UNITED STATES
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MORGAN STANLEYMorgan Stanley
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Notice of2016Annual Meeting
and Proxy Statement
James P. Gorman
April 1, 2016 Fellow shareholder: I cordially invite you to attend Morgan Stanley’s 2016 annual meeting of shareholders that will be held on Tuesday, May 17, 2016, at our offices at 2000 Westchester Avenue, Purchase, New York. I hope that you will be able to attend, and, if not, I encourage you to vote by proxy. Your vote is very important. In addition to the ongoing dialogue we maintain with shareholders, we have spoken with a number of you over the past year to hear your perspectives on governance, compensation and other areas of focus. The insights and priorities you shared informed several important actions we took that we believe demonstrate our ongoing commitment to best-in-class governance practices. Specifically, we introduced minimum share ownership requirements for our senior officers, amended the Company’s bylaws to implement proxy access, 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. We hope to continue this open dialogue with our shareholders in the future. 2015 was a mixed year for Morgan Stanley, marked by dramatically different halves. We started the year with a strong performance delivered in constructive markets, but the market environment in the second half of the year was more difficult. Global economic and market instability has led to a decline in our stock along with other financial services firms since last summer. Notwithstanding this near-term volatility, we made significant progress against our strategic goals, and took important steps to address areas of underperformance and position the Firm for long-term success. | |
Morgan Stanley 2016 Proxy Statement1
On an annual basis, the Board of Directors and executive management evaluate our strategic path and lay out goals and priorities, which allow our shareholders to measure our performance.
We increased both our common dividend and share repurchase program last year, and intend to further increase the amount of capital returned to shareholders in the years ahead, subject to regulatory approval. These priorities will set the stage for improving returns on equity and we have set a 2017 ROE target, excluding DVA, of 9% to 11%.
More details on our strategy and growth opportunities across the businesses are detailed in my Letter to Shareholders. I hope you will read this letter which also includes more detail on our culture and values, and how we are putting a rigorous focus on clients, culture and talent.
Thank you for your support of Morgan Stanley.
Very truly yours,
April 1, 2015
Fellow shareholder:
I cordially invite you to attend Morgan Stanley’s 2015 annual meeting of shareholders that will be held on Tuesday, May 19, 2015, at our offices at 2000 Westchester Avenue, Purchase, New York. I hope that you will be able to attend.
At the annual meeting of shareholders, we will consider the items of business discussed in our proxy statement and review significant strategic developments and the Company’s overall progress over the past year.Your vote is very important. Whether or not you plan to attend the meeting, please submit a proxy promptly to ensure that your shares are represented and voted at the annual meeting.
Thank you for your support of Morgan Stanley.
Very truly yours,
James P. Gorman | |
Chairman and Chief Executive Officer | |
2 Morgan Stanley 2016 Proxy Statement
Morgan Stanley 2016 Proxy Statement3
1585 Broadway
New York, NY 10036
NOTICE OF 2016 ANNUAL MEETING
OF SHAREHOLDERS
TIME AND DATE
2:00 p.m. (EDT) on May 17, 2016
Notice of 2015 Annual Meeting of ShareholdersLOCATION
Morgan Stanley
2000 Westchester Avenue, Purchase, New York
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RECORD DATE
The close of business on March 21, 2016 is the date of determination of shareholders entitled to notice of, and to vote at, the annual meeting of shareholders.
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, 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, 2016
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| 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 TELEPHONE BY INTERNET BY MAIL WEBCAST NOTICE |
Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on May 17, 2016:Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on May 19, 2015: Our Letter to Shareholders, Proxy Statement and our Annual Report on Form 10-K for the year ended December 31, 2014 are available free of charge on our website at www.morganstanley.com/2015ams.
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4Morgan Stanley
1585 Broadway
New York, New York 10036
April 1, 2015
2016 Proxy Statement
We are providing shareholdersThis 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 in connection with the solicitation of proxies by our Board of Directors for the 2015 annual meeting of shareholders.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 |
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 |
A:Audit Committee | OT:Operations and Technology Committee | C:Chair |
CMDS:Compensation, Management | R:Risk Committee | M:Member |
Development and Succession Committee | ||
NG:Nominating and Governance Committee |
(1) Effective May 17, 2016, Mr. Darling will join the Risk Committee.
Morgan Stanley 2016 Proxy Statement5
OUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ELECTIONOVERVIEW OF ALL VOTING ITEMS
The Morgan Stanley Board of Directors
Board Tenure Balance | Board Independence | |
Average Tenure:4.6 years upon election at the annual meeting | All members of all committees are non-management, and the Board benefits from an engaged Independent Lead Director | |
International Experience | Sector Experience(1) | |
(1)Reflects certain directors’ experience in more than one sector. |
Corporate Governance Highlights
Board Structure and Independence | ●Eight new directors since 2012 who bring new skills and perspective to the Board ●Upon election at the annual meeting, the average Board tenure will be approximately 4.6 years ●Expansive Independent Lead Director role | |
Board Oversight | ●Oversees the Company’s strategy, annual business plans and culture, values and conduct ●Directors have complete access to senior management and other Company employees ●Regular review of succession plans for CEO and other senior executives ●Director equity ownership requirement helps to align director and shareholder interests | |
Shareholder Rights and Accountability | ●Adopted proxy access (3/3/20/20) in 2015 ●Shareholders who own at least 25% of common stock may call a special meeting of shareholders ●No supermajority vote requirements in our charter or bylaws ●All directors elected annually by majority vote standard ●No “poison pill” in effect | |
Annual Evaluations | ●Annual Board, Independent Lead Director, and committee self-assessments enhance performance ●Includes one-on-one Board member interviews and written guidelines ●Encompasses duties and responsibilities, Board and committee structure, culture, process and execution |
6Morgan Stanley 2016 Proxy Statement
OVERVIEW OF VOTING ITEMS
Item 2 |
Our Board unanimously recommends that you vote “FOR” the ratification of Deloitte & Touche’s appointment as our independent auditor. | |
See page 35 for the Audit Committee Report and information regarding fees paid to Deloitte & Touche. | |
Item 3 |
Company Proposal to Approve the Compensation of Executives as Disclosed in the Proxy Statement (Non-Binding Advisory Resolution)
Our Board unanimously recommends that you vote “FOR” this proposal. |
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.
2015 CEO Performance and Compensation Decision |
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 $22.5 million in 2014, with shareholder-aligned features: 72% deferred over three years and subject to clawback, with 39% of such deferred compensation delivered through future performance-vested equity awards.
The 2015 pay decision for the CEO was based on the CMDS Committee’s assessment of Mr. Gorman’s strong individual performance and Morgan Stanley’s progress in relation to its strategic objectives, financial performance and shareholder returns.
● | Morgan Stanleycontinued to successfully execute the long-term strategic objectives approved by the Board. | |||
1. | Improved Wealth Management profit margin to 22%(2) | ✓ | ||
2. | Grew net interest income by 46% in the U.S. Bank(1)(3) | ✓ | ||
3. | Initiated major restructuring after failure to achieve progress in Fixed Income and Commodities return on average common equity (ROE) | ✗ | ||
4. | Ranked 1st in Institutional Equities revenue market share, 1st in Global IPOs, and 2nd in Global Announced M&A and Global Equity(4) | ✓ | ||
5. | Continued to benefit from the tailwind from lower funding costs | ✓ | ||
6. | Reduced compensation ratio, ex-DVA(8) in Institutional Securities to 37%(5) | ✓ | ||
7. | Received a two-notch rating upgrade from Moody’s | ✓ | ||
8. | Increased capital return to shareholders | ✓ |
Morgan Stanley 2016 Proxy Statement7
OVERVIEW OF VOTING ITEMS
● | Morgan Stanley delivered improved financial performance; however, Morgan Stanley’s shareholder returns trailedpeers in a challenging year for global financials, but still ranked first over the period from 2013 to 2015. |
MS Firm Financials Results (2011-2015) | MS Total Shareholder Return (TSR)(14) | |||||||||||||
Ex-DVA ($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) | ||||||||||||||
2015 CEO Compensation Elements |
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.
MS 2015 CEO Compensation Elements | |||||
$ Million | |||||
% of Deferred | % of Total | ||||
2015 Total Compensation | Performance-Vested Long-Term Equity Incentive Compensation | ||||
●Realizable value determined after three years (2016-2018), based equally on two performance metrics: target average ROE of 10% and shareholder returns relative to the S&P Financials Index ●Shares delivered can range from 0 – 1.5x target, depending on performance relative to target. TSR portion will not exceed 1.0x if there is negative TSR for the performance period ●Subject to cancellation and clawback | |||||
Deferred Incentive Compensation | |||||
Deferred Cash and Deferred Equity ●Deferred over three years ●Subject to cancellation and clawback | |||||
Current Compensation | |||||
Base Salary and Cash Bonus ●Cash bonus was awarded consistent with the Company-wide deferral schedule | |||||
8 Morgan Stanley 2016 Proxy Statement
OVERVIEW OF VOTING ITEMS
Executive Compensation Program Best Practices |
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:
1. | Significant deferrals of compensation | ✓ |
2. | Performance-vested long-term equity incentive award | ✓ |
3. | Equity-based compensation | ✓ |
4. | Clawbacks apply to all awards and cover material adverse outcomes, even absent misconduct | ✓ |
5. | Share ownership and retention requirements | ✓ |
6. | Prohibitions on pledging, hedging, selling short, or trading derivatives | ✓ |
7. | No automatic vesting on change-in-control; double trigger in place | ✓ |
8. | No excise tax protection upon a change-in-control | ✓ |
9. | Annual risk review of incentive compensation programs | ✓ |
10. | CMDS Committee retains an independent compensation consultant | ✓ |
Shareholder Engagement |
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:
Shareholder Feedback | Morgan Stanley Response | |||||||||
Executive | ●Generally supportive ●Interested in minimum share ownership requirements | ●Introduced minimum share ownership requirements for CEO and NEOs (10x and 6x base salary, respectively) | ||||||||
Proxy Access | ●Many shareholders are supportive of proxy access | ●The Board approved amendments to the Company’s bylaws in October 2015 to implement proxy access | ||||||||
Disclosure | ●Suggested improvements to the proxy statement to enhance readability | ●Refresh of proxy design to include a proxy summary, more visuals, and clearer disclosure of considerations and decisions regarding pay | ||||||||
Shareholder | ●Shareholders remain focused on potential shareholder dilution resulting from equity compensation | ●The Company issued 36 million shares in 2015, less than the 59 million shares repurchased in 2015 | ||||||||
Morgan Stanley 2016 Proxy Statement9
OVERVIEW OF VOTING ITEMS
Item 4 |
Company Proposal to Amend the 2007 Equity Incentive Compensation Plan (EICP)
Our Board unanimously recommends that you vote “FOR” this proposal.
