectives established at the beginning of 2018. |
| (4) | Pre-tax margin represents |
| continuing operations before income taxes divided by net revenues.Pre-tax margin is a | |
Operating growth rate percentages for Institutional Securities (ISG) net revenue and | |
Long-term net flows include the equity, fixed income and alternative/other asset classes and exclude the liquidity asset class. |
| (7) | Company Expense Efficiency Ratio represents totalnon-interest expenses as a percentage of net revenues. |
| (8) | In June 2018, we received a conditionalnon-objection to our Capital Plan, where the only condition was that our capital distributions not exceed the greater of the actual distributions we made over the previous four calendar quarters, or the annualized average of actual distributions over the previous eight calendar quarters. Our 2018 Capital Plan includes the repurchase of up to $4.7 billion of outstanding common stock for the four quarters beginning in the third quarter of 2018 through the end of the second quarter of 2019, as well as an increase in the Company’s quarterly common stock dividend to $0.30 per share from the previous $0.25 per share that commenced with the dividend announced on June 28, 2018. The total amount of expected 2018 capital distributions is consistent with the $6.8 billion of actual dividends and gross share repurchases included in our 2017 Capital Plan. |
| (9) | The calculation of |
| (10) | The calculation of return on average tangible common equity (ROTCE), for both the |
| (11) | Pre-tax profit (PBT) represents income (loss) from continuing operations before income taxes. PBT is anon-GAAP financial measure that the Company considers useful for analysts, investors and other stakeholders to assess operating performance. |
| (12) | Net Income represents net income applicable to Morgan Stanley. |
| (13) | The calculation of |
| (14) | Institutional Securities Equity revenues market share is based on |
| (15) | Company Expense Efficiency Ratio represents totalnon-interest expenses as a percentage of net revenues (or in |
| (16) | DVA represents the change in |
Morgan Stanley 2019 Proxy Statement 61
COMPENSATION MATTERS
| analysts, investors and other stakeholders assess its operating performance exclusive of DVA. Effective January 1, 2016, pursuant to new accounting guidance that the Company adopted, gains and losses from DVA are presented in other comprehensive income (i.e., a component of common equity) as opposed to net revenues and net income. Prior to January 1, 2016, gains and losses from DVA are presented in trading revenues (i.e., a component of Net Revenues). |
Pre-tax profit represents income (loss) from continuing operations before income taxes.Pre-tax profit for 2013 excludes the |
| (18) | Share repurchases represent actual sharesre-acquired during the year noted, representing a blend of two sequential Comprehensive Capital Analysis Review cycles. |
| (19) | The calculations of ROE and ROTCE for each year utilize net income applicable to Morgan Stanley less preferred dividends as a percentage of average common equity and average tangible common equity, respectively, exclusive of intermittent discrete tax items. The 2018 ROE and ROTCE percentages exclude intermittent net discrete tax benefits of |
Tangible Common Equity (TCE) equals common equity less goodwill and intangible assets net of allowable mortgage servicing rights. TCE is anon-GAAP financial measure that the Company considers useful for analysts, investors and other stakeholders to assess capital adequacy. |
| (21) | Total shareholder return 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 |
Source of TSR percentages and averages: Bloomberg. |
| (23) | Global peers include the following eight companies: Goldman Sachs, JP Morgan Chase, Bank of America, Citigroup, Barclays, UBS Group, Deutsche Bank, and Credit Suisse. Source TSR for global peers: Bloomberg. |
| (24) | Over the |
The Company’s capital markets rankings are reported by Thomson Reuters as of January 4, 2019 for the period of January 1, 2018 to December 31, 2018. |
| (26) | U.S. Bank refers to the Company’s U.S. Bank operating subsidiaries Morgan Stanley |
Compensation, Management Development and Succession Committee ReportCOMPENSATION, 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 Form10-K for the year ended December 31, 20152018 filed with the SEC.
Respectfully submitted,
Hutham S. Olayan, ChairErskine B. BowlesKlaus KleinfeldJames W. Owens
Thomas H. Glocer
Dennis M. Nally
Rayford Wilkins, Jr.
5262 Morgan Stanley 20162019 Proxy Statement
EXECUTIVE
COMPENSATION MATTERS
The following tables summarize the compensation of our NEOs (including for this purpose, our former CFO, Ms. Porat) in the format specified by the SEC.
2018 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 year end that were awarded for performance in that year. Through 2015, ourOur annual equity awards relating to performance in a year are made shortly after year-end.year end. Therefore, compensation in the table includes not onlynon-equity compensation awarded for services in the applicable year but, in the case of stock awards and option awards granted in the years reported in the 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 20152018 performance can be found in the CD&A.
| 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 |
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 |
|
2018
|
|
|
1,500,000
|
|
|
6,875,000
|
|
|
19,748,977
|
|
|
—
|
|
|
—
|
|
|
44,662
|
|
|
28,168,639
|
| ||||||||
|
2017
|
|
|
1,500,000
|
|
|
11,568,250
|
|
|
11,383,777
|
|
|
—
|
|
|
12,777
|
|
|
44,918
|
|
|
24,509,722
|
| |||||||||
|
2016
|
|
|
1,500,000
|
|
|
9,698,750
|
|
|
9,958,913
|
|
|
—
|
|
|
8,971
|
|
|
39,201
|
|
|
21,205,835
|
| |||||||||
Colm Kelleher* President |
|
2018
|
|
|
1,200,000
|
|
|
10,850,000
|
|
|
11,686,900
|
|
|
—
|
|
|
—
|
|
|
381,468
|
|
|
24,118,368
|
| ||||||||
|
2017
|
|
|
1,200,000
|
|
|
13,328,750
|
|
|
6,943,628
|
|
|
—
|
|
|
—
|
|
|
330,128
|
|
|
21,802,506
|
| |||||||||
|
2016
|
|
|
1,666,041
|
|
|
10,949,126
|
|
|
6,155,595
|
|
|
—
|
|
|
191,059
|
|
|
416,667
|
|
|
19,378,488
|
| |||||||||
Jonathan Pruzan Executive Vice President and Chief Financial Officer | 2018 | 1,000,000 | 8,670,000 | 5,031,435 | — | — | 11,000 | 14,712,435 | ||||||||||||||||||||||||
| 2017 | 1,000,000 | 6,548,750 | 3,173,519 | — | 45,583 | 44,335 | 10,812,187 | |||||||||||||||||||||||||
| 2016 | 1,000,000 | 5,348,750 | 2,885,171 | — | 24,092 | 10,600 | 9,268,613 | |||||||||||||||||||||||||
Eric F. Grossman* Executive Vice President and Chief Legal Officer | 2018 | 1,000,000 | 7,045,000 | 4,604,015 | — | — | 47,416 | 12,696,431 | ||||||||||||||||||||||||
| 2017 | 1,000,000 | 5,948,750 | 3,072,864 | — | 12,786 | 43,048 | 10,077,448 | |||||||||||||||||||||||||
Daniel A. Simkowitz Head of Investment Management | 2018 | 1,000,000 | 8,670,000 | 5,588,351 | — | — | 14,216 | 15,272,567 | ||||||||||||||||||||||||
| 2017 | 1,000,000 | 7,148,750 | 3,576,139 | — | 59,608 | 13,698 | 11,798,195 | |||||||||||||||||||||||||
| 2016 | 1,000,000 | 5,948,750 | 3,497,606 | — | 34,093 | 13,284 | 10,493,733 | |||||||||||||||||||||||||
| * | On March 28, 2019, the Company announced that Mr. Kelleher informed the Company of his decision to retire from his position as President effective June 30, 2019. Mr. Grossman was not an NEO for 2016. |
Morgan Stanley 2016 Proxy Statement53
EXECUTIVE COMPENSATION
| Includes any elective deferrals to the Company’s employee benefit plans. |
| (2) | For |
| 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 |
Name | 2018 Cash Bonus ($) | 2018 MSCIP Award ($) | Total ($) | |||||||||
James P. Gorman | 6,875,000 | — | 6,875,000 | |||||||||
Colm Kelleher | 6,200,000 | 4,650,000 | 10,850,000 | |||||||||
Jonathan Pruzan | 4,340,000 | 4,330,000 | 8,670,000 | |||||||||
Eric F. Grossman | 3,590,000 | 3,455,000 | 7,045,000 | |||||||||
Daniel A. Simkowitz | 4,340,000 | 4,330,000 | 8,670,000 | |||||||||
| The 2018 MSCIP awards are scheduled to vest and be distributed on January |
| (3) | For |
Morgan Stanley 2019 Proxy Statement 63
COMPENSATION MATTERS
| (4) | Represents aggregate grant date fair value of stock unit awards granted during the applicable period and, for |
| The following table lists the aggregate grant date fair value of stock unit awards granted to the NEOs during |
| Stock Unit Awards Granted During 2015 ($) | ||||||||
| 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 | |||||
| Stock Unit Awards Granted During 2018 ($) | ||||||||||||
Name | 2017 RSUs | 2018 LTIP Awards | Total | |||||||||
James P. Gorman | 1,181,750 | 16,943,912 | 18,125,662 | |||||||||
Colm Kelleher | 1,931,250 | 8,691,229 | 10,622,479 | |||||||||
Jonathan Pruzan | 1,801,250 | 2,857,209 | 4,658,459 | |||||||||
Eric F. Grossman | 1,651,250 | 2,524,976 | 4,176,226 | |||||||||
Daniel A. Simkowitz | 1,901,250 | 3,255,889 | 5,157,139 | |||||||||
For further information on the valuation of the Company’s RSU and LTIP awards, see notes 2and 18to the consolidated financial statements included in the 2015 Form 10-K.