Proposal
● | Add 20 million shares to the EICP | |
● | Add regulatory factors, risk management, expense management, and contributions to community development and sustainability projects or initiatives as performance criteria that could be elements of performance-vested awards over time |
Rationale
● | Morgan Stanley believes that awarding a portion of compensation in shares aligns employee and shareholder interests | |
● | The Company last amended the EICP in 2015 to add 25 million shares, which 92% of voting shareholders approved | |
● | The 20 million shares requested is less than the 59 million shares repurchased in 2015 | |
● | Additional performance criteria will better enable performance-vested awards to be tax-deductible to Morgan Stanley under Section 162(m) of the Internal Revenue Code |
Impact | ||
Overhang(1) | Burn Rate(2) | |
(1) | Overhang represents the number of shares underlying outstanding equity awards and available for future equity awards as a percentage of weighted average common shares outstanding for the period. |
(2) | Burn rate represents the number of shares granted per year pursuant to equity awards as a percentage of weighted average common shares outstanding for the period. |
See page 71 for the proposal to amend the Morgan Stanley 2007 Equity Incentive Compensation Plan. |
Item 5-6 |
Shareholder Proposals
Our Board unanimously recommends that you vote “AGAINST” each shareholder proposal. | |
●Our Board recommends you vote against the proposal to exclude votes to abstain from shareholder proposal vote counts. ●Our Board recommends you vote against the proposal to adopt a policy to prohibit vesting of deferred equity awards for senior executives who resign to enter government service. |
See page 79 for two proposals submitted by shareholders and our Board’s statements in opposition to each. |
10 Morgan Stanley 2016 Proxy Statement
Item 1 |
Our Board unanimously recommends that you vote “FOR” the election of all director nominees. | |
DIRECTOR NOMINEES.SELECTION AND NOMINATION PROCESS
Director Selection and Nomination Process
Our Board currently consists of 15 directors, including two directors who are designated in accordance with the terms of the Investor Agreement between Morgan Stanley and Mitsubishi UFJ Financial Group, Inc. (MUFG), dated October 13, 2008, as amended and restated as of June 30, 2011 and October 3, 2013 (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. MUFG has designated Messrs. Masaaki TanakaNobuyuki Hirano and Ryosuke Tamakoshi as its representative directors pursuant to the Investor Agreement, and each was elected by shareholders at the Company’s 2014 annual meeting of shareholders.
Agreement.
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;
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�� | 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; and | |
● | Represent the interests of shareholders. |
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 Board may also determine specific skills and experience they are seeking in director candidates based on the needs of the Company at a specific time. In considering candidates for the Board, the Nominating and Governance Committee considers the entirety of each candidate’s credentials in the context of these criteria.
The Nominating and Governance Committee may also consider director candidates proposed by shareholders, and in this regard, the Board has adopted a policy regarding, director candidates proposedthe Policy Regarding Director Candidates Recommended by shareholders.Shareholders. The Nominating and Governance Committee may also retain and terminate, in its sole discretion, a third party to assist in identifying director candidates or gathering information regarding a director candidate’s background and experience. Members of the Nominating and Governance Committee, the Independent Lead Director and other members of the Board interview potential director candidates as part of the selection process when evaluating new director candidates.
1
Director Experience, Qualifications, Attributes and SkillsDIRECTOR 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 duties. As part of the ongoing process to evaluate these attributes, the Board performs an annual self-evaluation and the Board-approved Corporate Governance Policies provide that the Board expects a director whose principal occupation or employer changes, who plans to join the board of directors or similar governing body of another public or private company or advisory board, or who experiences other changed circumstances that could diminish his or her effectiveness as a director or otherwise be detrimental to the Company, to advise and to offer to tender his or her resignation for consideration by the Board. In addition, the Board believesCorporate 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 2016 Proxy Statement11
CORPORATE GOVERNANCE
The Company believes that an effective board consists of a diverse group of individuals who bring a variety of complementary skills. The Nominating and Governance Committee and Board regularly consider these skills in the broader context of the Board’s overall composition, with a view toward constituting a board that has the best skill set and experience to oversee the Company’s business.business and to ensure that the Board has the appropriate mix of skills needed for the broad set of challenges that it confronts. 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 academia and possess substantive knowledge and skills applicable to our business, including experience in the following areas:
● International Matters Technology● Banking ● Financial Services ● Public Policy BankingBusiness Development CompensationCorporate GovernanceFinance● Financial Services● Regulatory ● Compensation ● Management Development and Succession ● Risk Management ● Corporate Governance ● Operations ● Strategic Planning ● Finance ● Public Accounting and Financial Reporting ● Public PolicyRegulatoryRisk ManagementStrategic PlanningThe Nominating and Governance Committee regularly reviews the composition of the Board in light of the Company’s evolving business requirements and its assessment of the Board’s performance to ensure that the Board has the appropriate mix of skills needed for the broad set of challenges that it confronts.
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.
The Board has nominated the 14 director nominees below for election at the 20152016 annual meeting of shareholders. The Board believes that, in totality, the mix of qualifications, skills and attributes among the nominees enhances our Board’s effectiveness in light of the Company’s businesses, regulatory environment and long-term strategy.
O. Griffith Sexton retired from the Board effective November 1, 2014, and Howard J. Davies and C. Robert Kidder areLaura D. Tyson is not standing for re-election at the annual meeting of shareholders. The Board thanks Messrs. Davies, Kidder and SextonDr. Tyson for theirher dedicated service to Morgan Stanley.
Pursuant to the terms of the Investor Agreement, on October 28, 2015, MUFG designated Mr. Nobuyuki Hirano as its representative director replacing Mr. Masaaki Tanaka, who served as its representative director since May 2011. In accordance with the Investor Agreement, on October 29, 2015, the Board unanimously elected Mr. Hirano to the Board, effective November 1, 2015. The Board determined that Mr. Hirano’s experience as chief executive officer (CEO) of one of the world’s largest banks brings tremendous value to the Board and to Morgan Stanley, including commercial banking and risk management expertise.
As part of the Board’s ongoing review of Board composition and succession planning, a member of the BoardNominating and Governance Committee’s third-party search firm recommended Jami Miscik as a potential director candidate and an executive officer recommended Perry TraquinaAlistair Darling 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. Miscik as a director,Mr. Darling to the Board, effective NovemberJanuary 1, 2014, and has nominated Mr. Traquina for election at the annual meeting of shareholders.2016. The Board determined that Ms. Miscik’s extensive risk managementMr. Darling’s service as a former member of the British Parliament and technology experience and Mr. Traquina’s extensive senior executive and risk management experience and market knowledge would contributeas Chancellor of the Exchequer brings to the effective functioning ofBoard strong leadership experience, as well as insight into both the Board.
global economy and the global financial system.
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.
12 Morgan Stanley 2016 Proxy Statement
CORPORATE GOVERNANCE
2
Erskine B. Bowles
| Alistair Darling | |||||
Age: 70 Director Since: 2005 | Age: 62 Director Since: 2016 | |||||
Morgan Stanley Committees: | Morgan Stanley Committees: | |||||
●CMDS ●Nominating and Governance | ●Risk (effective May 17, 2016) | |||||
Professional |
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●President Emeritus of the University of North Carolina and served as President from January 2006 through December 2010.
●Served as Co-Chair of the National Commission on Fiscal Responsibility and Reform during 2010.
●Senior advisor at BDT Capital Partners LLC, a private investment firm,
●Began career in corporate finance at Morgan Stanley in 1969 and subsequently helped found and served as Chairman and
●Served as White House Chief of Staff from 1996 to 1998 and Deputy White House Chief of Staff from 1994 to 1995.
Qualifications, Attributes and Skills: Mr. Bowles brings to the Board his extensive experience in the financial services industry and our Company, particularly in his capacity as Independent Lead Director appointed by our independent directors, as well as in academia and his distinguished public service. Other Current Public Company Directorships: Other Public Company Directorships in the Past Five Years: | ●Appointed to the House of Lords on December 10, 2015. Previously a member of the British Parliament, serving as a member of the House of Commons from 1987 to 2015. ●Held several leadership positions, 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. Qualifications, Attributes and Skills: Mr. Darling’s service as a former member of the British Parliament and as Chancellor of the Exchequer brings to the Board strong leadership, risk management and regulatory experience, as well as insight into both the global economy and the global financial system. | |||||
Morgan Stanley 2016 Proxy Statement13
CORPORATE GOVERNANCE
Thomas H. Glocer | James P. Gorman | |||||
Age: 56 Director Since: 2013 | Age: 57 Director Since: 2010 | |||||
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●Audit ●Operations and Technology (Chair) | ||||||
Professional Experience: | Professional Experience: | |||||
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●Mergers and acquisitions lawyer at the law firm of Davis Polk & Wardwell LLP from 1984 to 1993.
Qualifications, Attributes and Skills:Mr. Glocer’s leadership positions, including as CEO of Thomson Reuters Corporation, Other Current Public Company Directorships: |
Other Public Company Directorships in the Past Five Years:
Thomson Reuters Corporation
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●Co-President from December 2007 to December 2009, Co-Head of Strategic Planning from October 2007 to December 2009 and President and Chief Operating Officer of Wealth Management
●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, Qualifications, Attributes and Skills:As CEO of the Company, Mr. Gorman is a proven leader with an established record as a strategic thinker backed by strong operating, business development and execution skills and brings an extensive understanding of Morgan Stanley’s businesses and decades of financial services experience. | |||||
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Robert H. Herz | Nobuyuki Hirano | |||||
Age: 62 Director Since: 2012 |
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Morgan Stanley Committees: | Morgan Stanley Committees: | |||||
●Audit (Chair) ●Nominating and Governance | ●Risk | |||||
Professional Experience: | Professional Experience: | |||||
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●Chairman of the Financial Accounting Standards Board from July 2002 to September 2010 and as a part-time member of the International Accounting Standards Board from January 2001 to June 2002.
●Served on the Accounting Standards Oversight Council of Canada since 2011 and as a member of the Standing Advisory Group of the Public Company Accounting Oversight Board since 2012.
●Partner in PricewaterhouseCoopers, an accounting firm, from 1985 to 2002. Qualifications, Attributes and Skills:Mr. Herz brings to the Board extensive regulatory, public accounting, financial reporting, risk management and financial experience through his private and public roles, including as Chairman of the Financial Accounting Standards Board. Other Current Public Company Directorships: | ●President and CEO of MUFG, one of the world’s leading financial groups, since April 2013, and since April 2016 Chairman of The Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU), the core commercial banking unit of MUFG. ●Director of MUFG since June 2010 and Deputy President from October 2010 to March 2012. President and CEO of BTMU from April 2012 to March 2016 and Deputy President of BTMU from June 2009 to March 2012. ●Managing Officer of MUFG from 2009 to 2010 and Senior Managing Director from 2008 to 2009 and Managing Director from 2006 to 2008 of BTMU. ●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 from 2009 to 2011. Qualifications, Attributes and Skills: In his role as Director, President and CEO at MUFG and its associated companies, Mr. Hirano brings to the Board global leadership as well as international banking, financial services, risk management and regulatory experience. Other Current Public Company Directorships: | |||||
Morgan Stanley 2016 Proxy Statement 15
CORPORATE GOVERNANCE
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Klaus Kleinfeld Independent Director | Jami Miscik | |||||
Age: 58 Director Since: 2012 | Age: 57 Director Since: 2014 | |||||
Morgan Stanley Committees: | Morgan Stanley Committees: | |||||
●CMDS | ●Operations and Technology ●Risk | |||||
Professional Experience: | Professional Experience: | |||||
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●President and CEO of Alcoa from 2008 to 2010 and President and Chief Operating Officer of Alcoa from 2007 to 2008.
●Served for 20 years at Siemens AG from 1987 to 2007, including as CEO and President from 2005 to 2007, as a member of the Managing Board from 2004 to 2007, and as President and CEO from 2002 to 2004 and Executive Vice President and Chief Operating Officer in 2001 of Siemens AG’s principal U.S. subsidiary, Siemens Corporation.
Qualifications, Attributes and Skills:Mr. Kleinfeld brings to the Board extensive international and senior executive experience, including in business development, operations and strategic planning at multinational organizations. | ||||||
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●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,
●Co-Chair of the President’s Intelligence Advisory Board and Qualifications, Attributes and Skills:Ms. Miscik brings to the Board extensive leadership in navigating geopolitical, Other Current Public Company Directorships: | |||||
16 Morgan Stanley 2016 Proxy Statement
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Donald T. Nicolaisen Independent Director | Hutham S. Olayan | |||||
Age: 71 Director Since: 2006 | Age: 62 Director Since: 2006 | |||||
Morgan Stanley Committees: | Morgan Stanley Committees: | |||||
●Audit ●Risk (Chair) | ●CMDS (Chair) | |||||
Professional Experience: | Professional Experience: | |||||
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●Partner of PricewaterhouseCoopers, an accounting firm, from 1978 to 2003 and first joined Price Waterhouse in 1967.
●Led Price Waterhouse’s national office for accounting and SEC services and its financial services practice and was responsible for auditing and providing risk management advice to large, complex multinational corporations. Qualifications, Attributes and Skills:Mr. Nicolaisen brings to the Board over 40 years of regulatory, public accounting and financial reporting, risk management and financial experience and the varied perspectives he has gained in the private sector as well as through distinguished service at the SEC. | ||||||
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●President and CEO of The Olayan Group’s U.S. operations for
●Member of the Executive Advisory Board of General Atlantic and a former director of Thermo Electron Corporation. Qualifications, Attributes and Skills:Ms. Olayan’s extensive financial experience in the U.S. and internationally, including the Middle East, strengthens the Board’s global perspective. Other Current Public Company Directorships: | |||||
Morgan Stanley 2016 Proxy Statement 17
CORPORATE GOVERNANCE
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James W. Owens Independent Director | Ryosuke Tamakoshi | |||||
Age: 70 Director Since: 2011 | Age: 68 Director Since: 2011 | |||||
Morgan Stanley Committees: | Morgan Stanley Committees: | |||||
●CMDS ●Nominating and Governance (Chair) | ●Operations and Technology | |||||
Professional Experience: | Professional Experience: | |||||
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●Vice Chairman of Caterpillar from 2003 to 2004 and as Group President from 1995 to 2003, responsible at various times for 13 of the company’s 25 divisions.
●Vice President and Chief Financial Officer of Caterpillar from 1993 to 1995, Corporate Vice President and President of Solar Turbines Incorporated from 1990 to 1993, and managing director of P.T. Natra Raya, Caterpillar’s Indonesian joint venture, from 1987 to 1990.
●Various managerial positions in the Accounting and Product Source Planning Departments from 1980 to 1987 and
●Served on the President’s Economic Recovery Advisory Board from 2009 to 2011.
Qualifications, Attributes and Skills:Mr. Owens’ various leadership positions, including as CEO of a major global corporation, bring to the Board extensive management experience and economics expertise and strengthen the Board’s global perspective. Other Current Public Company Directorships: | ||||||
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●Chairman of MUFG from October 2005 to June 2010 and as Deputy Chairman of BTMU from January 2006 to March 2008. Before the merger
●Began his professional career at The Sanwa Bank, one of the legacy banks of BTMU, in 1970. Qualifications, Attributes and Skills:As a senior officer advisor to BTMU and as former Chairman of MUFG, Mr. Tamakoshi brings to the Board over 40 years of banking experience and international, risk management and strategic expertise. | |||||
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Independent Director |
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Age: 59 Director Since: 2015 |
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Morgan Stanley Committees: | Morgan Stanley Committees: | |||||
●Audit | ●Nominating and Governance ●Operations and Technology | |||||
Professional Experience: | Professional Experience: | |||||
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●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. Qualifications, Attributes and Skills:Mr. Traquina |
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Other Current Public Company Directorships:
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●During his career, he served in numerous other management roles at AT&T, including as Group President, 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.
Qualifications, Attributes and Skills:Mr. Wilkins brings to the Board extensive management, technology and operational experience, Other Current Public Company Directorships: Other Public Company Directorships in the Past Five Years: | |||||
Our Board unanimously recommends that you vote “FOR”FOR” the election of all director nominees. Proxies solicited by the Board will be voted “FOR”FOR” each nominee unless otherwise instructed.
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Morgan Stanley 2016 Proxy Statement 19
CORPORATE GOVERNANCE
Corporate Governance HighlightsCORPORATE GOVERNANCE HIGHLIGHTS
Morgan Stanley is committed to best in classbest-in-class governance practices which are embodied in our Corporate Governance Policies available atwww.morganstanley.com/about/company/governance.governance. The Board initially adopted the Corporate Governance Policies in 1995 and reviews and approves them annually to ensure they reflect evolving best practices and regulatory requirements, including the New York Stock Exchange (NYSE) corporate governance listing standards and best practices at Morgan Stanley. The governance practices highlighted below are reflected in the Corporate Governance Policies, bylaws and our committee charters, as applicable.
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 after the age of 72.
As part of its ongoing review of Board composition and succession planning, the Board has nominated or elected six new directors over the past three years who bring new skills and perspective to the Board. Upon election at the annual meeting, the average tenure of the members of the Board will be approximately five 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 elected annually 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” herein.
The Independent Lead Director and Committee Chairs serve for approximately 3-5 years to provide for rotation of Board leadership and Committee Chairs while maintaining experienced leadership.
In accordance with the Board’s policy regarding periodic rotation of committee assignments, Mr. Glocer and Ms. Miscik joined the Audit Committee and Operations and Technology Committee, respectively, in 2015.
Board Oversight.
The Board oversees the Company’s strategy and annual business plans and the Company’s practices and procedures relating to culture, values and conduct.
Non-Employee Directors meet regularly with our primary regulator, the Federal Reserve, and other global regulators as requested.
Directors have complete and open access to senior members of management and other employees of the Company.
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 would be 72 years old at the time of election. | |
● | Ongoing review of Board composition and succession planning, resulting in eight new directors since 2012 who bring new skills and perspective to the Board. Upon election at the annual meeting, the average tenure of the members of the Board will be approximately 4.6 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 elected annually 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.” | |
● | The Independent Lead Director and committee chairs serve for approximately 3-5 years to provide for rotation of Board leadership and committee chairs while maintaining experienced leadership. | |
● | Since 2015, the Board approved the following committee appointments in accordance with the Board’s policy regarding periodic rotation of committee assignments: |
○ | Ms. Olayan and Mr. Nicolaisen were appointed Chair of the CMDS Committeeand Risk Committee, respectively; |
○ | Mr. Traquina was appointed to theAudit Committee; |
○ | Messrs. Kleinfeld and Owens were appointed to theCMDS Committee; |
○ | Messrs. Bowles and Herz were appointed to theNominating and Governance Committee;and |
○ | Messrs. Hirano and Darling and Ms. Miscik were appointed to theRisk Committee. |
Board Oversight |
● | The Board oversees the Company’s strategy and annual business plans. |
○ | 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 and non-financial goals. The Company’s 2016 strategic presentation is available at http://www.morganstanley.com/about-us-ir. |
● | The Board oversees the Company’s practices and procedures relating to culture, values and conduct. |
● | The Board oversees the Company’s global enterprise risk management (ERM) framework 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. See “Board Leadership Structure and Role in Risk Oversight.” |
● | The Board has a separate committee responsible for Operations and Technology, including cybersecurity risk, and the Board receives annual briefings on cybersecurity, including an assessment from an external party. |
20 Morgan Stanley 2016 Proxy Statement
CORPORATE GOVERNANCE
● | Non-employee directors meet regularly with our primary regulator, the Federal Reserve, and other global regulators as requested. | |
● | Directors have complete and open access to senior members of management and other employees of the Company. | |
○ | Board members meet with local management and independent control functions throughout the world and havevisited several of our global offices. |
○ | The Independent Lead Director and |
○ | The Company’s Chief Risk Officer (CRO), Chief Financial Officer (CFO)and Chief Legal Officer, as well as the heads ofthe Company’s operating units and other officers, regularly attend Board meetings and maintain an ongoing dialogue with Board members between Board meetings, which is critical to the Company’s succession planning. |
○ | The |
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The director equity ownership requirement helps to align director and shareholder interests.
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.
Shareholder Rights and Accountability.
All directors are elected annually.
In uncontested director elections, directors are elected by a majority of votes cast.
Shareholders who own at least 25% of common stock have the ability to call a special meeting of shareholders.