54Morgan Stanley 2016 Proxy Statement
EXECUTIVE COMPENSATION
| For further information on the valuation of the Company’s RSU and LTIP awards, see notes 2 and 18 to the consolidated financial statements included in the 2018 Form10-K. |
| (5) | No NEO had above-market earnings on nonqualified deferred compensation |
| Name | 2015 Change in Pension Value ($)(a) | 2015 Above-Market Earnings on Nonqualified Deferred Compensation ($)(b) | |||||
| James P. Gorman | (3,737) | 149,572 | |||||
| Jonathan Pruzan | (16,640) | 13,864 | |||||
| Ruth Porat | 48,162 | 12,160 | |||||
| Gregory J. Fleming | — | — | |||||
| Colm Kelleher | 108,935 | 244,633 | |||||
| James A. Rosenthal | — | — |
Name | 2018 Change in Pension Value ($) | ||||
James P. Gorman | (5,341 | ) | |||
Colm Kelleher | (112,316 | ) | |||
Jonathan Pruzan | (27,127 | ) | |||
Eric F. Grossman | (7,380 | ) | |||
Daniel A. Simkowitz | (32,855 | ) | |||
| The 2018 Change in Pension Value equals the aggregate |
| (6) | The “All Other Compensation” column for | |
| (a) | Each NEO received a matching contribution in the 401(k) Plan for |
| (b) | ||
| For Messrs. | ||
64 Morgan Stanley 20162019 Proxy Statement
COMPENSATION MATTERS
552018 Grants of Plan-Based Awards(1)
EXECUTIVE COMPENSATION
The following table sets forth information with respect to RSUs granted to the NEOs in January 20152018 for 20142017 performance (2017 RSUs) and 2015 LTIP awards granted in January 20152018 for forward-looking performance.performance (2018 LTIP awards), and incremental fair value recognized on prior year LTIP awards in February 2018.
Grant Date | Approval |
| All Other | All Other | Exercise | Grant Date | ||||
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 | ||
Name | Grant Date (m/d/yyyy) | Approval Date |
Estimated Future Payouts | 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 |
| 1/19/2018 |
|
| 1/5/2018 |
|
| 0 |
|
| 224,324 |
|
| 336,487 |
|
| — |
|
| — |
|
| — |
|
| 16,943,912 |
| |||||||||
| 1/19/2018 |
|
| 1/5/2018 |
|
| — |
|
| — |
|
| — |
|
| 20,791 |
|
| — |
|
| — |
|
| 1,181,750 |
| ||||||||||
| 2/26/2018 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,623,315 |
| |||||||||||||
Colm Kelleher |
| 1/19/2018 |
|
| 1/5/2018 |
|
| 0 |
|
| 115,065 |
|
| 172,598 |
|
| — |
|
| — |
|
| — |
|
| 8,691,229 |
| |||||||||
| 1/19/2018 |
|
| 1/5/2018 |
|
| — |
|
| — |
|
| — |
|
| 33,978 |
|
| — |
|
| — |
|
| 1,931,250 |
| ||||||||||
| 2/26/2018 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,064,420 |
| |||||||||||||
Jonathan Pruzan |
| 1/19/2018 |
|
| 1/5/2018 |
|
| 0 |
|
| 37,827 |
|
| 56,741 |
|
| — |
|
| — |
|
| — |
|
| 2,857,209 |
| |||||||||
| 1/19/2018 |
|
| 1/5/2018 |
|
| — |
|
| — |
|
| — |
|
| 31,691 |
|
| — |
|
| — |
|
| 1,801,250 |
| ||||||||||
| 2/26/2018 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 372,976 |
| |||||||||||||
Eric F. Grossman |
| 1/19/2018 |
|
| 1/5/2018 |
|
| 0 |
|
| 33,428 |
|
| 50,143 |
|
| — |
|
| — |
|
| — |
|
| 2,524,976 |
| |||||||||
| 1/19/2018 |
|
| 1/5/2018 |
|
| — |
|
| — |
|
| — |
|
| 29,052 |
|
| — |
|
| — |
|
| 1,651,250 |
| ||||||||||
| 2/26/2018 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 427,789 |
| |||||||||||||
Daniel A. Simkowitz |
| 1/19/2018 |
|
| 1/5/2018 |
|
| 0 |
|
| 43,105 |
|
| 64,658 |
|
| — |
|
| — |
|
| — |
|
| 3,255,889 |
| |||||||||
| 1/19/2018 |
|
| 1/5/2018 |
|
| — |
|
| — |
|
| — |
|
| 33,450 |
|
| — |
|
| — |
|
| 1,901,250 |
| ||||||||||
| 2/26/2018 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 431,212 |
| |||||||||||||
(1) | The |
56 Morgan Stanley 2016 Proxy Statement
EXECUTIVE COMPENSATION
The incremental fair value included in this table was recognized on February 26, 2018 upon the amendment of LTIP awards granted in 2015, 2016 and 2017 to account for the impact of the enactment of tax reform under the Tax Cuts and Jobs Act, and is also disclosed in the “Stock Awards” column of the “2018 Summary Compensation Table.” | ||
(2) | The | |
| follows, provided that in no event may the multiplier exceed 1.0 if MS TSR for the performance period is negative. |
| 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 | |||||||||||
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 (see Section 5 of the CD&A, note 16 for the definition of DVA), (b) certain gains or losses associated with the sale of specified businesses, (c) |
| ** | Relative TSR will be determined by subtracting the Index Group TSR from the MS TSR. |
Morgan Stanley 2019 Proxy Statement 65
COMPENSATION MATTERS
Each NEO is entitled to receive cash dividend equivalents on the
|
(3) | The 2017 RSUs are scheduled to convert to shares on January | |
(4) | Represents the aggregate grant date fair value of the 2017 RSUs and 2018 LTIP awards and the incremental fair value of the LTIP awards granted in 2015, 2016 and 2017 described in note 1 above computed as of the modification date in accordance with |
Morgan Stanley 2016 Proxy Statement 2018 Outstanding Equity Awards at FiscalYear-End57
EXECUTIVE COMPENSATION
The following table discloses the number of shares covered by unexercised stock options and unvested stock awards held by our NEOs on December 31, 2015.2018.