There are no supermajority vote requirements in our charter or bylaws.
We do not have a “poison pill” in effect.
Shareholders and other interested parties may contact any of our Company’s directors.
● | 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. | |
● | 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. |
Shareholder Rights and Accountability |
● | In 2015, the Board adopted proxy access, permitting up to 20 shareholders owning 3% or more of our stock continuously for at least three years to nominate the greater of two directors or up to 20% of our Board and include those nominees in our proxy materials. | |
● | All directors are elected annually. | |
● | In uncontested director elections, directors are elected by a majority of votes cast. | |
● | Shareholders who own at least 25% of common stock have the ability to call a special meeting of shareholders. | |
● | There are no supermajority vote requirements in our charter or bylaws. | |
● | We do not have a “poison pill” in effect. | |
● | Shareholders and other interested parties may contact any of our Company’s directors. | |
● | Shareholders may submit recommendations for director candidates for consideration by the Nominating and Governance Committee at any time by sending the information set forth in the Policy Regarding Director Candidates Recommended by Shareholders to the Nominating and Governance Committee, Morgan Stanley, Suite D, 1585 Broadway, New York, New York 10036. Under the policy, the Nominating and Governance Committee evaluates director candidates recommended by shareholders in the same manner as other director candidates. In order for director candidate recommendations to be considered for the 2017 annual meeting of shareholders, recommendations must be submitted in accordance with the policy by December 2, 2016. |
Annual Evaluation of Board, Committees and Independent Lead Director |
● | The Board conducts an annual evaluation of the performance and effectiveness of the Board, the Independent Lead Director and each of its standing committees. | |
● | The annual evaluation includes self-evaluations by each of these committees and the Board and an evaluation of the performance of the Independent Lead Director by the other independent directors led by the chair of the Nominating and Governance Committee. | |
● | This process may include one-on-one Board member interviews led by the Independent Lead Director or committee chair, as appropriate, written guidelines or such other means as the Nominating and Governance Committee determines appropriate, and may encompass such factors as duties and responsibilities, individual director performance, Board and committee membership and structure, culture, process and execution. |
Morgan Stanley Suite D, 1585 Broadway, New York, New York 10036. Under the policy, in order for director candidate recommendations to be considered for the 2016 annual meetingProxy Statement21
Contents
Annual Evaluation of Board, Committees and Independent Lead Director.CORPORATE GOVERNANCE
● | The Nominating and Governance Committee ensures that the results of such evaluations, including any suggestions to enhance the performance and effectiveness of the Independent Lead Director, the Board and its committees, are communicated to and discussed with the entire Board in executive session, the Independent Lead Director and each committee, as appropriate. Following such evaluation, Board policies and practices are revised as appropriate. |
Corporate Political Activities Policy Statement |
The Board conducts an annual evaluation of the performance and effectiveness of the Board, the Independent Lead Director and each of its standing committees.
The annual evaluation includes self-evaluations by each of these committees and the Board and an evaluation of the performance of the Independent Lead Director by the other independent directors led by the chair of the Nominating and Governance Committee.
This process may include one-on-one Board member interviews, written guidelines or such other means as the Nominating and Governance Committee determines appropriate, and may encompass such factors as duties and responsibilities, Board and committee structure, culture, process and execution or such other factors as determined appropriate.
The Nominating and Governance Committee ensures that results of such evaluations, including any suggestions to enhance the performance and effectiveness of the Independent Lead Director, the Board and its committees, are communicated to and discussed with the entire Board, the Independent Lead Director and each committee, as appropriate.
Corporate Political Activities Policy Statement.Over the last twoseveral years, the Board has enhanced its Corporate Political Activities Policy Statement 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 activitiesby a member of the Operating Committee of the Company who reports to the Chairman and CEO, and significant lobbying priorities by the Nominating and Governance Committee. | |
● | Provides that the Nominating and Governance Committee oversees the Corporate Political Activities Policy Statement and the activities addressed by it. |
Communication by Shareholders and Other Interested Parties with the Board of Directors |
● | Shareholders and other interested parties may contact any of our Company’s directors (including the Independent Lead Director or non-management directors) 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 |
Addresses lobbying activities, which are managed by the Government Relations Department, which is overseen by a member of the Operating Committee of the Company who reports to the Chairman and CEO.
Addresses trade association participation and provides that Morgan Stanley informs its principal U.S. trade associations of our corporate policy prohibiting making U.S. political contributions and instructs such 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, and provides a link to examples of principal U.S. trade associations that the Company belongs to on the Company’s website.
Provides that the Nominating and Governance Committee of the Board has oversight responsibility for the Corporate Political Activities Policy Statement and the activities addressed by it.
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Communication by Shareholders and Other Interested Parties with the Board of Directors.
Shareholders and other interested parties may contact any of our Company’s directors (including the Independent Lead Director or non-management directors) 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 governance webpage includes the following:
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Hard copies of the materials described above are available to any shareholder who requests them by writing to Morgan Stanley, Suite D, 1585 Broadway, New York, New York 10036.
22Morgan Stanley 2016 Proxy Statement
Director IndependenceCORPORATE GOVERNANCE
Director Independence |
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.independence (Director Independence Standards). The Director Independence Standards, which are part of our Corporate Governance Policies available atwww.morganstanley.com/about/company/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. 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; (iv) the director is a current employee, or an immediate family member of the director is a current executive officer, of an entity that has made payments to, or received payments from, Morgan Stanley for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues; or (v) the director’s spouse, parent, sibling or child is currently employed by Morgan Stanley.
B. Relationships within Preceding 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 any twelve-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.
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B. Relationships within Preceding Three Years |
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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 | 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 |
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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 a | |||
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 | 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 11 of our 14 director nominees (Messrs. Bowles, Darling, Glocer, Herz and Kleinfeld, Ms. Miscik, Mr. Nicolaisen, Ms. Olayan, and Messrs. Owens, Traquina Dr. Tyson and Mr. Wilkins) are independent in accordance with the Board-approved Director Independence Standards established under our Corporate Governance Policies.Standards. The Board has also determined that Mr. Sexton,Messrs. Davies and Kidder, who retired from the Board during 2014, was2015, were independent during the time hethey served on the Board in 2014,2015 and that Messrs. Davies and Kidder,Dr. Tyson, who areis not standing for electionreelection at the annual meeting of shareholders, areis independent. Mr. Gorman, our Chairman and
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CEO, and Messrs. TanakaHirano 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.
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’s professional experience and affiliations. In making its determination as to the 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 Morgan Stanley and entities where the directors are employees or executive officers, or their immediate family members are executive officers (Messrs. Davies and Kleinfeld, Ms. Olayan and Dr. Tyson). 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. | |
● | 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, Herz and Kidder, Mss. Miscik and Olayan, Messrs. Owens and Traquina, Dr. Tyson and Mr. 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. |
24Morgan Stanley and entities where the directors are employees or executive officers, or their immediate family members are executive officers (Messrs. Davies and Kleinfeld, Ms. Olayan and Dr. Tyson). In each case the fees the Company received were in compliance with the Director Independence Standards and NYSE rules, and did not exceed the greater2016 Proxy Statement
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, Herz, Kidder, Owens, Sexton, Dr. Tyson and Mr. Wilkins). In each case the provision of such products and services were in compliance with the Director Independence Standards and NYSE rules and were considered immaterial.
Contents
In determining Mr. Sexton’s independence, the Board (other than Mr. Sexton) considered that, as a former employee of the Company, the Company provided Mr. Sexton with access to medical insurance, for which Mr. Sexton paid the full cost, and determined, consistent with NYSE rules and based upon the facts and circumstances, that the relationship was immaterial to Mr. Sexton’s independence.CORPORATE GOVERNANCE
Director Attendance at Annual Meeting
Director Attendance at Annual Meeting |
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, and all current directors who were nominees at the time, attended the 20142015 annual meeting of shareholders.
Board Meetings and Committees |
Board Meetings and Committees
Board Meetings.Our Board met 16 times during 2014.2015. 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 20142015 while the director was a member. In addition to Board and committee meetings, our directors also discharge their duties through, among other things, informal group communications and discussions with the Independent Lead Director, Chairman of the Board and CEO, members of senior management and others as appropriate regarding matters of interest.
Committees
Committees.The Board’s standing committees, their membership and the number of meetings in 20142015 are set forth below. Charters for each of our standing committees are available at our corporate governance webpage atwww.morganstanley.com/about/company/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.
Each member of the CMDS Committee is a “non-employee director,” as defined in Section 16 of the Securities Exchange Act of 1934, and is an “outside director” as defined by Section 162(m) of the Internal Revenue Code.
The Board has determined that all members of the Audit Committee are independent and “financially literate” within the meaning of current NYSE rules and that the Chair and a majority of the members of the Audit Committee are “audit committee financial experts” within the meaning of current SEC rules.
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All members of the Risk Committee and Operations and Technology Committee are non-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.