| 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 ($)(3) | ||
| James P. Gorman | 354,986 | — | 51.7552 | 2/17/2016 | — | — | 370,834 | 11,796,255 | ||
| 56,772 | — | 66.726 | 12/12/2016 | |||||||
| 424,731 | — | 30.01 | 1/21/2018 | |||||||
| 323,214 | 161,613 | 22.98 | 1/22/2018 | |||||||
| Total | 1,159,703 | 161,613 | — | — | 370,834 | 11,796,255 | ||||
| Jonathan Pruzan | 6,765 | — | 66.726 | 12/12/2016 | — | — | — | — | ||
| Total | 6,765 | — | — | — | — | — | ||||
| Ruth Porat | 23,737 | — | 66.726 | 12/12/2016 | — | — | 234,693 | 7,465,589 | ||
| 182,027 | — | 30.01 | 1/21/2018 | |||||||
| Total | 205,764 | — | — | — | 234,693 | 7,465,589 | ||||
| Gregory J. Fleming | 60,675 | — | 30.01 | 1/21/2018 | — | — | 286,117 | 9,101,402 | ||
| 198,588 | 149,300 | 22.98 | 1/22/2018 | |||||||
| Total | 259,263 | 149,300 | — | — | 286,117 | 9,101,402 | ||||
| Colm Kelleher | 144,551 | — | 66.726 | 12/12/2016 | — | — | 286,117 | 9,101,402 | ||
| 182,027 | — | 30.01 | 1/21/2018 | |||||||
| 296,946 | 148,479 | 22.98 | 1/22/2018 | |||||||
| Total | 623,524 | 148,479 | — | — | 286,117 | 9,101,402 | ||||
| James A. Rosenthal | 121,351 | — | 30.01 | 1/21/2018 | — | — | 206,440 | 6,566,883 | ||
| 249,336 | 124,673 | 22.98 | 1/22/2018 | |||||||
| Total | 370,687 | 124,673 | — | — | 206,440 | 6,566,883 | ||||
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Option Exercise Price ($) | 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 ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(1) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(2) | ||||||||||||||||||||||||
James P. Gorman | — | — | — | — | — | — | 558,115 | 22,129,278 | ||||||||||||||||||||||||
Colm Kelleher | — | — | — | — | — | — | 330,490 | 13,103,968 | ||||||||||||||||||||||||
Jonathan Pruzan | — | — | — | — | — | — | 116,545 | 4,621,025 | ||||||||||||||||||||||||
Eric F. Grossman | — | — | — | — | — | — | 108,188 | 4,289,681 | ||||||||||||||||||||||||
Daniel A. Simkowitz | — | — | — | — | — | — | 131,498 | 5,213,919 | ||||||||||||||||||||||||
(1) |
|
|
|
58 Morgan Stanley 2016 Proxy Statement
EXECUTIVE COMPENSATION
| (2) | The |
66 Morgan Stanley 2019 Proxy Statement |
The following table contains information about the stock options exercised by NEOs during 20152018 and the RSUs and LTIP awards held by the NEOs that vested during 2015.2018.
| 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) | |||||||||
| Option Awards | Stock Awards | |||||||||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on ($) | Number of Shares Acquired on Vesting (#)(1) | Value Realized on ($) | ||||||||||||||
James P. Gorman | — | — | 20,791 | 1,181,750(2) | ||||||||||||||
— | — | 245,991 | 9,698,444(3) | |||||||||||||||
Colm Kelleher | — | — | 33,978 | 1,931,250(2) | ||||||||||||||
— | — | 138,276 | 5,451,685(3) | |||||||||||||||
Jonathan Pruzan | — | — | 31,691 | 1,801,250(2) | ||||||||||||||
— | — | 68,937 | 2,717,972(3) | |||||||||||||||
Eric F. Grossman | — | — | 29,052 | 1,651,250(2) | ||||||||||||||
— | — | 63,915 | 2,519,938(3) | |||||||||||||||
— | — | 53,486(4) | 2,812,350(4) | |||||||||||||||
— | — | 152,254(5) | 7,964,948(5) | |||||||||||||||
Daniel A. Simkowitz | — | — | 33,450 | 1,901,250(2) | ||||||||||||||
— | — | 82,410 | 3,249,122(3) | |||||||||||||||
| (1) | Except as set forth in notes 4 and 5, consists of the 2017 RSUs, |
| (2) | The aggregate grant date fair value of |
| (3) | The value realized is based on 26, 2019. |
| (4) | Consists of 102.765% of the target number of performance stock units underlying the LTIP award granted on January 21, 2015 (2015 LTIP award) that vested on January 1, 2018, the scheduled vesting date of the award, and converted to shares of common stock on February 27, 2018. The value realized is based on |
| (5) | Consists of RSUs that are considered vested for purposes of this proxy statement on January 3, 2018, the date on which |
Morgan Stanley 2016 Proxy Statement 592018 Pension Benefits
EXECUTIVE COMPENSATION
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, 2015.2018. The material terms and conditions of these plans 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 | — | — | — | — | — |
| Name | Plan Name |
Number of | Retirement Age for Full Benefits(2) | Present Value of Accumulated Benefit ($)(3) | Payments During Last Fiscal Year ($) | |||||||||||||
James P. Gorman | Morgan Stanley Employees Retirement Plan |
| 4 |
|
| 65 |
| 96,389 |
|
| — |
| ||||||
Colm Kelleher | Morgan Stanley U.K. Group Pension Plan(4) |
| 7 |
|
| 61 |
| 204,844 |
|
| — |
| ||||||
Morgan Stanley Supplemental Executive |
| 25 |
|
| 61 |
|
| 1,282,681 |
|
| — |
| ||||||
Retirement and Excess Plan | ||||||||||||||||||
Jonathan Pruzan | Morgan Stanley Employees Retirement Plan |
| 15 |
| 65 |
| 227,860 |
| — |
| ||||||||
Eric F. Grossman | Morgan Stanley Employees Retirement Plan |
| 4 |
| 65 |
| 67,208 |
| — |
| ||||||||
Daniel A. Simkowitz | Morgan Stanley Employees Retirement Plan |
| 19 |
| 65 |
| 335,709 |
| — |
| ||||||||
| (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. |
Morgan Stanley 2019 Proxy Statement 67
COMPENSATION MATTERS
(2) (3) | The Retirement Age for Full Benefits is the earliest age at which the executive can receive unreduced benefits or current age, if greater. The present value at December 31, | |
(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 |
Employees Retirement Plan (ERP)
Substantially all of theEligible U.S. employees of the Company and its U.S. affiliates hired before July 1, 2007 were covered after one year of service by the ERP, anon-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 thepre-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 ten10 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 andnon-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’spre-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.
60 Morgan Stanley 2016 Proxy Statement
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 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, for January 1, 2011 through June 30, 2014, adjusted to take into account 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 $140,000 at age 60, reduced by 4% per year for payments beginning before age 60. The SEREP was restricted effective January 1, 2004 to “grandfathered” employees who as of that date met certain eligibility criteria. Grandfathering in this plan was provided to all similarly situated eligible employees and may be provided to other employees with the approval of the CMDS Committee. Benefits may be paid in various actuarially equivalent forms of annuity. Other than for small balances, no lump sums are available under this plan.
U.K. Group Pension Plan
The U.K. Pension Plan is a defined contribution plan that provided defined benefit pension accruals until October 1, 1996. The guaranteed minimum pension payable under the U.K. Pension Plan is determined in accordance with U.K. laws.
68 Morgan Stanley 20162019 Proxy Statement61
EXECUTIVE
COMPENSATION MATTERS
The following table contains information with respect to the participation of the NEOs in the Company’s unfunded cash deferred compensation plans that provide for the deferral of compensation on a basis that is nottax-qualified, as well as with respect to RSUs granted to the NEOs that are vested but have not yet converted to shares of Morgan Stanley common stock. NEOs participate in the plans on the same terms and conditions as other similarly situated employees. The material terms and conditions of these plans are described below.