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. | ||||||||||
● | Each member of the CMDS Committee is a “non-employee director” as defined in Section 16 of the Securities Exchange Act of 1934, an “outside director” as defined by Section 162(m) of the Internal Revenue Code and independent within the meaning of the NYSE listing standards. | ||||||||||
● | 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 “audit committee financial experts” within the meaning of the SEC rules. | ||||||||||
● | All members of the Risk Committee and Operations and Technology Committee are non-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. |
AUDIT(1)
Robert H. Herz (Chair) Thomas H. Glocer Donald T. Nicolaisen Perry M. Traquina Meetings Held in 2015 15 | Primary Responsibilities | |||||||||
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● | Oversees the qualifications, independence and performance of the independent auditor, and pre-approves audit and permitted non-audit services. | |||||||||
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● | See also “Audit Matters.” |
Morgan Stanley 2016 Proxy Statement25
CORPORATE GOVERNANCE
COMPENSATION, MANAGEMENT DEVELOPMENT AND SUCCESSION(2)
Current Members Hutham S. Olayan (Chair) Erskine B. Bowles Klaus Kleinfeld James W. Owens Meetings Held in 2015 11 | Primary Responsibilities | |||||||||
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● | 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.” |
NOMINATING AND GOVERNANCE(3)
Current Members James W. Owens (Chair) Erskine B. Bowles Robert H. Herz Rayford Wilkins, Jr. Meetings Held in 2015 4 | Primary Responsibilities | |||||||||
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the Board, taking into consideration the skills, attributes and experience of each Board member. | |||||||||
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15
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● | Reviews the Company’s Corporate Political Activities Policy | |||||||||
● | Oversees political activities of the Morgan Stanley Political Action Committee, the Company’s significant lobbying priorities and expenditures related to principal U.S. trade associations. | |||||||||
● | Oversees the Company’s philanthropic programs and social responsibility and environmental matters. |
26Morgan Stanley 2016 Proxy Statement
CORPORATE GOVERNANCE
OPERATIONS AND TECHNOLOGY
| Thomas H. Glocer (Chair)
Meetings Held in 2015 5 | Primary Responsibilities | ||||||
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● | Reviews the major operations and technology risk exposures of the Company, including information security and cybersecurity risks, and the steps management has taken to monitor and control such exposures. | |||||||
● | Reviews the operations and technology budget and significant | |||||||
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● | Oversees risk management and risk assessment guidelines and policies regarding operations and technology risk. | |||||||
● | Oversees the Company’s business continuity planning. |
RISK(4)
Current Members Donald T. Nicolaisen (Chair) Nobuyuki Hirano Jami Miscik Laura D. Tyson Meetings Held in 2015 9 | ||||||||||
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● | Reviews the contingency funding plan and internal capital adequacy assessment process and capital plan. | |||||||||
● | Oversees risk management and risk assessment policies and guidelines. | |||||||||
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Committee, and the risk management function. | |||||||||
● | See also “Board Leadership Structure and Role in Risk Oversight—Board Role in Risk Oversight.” |
(1) | Effective |
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(2) | Effective |
(3) | Effective May 19, 2015, Mr. Herz joined, and Messrs. Kidder and Kleinfeld concluded service on, the Nominating and Governance Committee. Effective August 1, 2015, Mr. Bowles joined the Nominating and Governance Committee. |
(4) | Effective May 17, 2016, Mr. Darling will join the Risk Committee. Effective May 19, 2015, Mr. Nicolaisen joined and was appointed Chair of, Ms. Miscik joined, and Messrs. Davies and Owens concluded service on, the Risk Committee. Effective November 1, 2015, Mr. Hirano joined, and Mr. |
Morgan Stanley 2016 Proxy Statement27
CORPORATE GOVERNANCE
Board Leadership Structure and Role in Risk Oversight |
Board Leadership Structure and Role in Risk Oversight
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 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, serve the best interests of the Company and its shareholders. By serving in both positions, the CEO and Chairman 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 CEO and Chairman ensures that the Company
16
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. Director
The Corporate Governance Policies provide for an independent and active Independent Lead Director thatwho is appointed and reviewed annually by the independent directors with clearly defined leadership authority and responsibilities. Our Independent Lead Director, Erskine B. Bowles, was appointed by our other independent directors and has responsibilities including:
● | Presiding at all meetings of the Board at which the Chairman is not present, including at executive sessions of the independent and non-management directors; |
● | Having the authority to call, and lead, sessions composed only of non-management directors or independent directors; |
● | Serving as liaison between the Chairman and the independent directors; |
● | Advising the Chairman of the Boardon the Board’s informational needs; |
● | Approving the types and forms of information sent to the Board; |
● | Approving Board meeting agendas and the schedule of Board meetings to assure that there is sufficient time for discussion of all agenda items and requesting, if necessary, the inclusion of additional agenda items; and |
● | Making himself available, if requested by major shareholders, for consultation and direct communication. |
28Morgan Stanley 2016 Proxy Statement
Presiding at all meetingsTable of the Board at which the Chairman is not present;
Having the authority to call, and lead, sessions composed only of non-management directors or independent directors;
Serving as liaison between the Chairman and the independent directors;
Advising the Chairman of the Board’s informational needs;
Approving the types and forms of information sent to the Board;
Approving Board meeting agendas and the schedule of Board meetings to assure that there is sufficient time for discussion of all agenda items and requesting, if necessary, the inclusion of additional agenda items; and
Making himself available, if requested by major shareholders, for consultation and direct communication.
Contents
CORPORATE GOVERNANCE
Independent Oversight of Management.Management
The Company’s corporate governance practices and policies ensure substantial independent oversight of management. For instance:
● | The Board has a majority of independent and non-management directors.Eleven of the 14 director nominees are independent as defined by the NYSE listing standards and the Company’s more stringent Director Independence Standards. Thirteen of 14 director nominees are non-management directors. All of the Company’s directors are elected annually. | |
● | The Board’s key standing committees are composed solely of non-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 Risk Committee are chaired by independent directors and consist of a majority of independent directors and include only non-management directors. The committees provide independent oversight of management. | |
● | The Board’s non-management directors meet regularly in executive session.The non-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. |
The Board has a majority of independent and non-management directors. Twelve of the 15 current directors and 11 of the 14 director nominees are independent as defined by the NYSE listing standards and the Company’s more stringent Director Independence Standards. Fourteen of 15 current directors and 13 of 14 director nominees are non-management directors. All of the Company’s directors are elected annually.
The Board’s key standing committees are composed solely of non-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 Risk Committee consist of a majority of independent directors and include only non-management directors. The committees provide independent oversight of management.
The Board’s non-management directors meet regularly in executive session. The non-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.
Board Role in Risk Oversight. Oversight
Effective risk management is vital to the success of Morgan Stanley. The Board has oversight for the Company’s global enterprise risk managementERM 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.
Coordination Among Board Committees Regarding Risk Oversight |
Board of Directors | ●Strategic risk ●Culture, values and conduct | ||||||||||||
Audit | Operations and Technology | Risk | CMDS | Nominating and Governance | |||||||||
●Legal risk ●Compliance risk ●Performance assessment and compensation of the Head of Internal Audit | ●Operations risk ●Technology risk ●Cybersecurity | ●ERM framework ●Risk appetite statement ●Market risk ●Credit risk ●Operational risk ●Liquidity and funding risk ●Capital ●Reputational/franchise risk ●Performance assessment and compensation of CRO | ●Performance assessment and compensation of CEO and other executive officers ●Succession planning ●Risk review of incentive compensation arrangements | ●Governance Risk |
Morgan Stanley 2016 Proxy Statement29
CORPORATE GOVERNANCE
TheRisk Committeeassists the Board in the oversight of:
● | The Company’s global |
● | The major risk exposures of the Company, including market, credit, operational, liquidity, funding, reputational and franchise risk, against established risk measurement methodologies and the steps management has taken to monitor and control such exposures; |
17
● | The Company’s risk appetite statement, including risk limits and risk tolerance, which are reviewed and approved annually; |
● | The Company’s significant risk management and risk assessment guidelines and policies; and |
● | T |
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In fulfilling its duties, the Risk Committee receives reports:
● | From the |
● | From the Head of Internal Audit on reviews of risk management, liquidity and capital functions; |
● | From the Company’s Strategic Transactions Committee and CCAR/Resolution and Recovery Planning Committee; and |
● | Regarding significant reputational risk, franchise risk, new product risk, emerging risks and regulated matters relating to its authority. |
The Risk Committee reports to the entire Board on a regular basis and the entire Board attends quarterly Risk Committee meetings.
TheAudit Committeeassists the Board 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.
TheCMDS Committee worksrisk, including cybersecurity (also reviewed with the Chief Risk Officer and its independent compensation consultant to evaluate whetherBoard).
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 orand do not encourage unnecessary or excessive risk-taking, and whether any risks arising from the Company’s compensation arrangements are reasonably likely to have a material adverse effect on the Company. See “Executive Compensation – Consideration of Risk Matters in Determining Compensation.”otherwise consistent with applicable related regulatory rules and guidance.
The committees report to the entire Board on a regular basis.
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 Chief Risk Officer,CRO, Chief Legal Officer and Chief Financial Officer,CFO, to oversee the Company’s global enterprise risk managementERM 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, liquidity and funding, legal, compliance, operational, franchise and regulatory 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 Form 10-K for the year ended December 31, 2014 (20142015 (2015 Form 10-K).
Assessment of Leadership Structure and Risk Oversight.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 ChairmenChairs of the Audit, CMDS, Risk and Operations and Technology committeesCommittees provide the appropriate leadership to help ensure effective risk oversight by the Board.
30Morgan Stanley 2016 Proxy Statement
CORPORATE GOVERNANCE
Compensation Governance and Risk Management |
The CMDS Committee actively engages in its duties and follows procedures intended to ensure excellence in compensation governance.
● | 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. 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 long-term strategy and evaluates executive performance in light of such achievements;(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. | |
● | Reviews the Company’s incentive compensation arrangements, including with the Company’s 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. The CRO concluded that the Company’s current compensation programs for 2015 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. | |
● | Grants senior executive annual incentive compensation after a comprehensive review and evaluation of Company, business unit and individual performance for the year, both on a year-over-year basis and as compared to our key competitors, and reviews its compensation decisions with our Board for executive officers and other senior executives. | |
● | Together with senior management, oversees the Company’s controls regarding the year-end compensation process, which have been designed to be consistent with our regulators’ principles for safety and soundness, including policies and procedures for 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. |
Morgan Stanley 2016 Proxy Statement31
18CORPORATE GOVERNANCE
Director Compensation |
The following table contains information with respect to the annual compensation (including deferred compensation) of our non-employee directors earned during 20142015 with respect to his or her 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 ($) | ||||||||||||||||||
Erskine B. Bowles | 113,333 | 250,000 | — | — | — | 363,333 | ||||||||||||||||||
Howard J. Davies | 115,000 | 250,000 | — | — | — | 365,000 | ||||||||||||||||||
Thomas H. Glocer | 89,167 | 250,000 | — | — | — | 339,167 | ||||||||||||||||||
Robert H. Herz | 98,750 | 250,000 | — | — | — | 348,750 | ||||||||||||||||||
C. Robert Kidder | 97,500 | 250,000 | — | — | — | 347,500 | ||||||||||||||||||
Klaus Kleinfeld | 85,000 | 250,000 | — | — | — | 335,000 | ||||||||||||||||||
Jami Miscik* | 12,500 | 125,000 | — | — | — | 137,500 | ||||||||||||||||||
Donald T. Nicolaisen | 106,250 | 250,000 | — | — | — | 356,250 | ||||||||||||||||||
Hutham S. Olayan | 85,000 | 250,000 | — | — | — | 335,000 | ||||||||||||||||||
James W. Owens | 105,000 | 250,000 | — | — | — | 355,000 | ||||||||||||||||||
O. Griffith Sexton* | 70,833 | 250,000 | (5) | — | — | — | 320,833 | |||||||||||||||||
Laura D. Tyson | 85,000 | 250,000 | — | — | — | 335,000 | ||||||||||||||||||
Rayford Wilkins, Jr. | 94,167 | 250,000 | — | — | — | 344,167 |
Director(1) | Fees Earned or Paid in Cash ($)(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 |
* |
(1) Messrs. Gorman, Tamakoshi and Tanaka received no compensation during 2014 for Board service.