| Name | Executive Contributions in Last FY ($)(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 |
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 LeveragedCo-Investment Plan(5) |
|
— |
|
|
— |
|
|
(173,272 |
) |
|
— |
|
|
2,412,467 |
| ||||||
Morgan Stanley Compensation Incentive Plan |
|
5,970,750 |
|
|
— |
|
|
(515,398 |
) |
|
6,111,386 |
|
|
10,852,077 |
| |||||||
Restricted Stock Units(5) |
|
1,181,750 |
|
|
— |
|
|
(7,872,485 |
) |
|
8,068,710 |
|
|
27,714,766 |
| |||||||
Colm Kelleher |
Notional LeveragedCo-Investment Plan(5) |
|
— |
|
|
— |
|
|
1,893 |
|
|
1,586,452 |
|
|
118,337 |
| ||||||
Morgan Stanley Compensation Incentive Plan |
|
8,471,250 |
|
|
— |
|
|
147,507 |
|
|
1,547,729 |
|
|
16,942,252 |
| |||||||
Restricted Stock Units(5) |
|
1,931,250 |
|
|
— |
|
|
(2,677,634 |
) |
|
3,187,856 |
|
|
9,178,094 |
| |||||||
U.K. Alternative Retirement Plan |
|
— |
|
|
— |
|
|
170 |
|
|
— |
|
|
29,135 |
(6) | |||||||
Jonathan Pruzan |
Key Employee Private Equity Recognition Plan |
|
— |
|
|
— |
|
|
1,012 |
|
|
8,841 |
|
|
19,686 |
| ||||||
Morgan Stanley Compensation Incentive Plan |
|
3,951,250 |
|
|
— |
|
|
(130,183 |
) |
|
4,202,497 |
|
|
7,267,853 |
| |||||||
Restricted Stock Units(5) |
|
1,801,250 |
|
|
— |
|
|
(1,206,364 |
) |
|
6,023,282 |
|
|
5,019,174 |
| |||||||
Eric F. Grossman |
Notional LeveragedCo-Investment Plan(5) |
|
— |
|
|
— |
|
|
(18,129 |
) |
|
— |
|
|
326,797 |
| ||||||
Morgan Stanley Compensation Incentive Plan |
|
3,551,250 |
|
|
— |
|
|
(255,914 |
) |
|
3,463,909 |
|
|
6,566,680 |
| |||||||
Restricted Stock Units(5) |
|
6,161,295 |
|
|
— |
|
|
(1,250,722 |
) |
|
3,737,669 |
|
|
4,663,645 |
| |||||||
Daniel A. Simkowitz |
Key Employee Private Equity Recognition Plan |
|
— |
|
|
— |
|
|
1,349 |
|
|
11,788 |
|
|
26,248 |
| ||||||
Notional LeveragedCo-Investment Plan(5) |
|
— |
|
|
— |
|
|
3,547 |
|
|
— |
|
|
244,976 |
| |||||||
Morgan Stanley Compensation Incentive Plan |
|
4,351,250 |
|
|
— |
|
|
125,034 |
|
|
3,530,807 |
|
|
8,050,205 |
| |||||||
Pre-Tax Incentive Program |
|
— |
|
|
— |
|
|
(25,214 |
) |
|
— |
|
|
988,873 |
| |||||||
Restricted Stock Units(5) |
|
1,901,250 |
|
|
— |
|
|
(1,335,678 |
) |
|
7,696,901 |
|
|
5,821,289 |
| |||||||
(1) | RSU contributions represent the RSU awards granted in January |
62 Morgan Stanley 2016 Proxy Statement
EXECUTIVE COMPENSATION
(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, | |
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, | ||
(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 | |
(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, |
Morgan Stanley 2019 Proxy Statement 69
COMPENSATION MATTERS
| (5) | Includes RSUs |
| (6) | Mr. Kelleher’s aggregate balance at $1.3351. |
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.
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 LeveragedCo-Investment Plan (LCIP)
Under LCIP, participants were permitted to allocate a portion of their deferred 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, participantsParticipants 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 two times each participant’s contribution (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 tenth10th 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
EXECUTIVE COMPENSATION
Morgan Stanley Compensation Incentive Plan (MSCIP)
A portion of each participant’syear-end deferred incentive compensation is 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 in the CD&A and in “Potential Payments upon Termination orChange-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.
Restricted Stock Units (RSUs)
RSUs are granted under the Morgan Stanley 2007 Equity Incentive Compensation Plan or another 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
70 Morgan Stanley 2019 Proxy Statement
COMPENSATION MATTERS
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 orChange-in-Control.”
U.K. Alternative Retirement Plan (ARP)
The ARP is a U.K. employer financed retirement benefits scheme as defined by 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 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.
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 achange-in-control, in each case on December 31, 2015. For Ms. Porat, this section describes and quantifies the benefits and compensation to which she was entitled in connection with her departure from the Company on April 30, 2015.2018.
1. General Policies
No Cash Severance
Our NEOs are not contractually entitled to cash severance payments upon any termination of employment or excise tax protection upon achange-in-control of the Company. NEOs are entitled to receive post-termination benefits that are generally available to all salaried employees, such as accrued vacation pay and death, disability and post-retirement welfare benefits, and are also eligible for Company-paid retiree medical coverage under the Morgan Stanley Grandfathered Retiree Medical Plan for themselves and eligible dependents following any termination of employment with three years of service.
64 No Enhanced Termination BenefitsMorgan Stanley 2016 Proxy Statement
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 under the “2015“2018 Pension Benefits, Table,” and our nonqualified deferred compensation plans, as described under the “2015“2018 Nonqualified Deferred Compensation Table.Compensation.” Our NEOs are not entitled to special or enhanced termination benefits under our pension and nonqualified deferred compensation plans as compared to other employees.
Cancellation and Clawback of Deferred Compensation
Even if aan NEO is considered vested in a deferred incentive compensation award, the award may be subject to cancellation through the distribution date in the event the NEO engages in a cancellation event or if a clawback event occurs. In general, a cancellation event includes: engaging in competitive activity during a specified period following a voluntary termination of employment; engaging in cause (i.e.(i.e., a breach of the NEO’s obligation to the Company, including a failure to comply with internal compliance, ethics or 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 and within a specified period following termination of, employment; the making of unauthorized disclosures or disparaging or defamatory comments about the Company; resignation from employment without providing the Company proper advance notice; or the failure to cooperate with or assist the Company in connection with investigations, regulatory matters, lawsuits or arbitrations following termination of employment.
Clawback of deferred compensation awards by the Company can be triggered through the applicable scheduled distribution date if the NEO had significant responsibility for a material adverse outcome for the Company or any of its businesses or functions, even absent misconduct, or if the NEO’s act or omission (including with respect to direct supervisory responsibilities) causes a restatement of the Company’s consolidated financial results, violates the Company’s global risk management principles, policies and standards, or causes a loss of revenue associated with a position on which the NEO was paid and he or she operated outside of internal control policies. Further, shares resulting from
Morgan Stanley 2019 Proxy Statement 71
COMPENSATION MATTERS
the conversion of LTIP 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 certain of Mr. Kelleher’s awards granted while he was designated by the Company as Code Staff, 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.
Notice andNon-Solicitation Agreements
In addition to the cancellation and clawback events described above, each NEO is party to a Notice andNon-Solicitation Agreement that provides for injunctive relief and cancellation of deferred compensation awards if the NEO does not provide 180 days’ advance notice prior to a resignation or if the NEO improperly solicits the Company’s employees, clients or customers at any time during and foremployment or the 180 days following termination of employment.
Morgan Stanley 2016 Proxy Statement 65
EXECUTIVE COMPENSATION
2. Termination of Employment /Change-in-Control
The table below sets forth the value as of December 31, 20152018 of the outstanding unvested deferred compensation awards held by the NEOs and the present value of coverage under the Morgan Stanley Grandfathered Retiree Medical Plan as of December 31, 2015. 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.2018.
| 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 | ||
Termination Reason | Name | Unvested RSUs and Unvested MSCIP ($)(1) | Unvested LTIP Awards and Related Dividend | Retiree Medical ($)(3) | ||||||||||
Involuntary (not due to a cancellation event) / Disability / Retirement / In connection with aChange-in-Control / Death / Governmental Service Termination | James P. Gorman
|
| — |
|
| 17,513,315 |
|
| 524,003 |
| ||||
Colm Kelleher
|
| — |
|
| 10,278,275 |
|
| 246,827 |
| |||||
Jonathan Pruzan
|
| — |
|
| 3,610,277 |
|
| 958,122 |
| |||||
Eric F. Grossman
|
| — |
|
| 3,342,647 |
|
| 804,635 |
| |||||
Daniel A. Simkowitz
|
| — |
|
| 4,075,696 |
|
| 741,725 |
| |||||
| (1) | As of December 31, | |
| (2) | As of December 31, | |
| (3) | Each NEO, having met the service requirement, is eligible to elect retiree medical coverage under the Company’s | |
6672 Morgan Stanley 20162019 Proxy Statement
COMPENSATION MATTERS
TableCompensation Ratio Disclosure
The ratio between the CEO’s total annual compensation and the median annual total compensation of Contents
EXECUTIVE COMPENSATION
Amounts payable in connection with Ms. Porat’s terminationall other employees of employment
Prior to her departure from the Company reported below is a reasonable estimate calculated in a manner consistent with SEC rules based on April 30, 2015, Ms. Porat satisfied the ageCompany’s compensation records and service requirementsthe methodology described below. Because SEC rules for retirement eligibility for purposes of her outstanding RSU, MSCIP and stock option awards, and therefore such awards are considered vestedidentifying the median compensated employee for purposes of this proxy statement. Such awards remain subjectdisclosure allow companies to all provisionsadopt various methodologies and utilize various assumptions, the ratio reported by other companies may not be comparable to the ratio reported by the Company.