(2) Represents the portion of the annual Board and Board committee retainers that was earned, whether paid in cash or deferred at the director’s election, during 2014. Cash retainers for service on the Board and a Board committee during the 2014 service period are paid semi-annually in arrears for the period beginning at the 2014 annual meeting of shareholders (May 13, 2014) and concluding at the 2015 annual meeting of shareholders (May 19, 2015). Amounts in the table represent cash retainers earned for a portion of the 2013 service period (January 1, 2014 to May 13, 2014) and cash retainers earned for a portion of the 2014 service period (May 14, 2014 to December 31, 2014).
The annual Board retainer for the 2014 service period for each director is $75,000. In addition, the Independent Lead Director, each of the Board committee chairs and each Board committee member receives additional annual retainers for the 2014 service period, as set forth in the following table. Retainers are prorated when a director joins the Board or a committee at any time other than at the annual meeting of shareholders, provided that no retainers are paid if the director is elected to the Board less than 60 days prior to the annual meeting. Directors do not receive meeting fees.
2015. | ||
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(1) | Messrs. Gorman, Hirano, Tamakoshi and Tanaka received no compensation during 2015 for Board service. | |
(2) | Represents the portion of the annual Board and Board committee retainers that was earned, whether paid in cash or deferred at the director’s election, during 2015. Cash retainers for service on the Board and Board committees during the 2015 service period are paid semi-annually in arrears for the period beginning at the 2015 annual meeting of shareholders (May 19, 2015) and concluding at the 2016 annual meeting of shareholders (May 17, 2016). Amounts in the table represent cash retainers earned for a portion of the 2014 service period (January 1, 2015 to May 19, 2015) and cash retainers earned for a portion of the 2015 service period (May 20, 2015 to December 31, 2015). | |
The annual Board retainer for the 2015 service period for each director is $75,000. In addition, the Independent Lead Director, each of the Board committee chairs and each Board committee member receives additional annual retainers for the 2015 service period, as set forth in the following table. Retainers are prorated when a director joins or leaves the Board or a committee at any time other than at the annual meeting of shareholders, and no retainers are paid if the director is elected to the Board less than 60 days prior to the annual meeting. Directors do not receive meeting fees. |
Position | Retainer ($) | |
Independent Lead Director | 30,000 | |
Committee Chairs | ||
Audit Committee | 25,000 | |
Compensation, Management Development and Succession Committee | 20,000 | |
Nominating and Governance Committee | 20,000 | |
| 20,000 | |
| 20,000 | |
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Committee Members | 10,000 |
32Morgan Stanley 2016 Proxy Statement
CORPORATE GOVERNANCE
19
Directors can elect to receive all or a portion of their retainers on a current basis in cash or shares of common stock or on a deferred basis under the Directors’ Equity Capital Accumulation Plan (DECAP) in the form of Elective Units. Elective Units are not subject to vesting or cancellation.
Messrs. Bowles, Glocer and Sexton and Mses. Olayan and Miscik deferred all or a portion of their retainers into Elective Units under DECAP. Elective Units in lieu of cash retainers earned for the second half of the 2013 service period were granted in arrears on May 13, 2014 and Elective Units in lieu of cash retainers earned for the first half of the 2014 service period were granted in arrears on November 13, 2014, except that, for Mr. Sexton, such units were granted on November 1, 2014, the date of his retirement. The number of Elective Units granted on May 13, 2014 was based on $30.4180, the number of Elective Units granted on November 13, 2014 was based on $35.8046, and the number of Elective Units granted on November 1, 2014 was based on $35.0071, which, in all cases, represents the volume-weighted average price of the common stock on the grant date.
(3) Represents the aggregate grant date fair value, determined in accordance with the applicable accounting guidance for equity-based awards, of the annual stock unit award for the 2014 service period and, with respect to Ms. Miscik, a prorated initial stock unit award granted during 2014. The aggregate grant date fair value of annual stock units granted on May 13, 2014 is based on $30.4180, and the aggregate grant date fair value of the initial stock units granted to Ms. Miscik on December 1, 2014 is based on $34.9252, which, in each case, represents the volume-weighted average price of the common stock on the grant date. For further information on the valuation of these stock units, see notes 2 and 18 to the consolidated financial statements included in the 2014 Form 10-K.
Under DECAP, directors receive an equity award upon initial election to the Board (provided that they are elected to the Board no less than 60 days prior to the annual meeting and are not initially elected at the annual meeting) and an equity award annually thereafter on the date of the annual meeting of shareholders. The grant date fair value of the initial equity award is $250,000, prorated for service until the annual meeting. The grant date fair value of the annual equity award is $250,000. Initial and annual equity awards are granted 50% in the form of stock units that do not become payable until the director retires from the Board (Career Units) and 50% in the form of stock units payable on the first anniversary of grant (Current Units). Initial equity awards are fully vested upon grant. Annual equity awards are subject to monthly vesting until the one-year anniversary of the grant date. With respect to Career Units, directors may elect to extend deferral beyond retirement from the Board, subject to specified limitations. With respect to Current Units, directors may choose to defer receipt of the shares underlying Current Units beyond the anniversary of grant and may choose the form of distribution (lump sum or installment payments).
(4) The following table sets forth the aggregate number of shares underlying DECAP stock units outstanding at December 31, 2014.
Directors can elect to receive all or a portion of their retainers on a current basis in cash or shares of common stock or on a deferred basis under the Directors’ Equity Capital Accumulation Plan (DECAP) in the form of Elective Units. Elective Units are not subject to vesting or cancellation. | ||||||||
Messrs. Bowles and Traquina and Mss. Olayan and Miscik deferred all or a portion of their retainers into Elective Units under DECAP. Mr. Glocer deferred all of his retainers into Elective Units for the 2014 service period and elected to receive all of his cash retainers in shares of common stock for the 2015 service period. Elective Units in lieu of cash retainers earned for the second half of the 2014 service period were granted in arrears on May 19, 2015, and Elective Units or shares of common stock, as applicable, in lieu of cash retainers earned for the first half of the 2015 service period were granted in arrears on November 19, 2015. The number of Elective Units granted on May 19, 2015 was based on $38.6392, and the number of Elective Units and shares of common stock granted on November 19, 2015 was based on $34.2019, which, in each case, represents the volume-weighted average price of the common stock on the grant date. | ||||||||
(3) | Represents the aggregate grant date fair value, determined in accordance with the applicable accounting guidance for equity-based awards, of the annual stock unit award for the 2015 service period. The aggregate grant date fair value of annual stock units granted on May 19, 2015 is based on $38.6392, which represents the volume-weighted average price of the common stock on the grant date. For further information on the valuation of these stock units, see notes 2 and 18 to the consolidated financial statements included in the 2015 Form 10-K. | |||||||
Under DECAP, directors receive an equity award upon initial election to the Board (provided that they are elected to the Board no less than 60 days prior to the annual meeting and are not initially elected at the annual meeting) and an equity award annually thereafter on the date of the annual meeting of shareholders. Initial and annual equity awards are granted 50% in the form of stock units that do not become payable until the director retires from the Board (Career Units) and 50% in the form of stock units payable on the first anniversary of grant (Current Units). The grant date fair value of the initial equity award is $250,000, prorated for service until the annual meeting, and the award is fully vested upon grant. The grant date fair value of the annual equity award is $250,000 and the award is subject to monthly vesting until the one-year anniversary of the grant date. Directors may elect to extend deferral of their Career Units and Current Units beyond the scheduled payment date, subject to specified limitations. | ||||||||
(4) | The following table sets forth the aggregate number of shares underlying DECAP stock units outstanding at December 31, 2015. |
Name | Stock Units (#) | |||||
Erskine B. Bowles | 131,363 | |||||
Howard J. Davies | 15,314 | |||||
Thomas H. Glocer | 30,999 | |||||
Robert H. Herz | 28,196 | |||||
C. Robert Kidder | — | |||||
Klaus Kleinfeld | 25,133 | |||||
Jami Miscik | 9,314 | |||||
Donald T. Nicolaisen | 82,558 | |||||
Hutham S. Olayan | 121,787 | |||||
James W. Owens | 47,988 | |||||
| 7,767 | |||||
Laura D. Tyson | 46,398 | |||||
Rayford Wilkins, Jr. | 14,393 |
(5) | At the conclusion of Mr. Kidder’s service on the Board, the Company contributed $22,000 to the C. Robert Kidder and Mary Kidder endowed scholarship for African American students with scholastic merit and financial need at the University of Michigan and presented Mr. Kidder with a gift of nominal value. |
(5)Morgan Stanley 2016 Proxy Statement 4,122 unvested stock units representing approximately 50% of this stock unit award were cancelled without payment upon Mr. Sexton’s retirement from the Board.33
CORPORATE GOVERNANCE
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Related Person Transactions Policy
Related Person Transactions Policy |
Our Board has adopted a written Related Person Transactions Policy (Policy) requiring the approval or ratification by the Nominating and Governance Committee of transactions (including material amendments or modifications to existing transactions) where the Company is a participant, the transaction exceeds $120,000 and a related person (directors or director nominees, executive officers, 5% shareholders and immediate family members of the foregoing) has a direct or indirect material interest. Under the Policy, in determining whether to approve or ratify such Related Person Transactions, the Nominating and Governance Committee considers all relevant facts and circumstances, including, but not limited to: the terms and commercial reasonableness of the transaction; the size of the transaction; the materiality to, and interest of, the related person and the Company in the transaction; whether the transaction would, or would be perceived to, present an improper conflict of interest for the related person; and, if the related person is an independent director, the impact on the director’s independence. Certain transactions are not subject to the Policy, including compensation of executive officers approved by the CMDS Committee and ordinary course commercial or financial services transactions between the Company and an entity in which a related person has an interest if the transaction is made under terms and conditions and under circumstances substantially similar to those prevailing at the time for comparable transactions with unaffiliated third parties and the related person does not otherwise have a direct or indirect material interest in the transaction.