For 2018, our last completed fiscal year, the median 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 sharesannual total compensation of common stock on their scheduled conversion dates based on the performanceall employees of the Company through(other than the applicable three-year performance period, subject to cancellationCEO) was $142,604 and clawback provisions. Therefore, the actual valueannual total compensation of Ms. Porat’s LTIP awards will not be known until the end of the performance period. Using Company performance through December 31, 2015our CEO, as a substitute for performance through the performance period, the value as of December 31, 2015 of Ms. Porat’s LTIP awards for which the performance period had not ended was $6,696,322.
Following her departure from the Company, Ms. Porat is eligible to elect, but has not yet elected, to receive retiree medical coverage under the Morgan StanleyGrandfathered Retiree Medical Plan with a present value of $588,573as of December 31, 2015, calculated as described above. As disclosedreported in the “All Other Compensation” column of the “2015“2018 Summary Compensation Table,” was $28,168,639. Based on this information, for 2018, the ratio of the annual total compensation of the CEO to the median of the annual total compensation of all other employees of the Company was 198 to 1.
To identify the median of the annual total compensation of all employees of the Company, we took the following steps:
| 1. | The pay ratio rule gives companies the ability to make the median employee determination only once every three years, and we did not make a new median employee determination for 2018. The median employee determination for 2017 is described below. |
| – | We measured the employee population of the Company as of December 31, 2017 and included all employees of Morgan Stanley and its consolidated subsidiaries globally. We did not include independent contractors and leased employees. Although our employee population varies slightly from the employee population in our December 31, 2017 determination, there have not been any changes that we reasonably believe would significantly impact our pay ratio disclosure. |
| – | We selected annual total reward awarded in respect of 2017 as the consistently applied compensation measure used to identify the employee with the median of the annual total compensation of all employees (the “median employee”). Annual total reward consists of fixed compensation (e.g., base salary and allowances) and annual incentive compensation delivered in cash or equity and other variable compensation analogous to annual incentive compensation (e.g., commissions). We annualized the compensation of all permanent employees who were employed for less than the full fiscal year. We did not make anycost-of-living adjustments in identifying the median employee. Our median employee served in a similar role in 2018 and had his or her compensation adjusted based on his or her performance in that role. We determined that changes in our median employee’s compensation arrangements for 2018 did not result in a significant change to our pay ratio disclosure and, therefore, that our median employee was still reasonable to utilize for our pay ratio disclosure this year. |
| 2. | Once we identified that our median employee selected in 2017 was still reasonable for 2018 disclosure, we then calculated the median employee’s annual total compensation for 2018 in accordance with the Summary Compensation Table requirements. |
Commitment to Equitable Compensation Practices
Attracting, retaining and advancing under-represented talent is a priority for the Company, and a key aspect to this is ensuring that women and all other under-represented groups are rewarded equitably. Morgan Stanley has robust compensation practices that help to ensure that compensation and reward decisions are made fairly and consistently and are based on an individual’s role, performance and experience. The Company reviews compensation decisions for employees on an ongoing basis, including at the point of hire as well as during our annual compensation process, to help ensure that individual compensation decisions arein-line with this philosophy. A diverse workforce is key to our success, and consistent with Company practice with respectthat, we are committed to continually assessing our rewards structure and decisions to help ensure equity in pay for all SEREP participants, the Company paid $33,008 to satisfyemployees.Ms. Porat’s portion of FICA taxes due upon the commencement of payment of her SEREP benefit.
Morgan Stanley 20162019 Proxy Statement67 73
EXECUTIVE EQUITY OWNERSHIP COMMITMENT
Members of the Company’s Operating Committee are subject to an Equity Ownership Commitment. In January 2016, based on feedback from shareholders, we revised our Equity Ownership Commitment in order to enhance the alignment between the long-term interests of our shareholders and our Operating Committee members.
The Equity Ownership Commitment now requires each of our CEO, CFO President, and COOPresident (Covered Officers) to achieve ownership of a number of shares of common stock and equity awards 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 10x10 times 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 6xsix times 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) granted to them for service on the Operating Committee (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 our Operating Committee members’ net worth to the Company’s stock price and provides a continuing incentive for them to work towardsuperior long-term stock price performance. Exceptions to the Equity Ownership Commitment are subject to the approval of the CMDS Committee. None of our executive officers currently have prearranged trading plans under SEC Rule10b5-1. 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
As indicatedOur Corporate Governance Policies require each independent director to retain ownership of a number of shares of Morgan Stanley common stock and equity awards with a value equal to five times the annual cash Board retainer, and to retain 100% of his or her Morgan Stanley stock unit awards (on anafter-tax basis) until such ownership requirement is met. Directors may not enter into hedging transactions in respect of Morgan Stanley common stock or pledge Morgan Stanley common stock in connection with a margin or other loan transaction. In addition, as discussed 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 the case of the initial award) as part of their director compensation. 50%Fifty percent 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. We believe these equity ownership opportunities and requirements enhance the alignment of independent directors’ interests with the long-term ownership view. Directors may not enter into hedging transactions in respectinterests of Morgan Stanley common stock or pledge Morgan Stanley common stock in connection with a margin or other loan transaction.our shareholders.
6874 Morgan Stanley 20162019 Proxy Statement
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 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 | |||
| |
| |
| |
| |
|
Morgan Stanley 2016 Proxy Statement 69
OWNERSHIP OF OUR STOCK
STOCK OWNERSHIP OF EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the beneficial ownership of common stock as of March 4, 2019 by our CEO and the other executive officers named in the “2018 Summary Compensation Table” (our NEOs), directors and director nominee, and by all of our directors and executive officers as a group. As of March 4, 2019, none of the common stock beneficially owned by our directors and current executive officers was pledged.
Name | Shares(1) |
Underlying(2) Stock Units | Subject to Stock Options Exercisable Within 60 Days | Total(3) | ||||||||||||
NAMED EXECUTIVE OFFICERS | ||||||||||||||||
James P. Gorman | 842,051 | 665,213 | — | 1,507,264 | ||||||||||||
Colm Kelleher | 624,356 | 354,632 | — | 978,988 | ||||||||||||
Jonathan Pruzan | 70,167 | 101,636 | — | 171,803 | ||||||||||||
Eric F. Grossman | 165,462 | 94,780 | — | 260,242 | ||||||||||||
Daniel A. Simkowitz | 79,180 | 108,373 | — | 187,553 | ||||||||||||
DIRECTORS AND DIRECTOR NOMINEE | ||||||||||||||||
Elizabeth Corley | — | 7,734 | — | 7,734 | ||||||||||||
Alistair Darling | 4,136 | 14,657 | — | 18,793 | ||||||||||||
Thomas H. Glocer | 4,535 | 61,399 | — | 65,934 | ||||||||||||
Robert H. Herz | 20,885 | 43,251 | — | 64,136 | ||||||||||||
Nobuyuki Hirano(4) | — | — | — | — | ||||||||||||
Jami Miscik | 13,034 | 20,203 | — | 33,237 | ||||||||||||
Dennis M. Nally | 5,274 | 10,175 | — | 15,449 | ||||||||||||
Takeshi Ogasawara(4) | — | — | — | — | ||||||||||||
Hutham S. Olayan | 8,000 | 159,425 | — | 167,425 | ||||||||||||
Mary L. Schapiro | — | 4,830 | — | 4,830 | ||||||||||||
Ryosuke Tamakoshi(4) | — | — | — | — | ||||||||||||
Perry M. Traquina | — | 37,143 | — | 37,143 | ||||||||||||
Rayford Wilkins, Jr. | 18,986 | 24,897 | — | 43,883 | ||||||||||||
ALL DIRECTORS AND EXECUTIVE OFFICERS AS OF MARCH 4, 2019 AS A GROUP (19 PERSONS) | 2,122,607 | 1,833,837 | — | 3,956,444 | ||||||||||||
(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: Mr. Gorman — 52,400 shares. | |
| (2) | Shares of common stock held in a trust (Trust) corresponding to outstanding 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 March 4, 2019 beneficially owned less than 1% of the common stock outstanding. | |
| (4) | Messrs. Hirano and Tamakoshi were designated by MUFG and elected to the Board pursuant to the Investor Agreement and are not compensated by Morgan Stanley for their Board service. Mr. Tamakoshi will not stand forre-election at the annual meeting of shareholders, and MUFG has designated Mr. Ogasawara for nomination to the Board in accordance with the Investor Agreement. Should he be elected to the Board, Mr. Ogasawara will be eligible to receive the applicable cash retainers for his Board service, but will not receive stock unit awards. See “Item 1 — Election of Directors — Director Succession and Nomination Process” regarding Mr. Ogasawara’s nomination for election to the Board and “Principal Shareholders” regarding MUFG’s beneficial ownership of Company common stock. |
Morgan Stanley 2019 Proxy Statement 75
OWNERSHIP OF OUR STOCK
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) | |||||
| 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 | |||||||
Shares of Common Stock
| ||||||||
Name and Address | Number
| Percent(1)
| ||||||
MUFG(2) |
| 404,867,225 |
|
| 24.0% |
| ||
State Street(3) |
| 130,654,531 |
|
| 7.7% |
| ||
BlackRock(4) |
| 104,968,967 |
|
| 6.2% |
| ||
Vanguard(5) 100 Vanguard Boulevard Malvern, PA 19355 |
| 95,698,705 |
|
| 5.7% |
| ||
| (1) | Percentages based upon the number of shares of common stock outstanding as of the record date, March | |
| (2) | Based on the | |
| ownership of such shares. | ||
| (3) | Based on the Schedule 13G dated February | |
| (4) | Based on the Schedule 13G dated February 5, 2019 filed by BlackRock (as of December 31, 2018). The Schedule 13G discloses that BlackRock had sole voting power as to 92,275,473 shares and sole dispositive power as to 104,968,967 shares. | |
| (5) | Based on the Schedule 13G dated February | |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and certain of our officers to file reports with the SEC indicating their holdings of, and transactions in, our equity securities. The Company believes that our reporting persons complied with all Section 16(a) filing requirements during 2015.2018.