Certain Transactions |
Our subsidiaries may extend credit in the ordinary course of business to certain of our directors, officers and members of their immediate families. These extensions of credit may be in connection with margin loans, mortgage loans or other extensions of credit by our subsidiaries. These extensions of credit are made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to the lender and do not involve more than the normal risk of collectability or present other unfavorable features.
Each of MUFG, and State Street Corporation (State Street), T. Rowe Price Associates, Inc. (T. Rowe Price) and BlackRock, Inc. (BlackRock) beneficially owns 5% or more of the outstanding shares of Morgan Stanley common stock as reported under “Principal Shareholders.” During 2014,2015, we engaged in transactions in the ordinary course of business with each of MUFG, and State Street, T. Rowe Price and BlackRock and certain of their respective affiliates, including investment banking, financial advisory, sales and trading, derivatives, investment management, lending, securitization and other financial services transactions. Such transactions were on substantially the same terms as those prevailing at the time for comparable transactions with unrelated third parties.
AsIn addition to the transactions described above, as part of the global strategic alliance between MUFG and the Company, on May 1, 2010 the Company and MUFG formed a joint venture in Japan of their respective investment banking and securities businesses by forming two joint venture companies. MUFG contributed the investment banking, wholesale and retail securities businesses conducted in Japan by Mitsubishi UFJ Securities Co., Ltd. into one of the joint venture entities named Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (MUMSS). The Company contributed the investment banking operations conducted in Japan by its subsidiary, Morgan Stanley MUFG Securities Co., Ltd. (MSMS), formerly known as Morgan Stanley Japan Securities Co., Ltd., into MUMSS (MSMS, together with MUMSS, the “Joint Venture”)Joint Venture). MSMS has continued its sales and trading and capital markets business conducted in Japan. The Company owns a 40% economic interest in the Joint Venture and MUFG owns a 60% economic interest in the Joint Venture. The Company holds a 40% voting interest and MUFG holds a 60% voting interest in MUMSS, while the Company holds a 51% voting interest and MUFG holds a 49% voting interest in MSMS. Other initiatives that are part of the Company’s global strategic alliance with MUFG include a loan marketing joint venture in the Americas, business referral arrangements in Asia, Europe, the Middle East and Africa, referral agreements for commodities transactions and a secondment arrangement of personnel between MUFG and the Company for the purpose of sharing best practices and expertise.
34 Morgan Stanley 2016 Proxy Statement
Item 2 |
Our Board unanimously recommends that you vote “FOR” the ratification of Deloitte & Touche’s appointment as our independent auditor. | |
The Audit Committee has the sole authority and responsibility to appoint, compensate, retain, oversee and evaluate the independent auditor retained to audit the Company’s consolidated financial statements. The Audit Committee reviews and assesses annually the qualifications and performance of the independent auditor and considers, as appropriate, the rotation of the independent auditor. The Audit Committee also ensures the mandatory, regular rotation of the lead audit partner and, in connection with such rotation, the Audit Committee is involved in the selection of the lead audit partner.
21The Audit Committee has appointed Deloitte & Touche LLP (Deloitte & Touche) as independent auditor for the year ending December 31, 2016 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 Form 10-K for the year ending December 31, 2016 and will perform other permissible, pre-approved services. The Audit Committee pre-approves all audit and permitted non-audit services that Deloitte & Touche performs for the Company and is responsible for the audit fee negotiations associated with the engagement of Deloitte & Touche. As part of the Audit Committee’s annual review of Deloitte & Touche, the Audit Committee reviewed the results of management’s assessment of Deloitte & Touche’s performance and discussed with Deloitte & Touche its 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.
Beneficial Ownership of Company Common StockAUDIT COMMITTEE REPORT
Executive Equity Ownership Commitment
MembersThe Audit Committee’s charter provides that the Audit Committee is responsible for the oversight of the integrity of the Company’s Operatingconsolidated financial statements, the Company’s system of internal control over financial reporting, certain aspects of the Company’s risk management as described in the charter, the qualifications and independence of the Company’s independent registered public accounting firm (independent auditor), the performance of the Company’s internal auditor and independent auditor, and the Company’s compliance with legal and regulatory requirements. We have the sole authority and responsibility to appoint, compensate, retain, oversee, evaluate and, when appropriate, replace the Company’s independent auditor. The Board has determined that all members of the Audit Committee are “financially literate” within the meaning ofthe NYSE listing standardsand “audit committee financial experts” within the meaning ofthe SEC rules.
The Audit Committee serves in an oversight capacity and is not part of the Company’s managerial or operational decision-making process. Management is responsible for the financial reporting process, including the system of internal controls, for the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the U.S. (GAAP) and for the report on the Company’s internal control over financial reporting. The Company’s independent auditor, Deloitte & Touche, is responsible for auditing those financial statements and expressing an opinion as to their conformity with GAAP and expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Our responsibility is to oversee the financial reporting process and to review and discuss management’s report on the Company’s internal control over financial reporting. We rely, without independent verification, on the information provided to us and on the representations made by management, the internal auditor and the independent auditor.
Morgan Stanley 2016 Proxy Statement 35
AUDIT MATTERS
The Audit Committee, among other things:
● | Reviewed and discussed the Company’s quarterly earnings releases, Quarterly Reports on Form 10-Q and Annual Report on Form 10-K, including the consolidated financial statements; |
● | Reviewed the major legal and compliance risk exposures and the guidelines and policies that govern the process for risk assessment and risk management, including coordinating with the Risk Committee and the Operations and Technology Committee; |
● | Reviewed, discussed and approved the plan and scope of the work of the internal auditor for 2015 and reviewed and discussed summaries of the significant reports to management by the internal auditor; |
● | Approved the functional reporting of the Head of Internal Audit to the Audit Committee, and reviewed the performance and compensation of the Head of Internal Audit; |
● | Reviewed and discussed the plan and scope of the work of the independent auditor for 2015; |
● | Reviewed and discussed reports from management on the Company’s policies regarding applicable legal and regulatory requirements, and reviewed, discussed and approved the Company’s annual compliance plan; |
● | Met with senior representatives of the Finance Department, Legal and Compliance Division and the Internal Audit Department; and |
● | Met with Deloitte & Touche, the internal auditor and Company management in executive sessions. |
We reviewed and discussed with management, the internal auditor and Deloitte & Touche: the audited consolidated financial statements for 2015, the critical accounting policies that are set forth in the Company’s Annual Report on Form 10-K, management’s annual report on the Company’s internal control over financial reporting and Deloitte & Touche’s opinion on the effectiveness of the Company’s internal control over financial reporting.
We discussed with Deloitte & Touche matters that independent registered public accounting firms must discuss with audit committees under standards of the Public Company Accounting Oversight Board (PCAOB), including, among other things, matters related to the conduct of the audit of the Company’s consolidated financial statements and the matters required to be discussed by Auditing Standard No. 16,Communication with Audit Committees, as adopted by the PCAOB. Deloitte & Touche also provided to the Audit Committee the written disclosures and the letter required by applicable requirements of the PCAOB regarding the independent auditor’s communications with the Audit Committee concerning independence and represented that it is independent from the Company. We discussed with Deloitte & Touche their independence from the Company, and considered if services they provided to the Company beyond those rendered in connection with their audit of the Company’s consolidated financial statements, reviews of the Company’s interim condensed consolidated financial statements included in its Quarterly Reports on Form 10-Qand their opinion on the effectiveness of the Company’s internal control over financial reporting were compatible with maintaining their independence. We also reviewed and pre-approved, among other things, the audit, audit-related and tax services performed by Deloitte & Touche. We received regular updates on the amount of fees and scope of audit, audit-related and tax services provided.
Based on our review and the meetings, discussions and reports discussed above, and subject to an Equity Ownership Commitment that requires themthe limitations on our role and responsibilities referred to retain common stockabove and equity awards equal to 75% of common stock received from equity awards (less allowances forin the payment of any option exercise price and taxes) granted to them for service on the Operating Committee. This commitment ties a portion of their net worth to the Company’s stock price and provides a continuing incentive for them to work towards superior long-term stock price performance. None of our executive officers currently have prearranged trading plans under SEC Rule 10b5-1. Executive officers also are prohibited from engaging in hedging strategies or selling short or trading derivatives involving Morgan Stanley securities.
Director Equity Ownership Requirement
As indicated under “Director Compensation,” our independent directors generally receive an equity award upon initial electionAudit Committee charter, we recommended to the Board and receive an annual equity award thereafter with a grant date fair value of $250,000 (proratedthat the Company’s audited consolidated financial statements for 2015 be included in the caseCompany’s Annual Report on Form 10-K. We also selected Deloitte & Touche as the Company’s independent auditor for the year ending December 31, 2016 and are presenting the selection to the shareholders for ratification.
Respectfully submitted,
Robert H. Herz, Chair
Thomas H. Glocer
Donald T. Nicolaisen
Perry M. Traquina
36 Morgan Stanley 2016 Proxy Statement
AUDIT MATTERS
Stock Ownership of Executive Officers and DirectorsINDEPENDENT AUDITOR’S FEES
We encourage our directors, executive officers and employees to own our common stock; owning our common stock aligns their interests with those of shareholders.
The following table sets forthsummarizes the beneficial ownershipaggregate fees (including related expenses; $ in millions) for professional services provided by Deloitte & Touche related to 2015 and 2014.
2015 ($) | 2014 ($) | |
Audit Fees(1) | 47.6 | 49.0 |
Audit-Related Fees(2) | 7.4 | 6.9 |
Tax Fees(3) | 1.4 | 1.7 |
All Other Fees | — | — |
Total | 56.4 | 57.6 |
(1) | Audit Fees services include: the audit of our consolidated financial statements included in the Company’s Annual Report on Form 10-K and reviews of the interim condensed consolidated financial statements included in our quarterly reports on Form 10-Q; services attendant to, or required by, statute or regulation; comfort letters, consents and other services related to SEC and other regulatory filings; and audits of subsidiary financial statements. |
(2) | Audit-Related Fees services include: data verification and agreed-upon procedures related to asset securitizations; assessment and testing of internal controls and risk management processes beyond the level required as part of the consolidated audit; statutory audits and financial audit services provided relating to investment products offered by Morgan Stanley, where Morgan Stanley incurs the audit fee in conjunction with the investment management services it provides; agreed upon procedures engagements; regulatory matters; and attest services in connection with debt covenants. |
(3) | Tax Fees services include: U.S. federal, state and local income and non-income tax planning and advice; U.S. federal, state and local income and non-income tax compliance; non-U.S. income and non-income tax planning and advice; non-U.S. income and non-income tax compliance; and transfer pricing-related services. |
Morgan Stanley offers various unconsolidated registered money market, equity, fixed income and alternative funds, and other funds (collectively, Funds). Deloitte & Touche provides audit, audit-related and tax services to certain of common stockthese unconsolidated Funds. Fees paid to Deloitte & Touche by these Funds for these services were $10.4 million in 2015 and $7.3 million in 2014.