7076 Morgan Stanley 20162019 Proxy Statement
|
|
Upon the recommendation of the CMDS Committee, on March 24, 2016, the Board adopted an amendment to our 2007 Equity Incentive Compensation Plan (EICP) to increase the number of shares of common stock available to be granted under the EICP by 20 million shares, 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 performance-vested awards over time. The EICP was originally approved by shareholders on April 10, 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 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 2017 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 delivers a significant portion of incentive compensation for eligible employees in deferred equity awards (RSUs) that are impacted by future stock price performance over a multi-year period and, for senior executives, performance-vested stock units that only deliver value if the Company meets specific performance targets after three years (LTIP awards). We believe this approach to executive compensation aligns the interests of the Company’s employees with those of its shareholders and is consistent with executive motivation, best practices, and regulatory principles.
The Board believes that the EICP amendment is in the best interest of shareholders and supports this proposal for the following reasons:
| ||
| ||
| ||
| ||
Morgan Stanley 2016 Proxy Statement71
EQUITY COMPENSATION PLAN
| ||
| ||
| |
| |
| |
|
Our Board unanimously recommends that you vote“FOR” this proposal. Proxies solicited by the Board will be voted“FOR” this proposal unless otherwise instructed.
SUMMARY OF THE EICP 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, the EICP terms remain unchanged. The capitalized terms not otherwise defined in this summary shall have the meaning assigned to them in the EICP.
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 similar business organizations in which we or one of our subsidiaries has an equity or similar interest (Eligible Individuals). As of January 2016, there were approximately 55,000 Eligible Individuals who were employees of the Company and its subsidiaries.
72Morgan Stanley 2016 Proxy Statement
EQUITY COMPENSATION PLAN
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).
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 323 million (which takes into account the proposed 20 million share increase), of which approximately 275.5 million were already granted as of 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.
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.
| ||
| ||
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 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
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.
| ||
| ||
| ||
| ||
| ||
| ||
| ||
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).
| ||
| ||
74Morgan Stanley 2016 Proxy Statement
EQUITY COMPENSATION PLAN
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 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).
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., stock market indices) or be based upon any combination of the foregoing. In addition to the performance measures, the CMDS 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 measure or measures specified in the award are satisfied.
| ||
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.
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.
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.
No Awards may be made after May 15, 2017.
Morgan Stanley 2016 Proxy Statement75
EQUITY COMPENSATION PLAN
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 May 14, 2013. Awards of stock options, SARs or performance-based long-term incentive awards granted by the CMDS Committee under the EICP qualify for the performance-based compensation exception to Section 162(m).
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 2015 had the amendment of the EICP then been in effect.
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.
| ||
| ||
| ||
| ||
76Morgan Stanley 2016 Proxy Statement
EQUITY COMPENSATION PLAN
| ||
| ||
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, 2015. Morgan Stanley has not made any grants of common stock outside of its equity compensation plans.
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.”
| ||
| 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) |
Morgan Stanley 2016 Proxy Statement77
EQUITY COMPENSATION PLAN
78Morgan Stanley 2016 Proxy Statement
SHAREHOLDER PROPOSALSPROPOSAL
The Company sets forth below twoone shareholder proposalsproposal and the proponents’proponent’s supporting statements.statement. The Board and the Company accept no responsibility for the text of these proposalsthis proposal and supporting statements.statement. The Board recommends that you vote against each of the two shareholder proposals.proposal. 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 an Annual Report on Lobbying Expenses | ||
| 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, theBoston Common Asset Management, LLC, 200 State Street, 7th Floor, Boston, MA 02109, beneficial owner of 8611,500 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, havehas notified the Company that they intendit intends to present the following proposal and related supporting statement at the annual meeting.
RESOLVED: ShareholdersWhereas, we believe in full disclosure of Morgan Stanley’s direct and indirect lobbying activities and expenditures to assess whether its lobbying is consistent with its expressed goals and in the best interests of shareholders.
Resolved, the shareholders of Morgan Stanley hereby request the Boardpreparation of a report, updated annually, disclosing:
1. Company policy and procedures governing lobbying, both direct and indirect, and grassroots lobbying communications.
2. Payments by Morgan Stanley used for (a) direct or indirect lobbying or (b) grassroots lobbying communications, in each case including the amount of the payment and the recipient.
3. Description of management’s and the Board’s decision making process and oversight for making payments described in section 2 above.
For purposes of this proposal, a “grassroots lobbying communication” is a communication directed to the general public that (a) refers to specific legislation or regulation, (b) reflects a view on the legislation or regulation and (c) encourages the recipient of the communication to take action with respect to the legislation or initiateregulation. “Indirect lobbying” is lobbying engaged in by a trade association or other organization of which Morgan Stanley is a member.
Both “direct and indirect lobbying” and “grassroots lobbying communications” include efforts at the steps necessary to amend the Company’s governing documents to provide that all non-binding matters presented by shareholderslocal, state and federal levels.
The report shall be decided bypresented to the Nominating and Governance Committee and posted on Morgan Stanley’s website.
SUPPORTING STATEMENT
We encourage transparency and accountability in our company’s use of funds to lobby. Morgan Stanley spent $25,160,000 from 2010 – 2017 on federal lobbying. This figure does not include state lobbying expenditures, where Morgan Stanley also lobbies but disclosure is uneven or absent. For example, Morgan Stanley spent $532,557 on lobbying in California from 2010 – 2017. Morgan Stanley’s lobbying on tax reform has attracted media scrutiny (“Banks Pay $4M for Lobbying as Tax Reform Debated, FoxBusiness, January 29, 2018).
Morgan Stanley is a simple majoritymember of the votes cast FORChamber of Commerce, which has spent over $1.4 billion on lobbying since 1998, and AGAINST an item.is also a member of the Business Roundtable, which spent over $43 million on lobbying for 2016 and 2017 and is lobbying against the right of shareholders to file resolutions. Morgan Stanley does not disclose its trade association payments or the portions used for lobbying on its website. Morgan Stanley prohibits its payments to trade associations from being used for political contributions, but this does not cover payments used for lobbying. This leaves a serious disclosure gap, as trade associations generally spend far more on lobbying than on political contributions.
We are concerned that Morgan Stanley’s lack of lobbying disclosure presents reputational risks when its lobbying contradicts company public positions. For example, Morgan Stanley is committed to a strong climate policy shall apply to all such matters unless shareholders have approved higher thresholds, or applicable laws or stock exchange regulations dictate otherwise.globally, yet
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:
Morgan Stanley 20162019 Proxy Statement79 77
SHAREHOLDER PROPOSALSPROPOSAL
Three facts:
| ||
| ||
| ||
Notable supportersthe Chamber undermined the Paris climate accord (“Paris Pullout Pits Chamber against Some of a simple-majority standard:
| ||
| ||
| ||
Vote to enhance shareholder valueIts Biggest Members,” Bloomberg, June 9, 2017). As shareholders, we believe that companies should ensure there is alignment between their own positions and good governance at Morgan Stanley: vote FOR Item 5 – Simple Majority Vote-Counting.their lobbying, including through trade associations.
STATEMENT OF THE BOARD RECOMMENDING A VOTE AGAINST THIS PROPOSAL
The Board believes that this proposal is not in the best interest of Morgan Stanley or its shareholders and opposes this proposal for the reasons discussed below:
Our voting standard appliesidentically andequallyWe are committed to Company-sponsored proposalscomplying with all applicable laws relating to political contributions and shareholder proposals. lobbying activities, including registration and reporting, and our current public disclosures provide our shareholders with extensive information on our lobbying activities.
We are subject to extensive federal, state and local lobbying registration and disclosure requirements, including the Lobbying Disclosure Act of 1995 as amended by the Honest Leadership and Open Government Act of 2007 (the Lobbying Disclosure Act) and numerous state lobbying statutes.
| • | We | ||
| |||
| |||
Political contributions made by the Morgan Stanley Political Action Committee (which is funded solely through voluntary employee contributions) are reported to the Federal Election Commission (publicly available at www.fec.gov) and all contributions required to be disclosed under the Lobbying Disclosure Act are reported to the U.S. Congress. We provide a link to these reports on our public website.
Our public website also includes a voluntary report confirming that no corporate political contributions were made in the U.S. at the federal, state or local level.
We also voluntarily provide examples of the principal U.S. trade associations we participate in on our public website. We may not always support every position taken by these organizations or their other members but we believe that our participation in these organizations is important to the advancement of our employees’ professional development and networking and to promoting public policy objectives of importance to our shareholders, clients and employees.
Our voting standard is consistentpolitical activities, including our lobbying activities and expenditures related thereto, are subject to oversight by management and the Board.
We participate in the public policy arena on a wide range of issues that are important to our shareholders, clients and employees, including issues relating to the regulatory environment worldwide, the growth and stability of the global economy and healthy capital markets.
Our Code of Conduct (which our Board annually reviews and approves) and our Policy on U.S. Political Contributions and Activities govern our and our employees’ political activities and are designed to help ensure we and our employees act in compliance with applicable laws and regulatory requirements and with the treatmentprinciples set forth in our Corporate Political Activities Policy Statement (Policy Statement).
Our lobbying activities and expenditures related thereto are overseen by our Government Relations Department, which reports to the Vice Chairman, a member of abstentions under Delaware law.the Company’s Operating Committee who reports to the Chairman and Chief Executive Officer.
As set forth in its charter, the Nominating and Governance Committee of the Board reviews and approves our Policy Statement. It also oversees, and receives reports at least annually from the Government Relations Department on our political activities including our significant lobbying priorities, and expenditures attributable to lobbying in the U.S. We also provide an annual report to the Nominating and Governance Committee regarding our principal trade associations, including membership dues and confirmation that we have informed our principal trade associations of the prohibition on corporate contributions in the U.S. set forth in our Policy Statement and have instructed them not to use payments made by us for election-related activity at the federal, state or local levels.
| ||
| ||
8078 Morgan Stanley 20162019 Proxy Statement
SHAREHOLDER PROPOSAL
TableGiven the comprehensive public disclosures we already make, the creation of Contentsa separate report to shareholders detailing information already filed and publicly disclosed in accordance with extensive federal, state and local regulations would not be an efficient use of corporate resources.
SHAREHOLDER PROPOSALS
Our voting standards are clearly explained in this proxy statement and honor the intent of our shareholders.
| ||
| ||
| ||
Our shareholders have recently supported our vote counting methodology.
| ||
| ||
| ||
Our Board unanimously recommends that you vote“AGAINST” this proposal. Proxies solicited by the Board will be voted “AGAINST” this proposal unless otherwise instructed.
|
|
The Reserve Fund of the American 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 Company that it intends to present the following 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 a voluntary resignation to enter government service (a “Government Service Golden Parachute”).
For purposes of this resolution, “equity-based awards” include stock options, restricted stock and other stock awards granted under an equity incentive plan. “Government service” includes employment with any U.S. federal, state or local government, any supranational or international organization, any self-regulatory organization, or any agency or instrumentality of any such government or organization, or any electoral campaign for public office.
Morgan Stanley 2016 Proxy Statement81
SHAREHOLDER PROPOSALS
This policy shall be implemented so as not to violate existing contractual obligations or the terms of any 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 is 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 vesting 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 best interest of Morgan Stanley or its shareholders and opposes this proposal for the reasons discussed below:
Our Governmental Service Termination clause serves to avoid conflicts of interest and is administered in a way that protects the interests of the Company and its shareholders.
| ||
| ||
| ||
| ||
| ||
82Morgan Stanley 2016 Proxy Statement
SHAREHOLDER PROPOSALS
Our Governmental Service Termination clause reinforces Morgan Stanley’s culture of public service and aligns the interests of our employees with the long-term interests of the Company and its shareholders in attracting and retaining talented employees.
| ||
| ||
| ||
Our Board unanimously recommends that you vote“AGAINST” this proposal. Proxies solicited by the Board will be voted“AGAINST” this proposal unless otherwise instructed.
Morgan Stanley 20162019 Proxy Statement83 79
INFORMATION ABOUT THE ANNUAL MEETING
Why Did I Receive aOne-Page Notice Regarding 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 shareholders 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 21, 2016,25, 2019, 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 will not 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. |
| |
|
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 25, 2019.
If you hold shares in registered form,your record holder’s ownership as of the record date, March 25, 2019, 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. |
| • | Proof of Valid Proxy. |
|
| |
|
84If 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;
A written legal proxy from the broker or bank holding the shares to the street name holder that is assignable and 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 who appointed you legal proxy held Morgan Stanley common stock as of the record date, March 25, 2019.
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 25, 2019, 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
80 Morgan Stanley 20162019 Proxy Statement
INFORMATION ABOUT THE ANNUAL 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 21, 2016,25, 2019, 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, 1,939,609,7061,686,520,879 shares of common stock were outstanding.
What Is 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 shareholders. Brokernon-votes and abstentions are counted for purposes of determining whether a quorum is present.
Is My Vote Confidential?
Our 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.
| |
|
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
INFORMATION ABOUT THE ANNUAL MEETING
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 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.
| |
|
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
INFORMATION ABOUT THE ANNUAL MEETING
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 bylaws 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 | Majority of votes cast (for and against) with respect to such director* | No Effect | No Effect | ||||
Ratification of | 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 | 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 | ||||
Shareholder | AGAINST | 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 |
| * | 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 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 publicly disclose its decision within 90 days after the certification of the election results. |
Is My Vote Confidential?
Our 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.
Morgan Stanley 2019 Proxy Statement 81
INFORMATION ABOUT THE ANNUAL MEETING
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 votinginstructions if you want your shares to count fornon-discretionary items. Your shares will remain unvoted for such items if your NYSE member broker, including MS&Co. and Morgan Stanley Smith Barney LLC (MSSB), does not receive voting instructions from you. |
| • | 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, 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 votenon-discretionary items. This results in a “brokernon-vote” fornon-discretionary items.
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 in accordance with the procedures described above (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 20, 2019. If Northern Trust does not receive your voting instructions by that date, it will vote such 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 25, 2019, there were 36,710,106 shares in the 401(k) Plan.
Other Equity-Based Plans. State Street Global Advisors 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 20, 2019. If the trustee does not receive your instructions by that date, it will vote such 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 25, 2019, 68,494,097 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.
82 Morgan Stanley 2019 Proxy Statement
INFORMATION ABOUT THE ANNUAL MEETING
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 20172020 Annual Meeting?
Shareholders intending to present a proposal at the 20172020 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 10036.10036 or by email to shareholderproposals@morganstanley.com. We must receive the proposal no later than December 2, 2016.7, 2019.
Shareholders intending to present a proposal at the 20172020 annual meeting(but (but not to include the proposal in our proxy statement) or to nominate a person for election as a director(but (but not to include such nominee in our proxy materials) must comply with the requirements set forth in our bylaws. The bylaws require, among other things, that our Corporate Secretary receive written notice from the record shareholder of intent to present such proposal or nomination no earlier than the close of business on the 120th day and no later than the close of business on the 90th 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 20172020 annual meeting no earlier than the close of business on January 17, 201724, 2020 and no later than the close of business on February 16, 2017.23, 2020. The notice must contain the information required by the bylaws.
Morgan Stanley 2016 Proxy Statement 87
INFORMATION ABOUT THE ANNUAL MEETING
As described under “Corporate Governance—Governance Matters — Corporate Governance Highlights—Practices — Shareholder Rights and Accountability,” we recentlyhave 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 20172020 annual meeting no earlier than the close of business on November 2, 20167, 2019 and no later than the close of business on December 2, 2016.7, 2019.
Our bylaws are available atwww.morganstanley.com/about/company/governanceabout-us-governance 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 $22,000$25,000 plus expenses. We will also reimburse brokers, including MS&Co., MSSB 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 (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 Broadridge Financial Services at (800) 542-1061 (U.S.)(866)540-7095 or by sending a written request to 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 at www.morganstanley.com/2016ams.2019ams. You can save the Company postage and printing expense by consenting to access these documents over the Internet. If you consent, you will receive notification next year when these documents are available with instructions on how to view them and submit voting instructions. You may sign up for this service through 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
MORGAN STANLEY2007 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:
“Administrator” means the individual or individuals to whom the Committee delegates authority under the Plan in accordance with Section 5(b).
“Award” 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 Date” means the date specified in a Participant’s Award Document as the grant date of the Award.
“Award Document” 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).
“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 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.
“Company” means Morgan Stanley and all of its Subsidiaries.
“Eligible Individuals” means the individuals described in Section 6 who are eligible for Awards.
“Employee Trust” 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 Act” means the Securities Exchange Act of 1934, as amended, and the applicable rulings and regulations thereunder.
“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.
“Incentive Stock Option”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 Stanley” means Morgan Stanley, a Delaware corporation.
“Option” or“Stock Option” means a right, granted to a Participant pursuant to Section 9, to purchase one Share.
“Other Award” 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 20162019 Proxy StatementA-1 83
ANNEX A
“Participant” means an individual to whom an Award has been made.
“Plan” means the Morgan Stanley 2007 Equity Incentive Compensation Plan, as amended from time to time in accordance with Section 16(e).
“Qualifying Performance Award” means an Award granted pursuant Section 11.
“Restricted Stock” means Shares granted or sold to a Participant pursuant to Section 7.
“SAR” 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) Participant” 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 Goals” 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 409A” means Section 409A of the Code.
“Shares” means shares of Stock.
“Stock” means the common stock, par value $0.01 per share, of Morgan Stanley.
“Stock Unit” 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.
“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 Plan.
“Substitute Awards” 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 Date. 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 terminate ab initio and be of no further force and effect.
(b)Term of Plan.No Awards may be made under the Plan after May 15, 2017.
4. Stock Subject to Plan.
(a)Overall Plan Limit. The total number of Shares that may be delivered pursuant to Awards shall be 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
ANNEX A
(b)Adjustments for Certain Transactions. 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 Delivery. 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 SARs.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.
(e)ISO Limit.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 Generally. 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
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)Delegation. 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 Interpret. The Committee shall have full power and authority, subject to the express provisions hereof, to construe and interpret the Plan.
(d)Committee Discretion. 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 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 Liability. 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
ANNEX A
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 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 Grants. 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 SARs. 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 Price. 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 SARs. 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
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.
(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., 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 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., 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
ANNEX A
(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.
13. General Terms and Provisions.
(a)Awards in General. 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 Awards. 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 Distributions. 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)Deferrals. 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
ANNEX A
(e) Award Documentation and Award Terms. 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. 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)Transferability. 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 Obligations. 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 Employment. 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
ANNEX A
(c)Headings. 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 Law. 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 Termination. 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, 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; and provided, 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.
Morgan Stanley 2016 Proxy StatementA-9
Our Core Values
Since our founding in 1935, Morgan Stanley has consistently delivered first-class business in a first-class way. Underpinning all that we do are four core values.
| PUTTING CLIENTS FIRST | DOING THE RIGHT THING | ||
Keep the client’s
Work with colleagues to deliver the best of the Firm to every Listen to what the client is saying and |
Act with Think like an owner to create long-term shareholder Value and reward honesty, Foster a collegial work environment where all employees feel a sense of belonging | ||
LEADING WITH EXCEPTIONAL IDEAS | GIVING BACK | ||
Win by breaking new
Leverage different Drive innovation Be vigilant about what we can do |
Build a better Firm for the future
| ||
“Our DNA, our culture and our history
are rooted in serving our clients.”
–James P. Gorman Chairman and Chief Executive Officer | |
|
 |  | |
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY E58210-P18900-Z74362 Yes No HOUSEHOLDING ELECTION - Please indicate if you consent ! ! to receive certain future investor communications in a single package per household. MORGAN STANLEY1585 BROADWAYNEW YORK, C/O BROADRIDGE PO BOX 1342 BRENTWOOD, NY 10036
11717 1a. Elizabeth Corley 1e. Robert H. Herz 1h. Dennis M. Nally 1c. Thomas H. Glocer 1b. Alistair Darling 1f. Nobuyuki Hirano 1i. Takeshi Ogasawara 1d. James P. Gorman 1g. Jami Miscik 1k. Mary L. Schapiro 1j. Hutham S. Olayan 1. Election of Directors Morgan Stanley’s Board recommends a vote “FOR” the nominees listed below: 1l. Perry M. Traquina 1m. Rayford Wilkins, Jr. MORGAN STANLEY For Against Abstain Morgan Stanley’s Board recommends a vote “FOR” Proposals 2-3: 2. To ratify the appointment of Deloitte & Touche LLP as independent auditor 3. To approve the compensation of executives as disclosed in the proxy statement (non-binding advisory vote) Morgan Stanley’s Board recommends a vote “AGAINST” Proposal 4: 4. Shareholder proposal regarding an annual report on lobbying expenses 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. For Against Abstain For Against Abstain SCAN TO VIEW MATERIALS & VOTE w 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, 2016.22, 2019. 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, 2016.20, 2019. 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, 2016.22, 2019. 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, 2016.20, 2019. 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.
MORGAN STANLEY
| ||||||||
TableE58211-P18900-Z74362 Notice of Contents
|
| |
| |
| |
| |
| |
|
elect 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 vote); consider one shareholder proposal, if properly presented at the meeting; and transact such other business as may properly come before the meeting or any postponement or adjournment thereof. To view or print a copy of our Proxy Statement, Annual Report on Form 10-K or Letter to Shareholders, go towww.morganstanley.com/2016ams.2019ams. You may request a copy of any of these documents by calling 1-212-762-8131.
Please 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 |
|
MORGAN STANLEY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE 20162019 ANNUAL MEETING OF SHAREHOLDERS, MAY 17, 2016
23, 2019 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 20162019 Annual Meeting of Shareholders to be held on May 17, 2016,23, 2019, 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.
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 20162019 Annual Meeting of Shareholders to be held on May 17, 2016,23, 2019, 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.
| |
| |
| |
| |
|
• The Northern Trust Company (Northern Trust), as trustee under the Morgan Stanley 401(k) 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 Global Advisors Trust Company, as trustee under a trust agreement (Trust), in connection with the Equity Incentive Compensation Plan, the Employees’ Equity Accumulation Plan, the Tax Deferred Equity Participation Plan and the 1995 Equity Incentive 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. • State Street Global Advisors 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 these 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’s terms, (A) I must sign, date and return this form in order for Equiniti to vote or grant proxies with respect to these shares, and (B) if I sign, date and return this form, Equiniti 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 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 20, 2019 for shares to be voted in accordance with your instructions. Please help the Company reduce costs—submit your voting instructions by Internet or telephone.