A Deloitte & Touche representative will attend the annual meeting to respond to your questions and will have the opportunity to make a statement. If shareholders do not ratify the appointment, the Audit Committee will reconsider it.
Our Board unanimously recommends that you vote “FOR” the ratification of Deloitte & Touche’s appointment as our independent auditor. Proxies solicited by the Board will be voted “FOR” this ratification unless otherwise instructed.
Morgan Stanley 2016 Proxy Statement 37
Table of February 27, 2015 by our CEO andContents
Item 3 |
Our Board unanimously recommends that you vote “FOR” this proposal. | |
As required by all our directors and executive officers as of February 27, 2015, as a group. As of February 27, 2015, none of the common stock beneficially owned by our directors and NEOs 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 | 507,967 | 606,952 | 1,159,703 | 2,274,622 | ||||||||||||||||||
Ruth Porat | 684,596 | 142,008 | 205,764 | 1,032,368 | ||||||||||||||||||
Gregory J. Fleming | 387,111 | 181,462 | 259,263 | 827,836 | ||||||||||||||||||
Colm Kelleher | 163,992 | 299,571 | 623,524 | 1,087,087 | ||||||||||||||||||
James A. Rosenthal | 160,490 | 120,389 | 370,687 | 651,566 | ||||||||||||||||||
DIRECTORS AND DIRECTOR NOMINEE | ||||||||||||||||||||||
Erskine B. Bowles | 1,000 | 120,097 | — | 121,097 | ||||||||||||||||||
Howard J. Davies | 20,690 | 52,175 | — | 72,865 | ||||||||||||||||||
Thomas H. Glocer | 1,000 | 22,865 | — | 23,865 | ||||||||||||||||||
Robert H. Herz | 12,969 | 21,406 | — | 34,375 | ||||||||||||||||||
C. Robert Kidder | 89,675 | 69,875 | — | 159,550 | ||||||||||||||||||
Klaus Kleinfeld | 14,037 | 22,526 | — | 36,563 | ||||||||||||||||||
Jami Miscik | — | 3,588 | — | 3,588 | ||||||||||||||||||
Donald T. Nicolaisen | — | 79,249 | — | 79,249 | ||||||||||||||||||
Hutham S. Olayan | 8,000 | 111,385 | — | 119,385 | ||||||||||||||||||
James W. Owens | 10,194 | 45,101 | — | 55,295 | ||||||||||||||||||
Ryosuke Tamakoshi(4) | — | — | — | — | ||||||||||||||||||
Masaaki Tanaka(4) | — | — | — | — | ||||||||||||||||||
Perry M. Traquina(5) | — | — | — | — | ||||||||||||||||||
Laura D. Tyson | 26,377 | 43,531 | — | 69,908 | ||||||||||||||||||
Rayford Wilkins, Jr. | 3,608 | 11,917 | — | 15,525 | ||||||||||||||||||
ALL DIRECTORS AND EXECUTIVE OFFICERS AS OF FEBRUARY 27, 2015 AS A GROUP (22 PERSONS) | 2,157,981 | 2,170,984 | 2,974,096 | 7,303,061 |
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(1) Each director, NEO and executive officer has sole voting and investment power with respect to his or her shares, except with respect to the following shares owned indirectly through family trusts, the sole beneficiaries of which are family members, and custodial accounts: Mr. Gorman – 36,958 shares, 1,400 shares of which he disclaims ownership; Mr. Fleming – 104,550 shares; Mr. Rosenthal – 159,932 shares; and Mr. Bowles – 1,000 shares.
(2) Shares of common stock held in a trust (Trust) corresponding to certain outstanding restricted stock units (RSUs). Directors and executive officers may direct the voting of the shares corresponding to such RSUs. Voting by executive officers is subject to the provisions of the Trust, as described in “Information about the Annual Meeting – How Do I Submit Voting Instructions for Shares Held in Employee Plans?”. Excludes long-term incentive program awards and performance stock units because executive officers may not direct the voting of any shares corresponding to such awards prior to settlement of the award.
(3) Each NEO and director beneficially owned less than 1% of the shares of common stock outstanding. All executive officers and directors as a group as of February 27, 2015 beneficially owned less than 1% of the common stock outstanding.
(4) Messrs. Tamakoshi and Tanaka were designated by MUFG and elected to the Board pursuant to the Investor Agreement. They are not compensated by Morgan Stanley for their service on the Board. See “Principal Shareholders” regarding MUFG’s beneficial ownership of Company common stock.
(5) If elected to the Board at the 2015 annual meeting of shareholders, Mr. Traquina, as a non-employee director, will receive an annual equity award under DECAP with a grant date fair value of $250,000 on May 19, 2015. See “Director Compensation” for further details regarding our director compensation arrangements.
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) 7-1, Marunouchi 2-chome Chiyoda-ku, Tokyo 100-8330, Japan
|
|
435,269,905 |
|
22.1 | ||||||
State Street(3) One Lincoln Street, Boston, MA 02111
| 147,766,059 | 7.5 |
(1) Percentages based upon the number of shares of common stock outstanding as of the record date, March 23, 2015, and the beneficial ownership of the principal shareholders as reported in SEC filings in notes 2 and 3 below.
(2) Based on the amended Schedule 13D dated October 3, 2013 filed by MUFG. The amended Schedule 13D discloses that MUFG had sole dispositive and sole voting power with respect to the beneficially owned shares reported, including 3,252,753 shares held solely in a fiduciary capacity by certain affiliates of MUFG as the trustee of trust accounts or the manager of investment funds, other investment vehicles and managed accounts as of September 27, 2013 for which MUFG disclaims beneficial ownership.
(3) Based on the Schedule 13G dated February 11, 2015 (as of December 31, 2014) by State Street and State Street Bank and Trust Company, each acting in various fiduciary and other capacities. The Schedule 13G discloses that State Street had shared dispositive power as to 147,766,059 shares and shared voting power as to 147,146,723 shares; and that 79,324,972 shares beneficially owned by State Street Bank and Trust Company, a subsidiary of State Street, are held as trustee on behalf of the Trust that holds shares of common stock underlying certain restricted stock units awarded to employees under various of the Company’s equity-based plans.
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a)14A of the Securities Exchange Act of 1934, requires our directors and certainthis proposal seeks a shareholder advisory vote to approve the compensation of our NEOs (including for this purpose, our former CFO, Ms. Porat) as disclosed pursuant to Item 402 of Regulation S-K through the following resolution:
“RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the Company’s named executive officers, as disclosed in the Company’s proxy statement for the 2016 Annual Meeting of Shareholders pursuant to file reports with the SEC indicating their holdingscompensation disclosure rules of the Securities and transactionsExchange Commission (which disclosure includes the Compensation Discussion and Analysis and the accompanying compensation tables and related narrative).”
Although this “Say on Pay” vote is advisory and is not binding on our Board, the CMDS Committee will take into consideration the outcome of the vote when making future executive compensation decisions. At the 2015 annual meeting of stockholders, more than 88% of the votes cast favored our “Say on Pay” proposal. The CMDS Committee considered our “Say on Pay” result, and, in light of the significant majority of votes cast in favor of the 2014 compensation of our equity securities. The CompanyNEOs, did not materially change the overall approach for 2015 compensation from the prior year. However, the 2015 pay decision for the CEO of $21 million was reduced approximately 7% from $22.5 million for 2014, and 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 reporting persons compliedcurrent executive compensation program appropriately links the compensation of our NEOs to our performance and properly aligns the interests of our NEOs with all Section 16(a) filing requirements during 2014, exceptthose of our shareholders.
We urge our shareholders to read the “Overview of Voting Items,” CD&A and “Executive Compensation Tables,” which provide a detailed description of our executive compensation program.
Our Board unanimously recommends that due to an administrative error on the part of the Company, a late Form 4 was filed on behalf of Paul C. Wirth, the Deputy Chief Financial Officer, to report the withholding of 1,468 shares of common stock to satisfy taxes due upon the vesting of restricted stock units.
you vote Executive Compensation“FOR”
The CMDS Committee currently consists of four (4) directors, including our Independent Lead Director, all of whom are independent members of this proposal. Proxies solicited by the Board underwill be voted “FOR” this proposal unless otherwise instructed.
38Morgan Stanley 2016 Proxy Statement
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS (CD&A)
In this CD&A, we review the NYSE listing standardsobjectives and elements of Morgan Stanley’s executive compensation program, its alignment with Morgan Stanley’s performance and the independence requirements of the Company. The CMDS Committee operates under a written charter adopted by the Board. The CMDS Committee is responsible2015 compensation decisions for reviewing and approving annually all compensation awarded to the Company’sour named executive officers including the NEOs. In addition, the CMDS Committee administers the Company’s equity incentive plans and cash-based nonqualified deferred compensation plans, including reviewing and approving grants to executive officers. Information on the CMDS Committee’s processes, procedures and analysis of NEO compensation for 2014 is addressed in the “Compensation Discussion and Analysis” (CD&A).
The CMDS Committee actively engages in its duties and follows procedures intended to ensure excellence in compensation governance, including those described below:
(NEOs):
James Gorman | CEO |
Jonathan Pruzan | CFO as of May 1, 2015 |
Ruth Porat | Former CFO who served through April 30, 2015 |
Gregory Fleming | President of Wealth Management for 2015 |
Colm Kelleher | President of Institutional Securities for 2015 |
James Rosenthal | Chief Operating Officer (COO) |
Retains its own independent compensation consultant to provide advice to the CMDS Committee on executive compensation matters and evaluates the independence of such consultant and other advisors as required by any applicable law, regulation or listing standard. The independent compensation consultant generally attends all CMDS Committee meetings, reports directly to the CMDS Committee Chair and meets with the CMDS Committee without management present. In addition, the Chair of the CMDS Committee regularly engages with the CMDS Committee’s compensation consultant, without management present, outside of the CMDS Committee meetings.
Regularly reviews the competitive environment and the design and structure of the Company’s compensation programs to ensure that they are consistent with and support our compensation objectives.
Regularly reviews the Company’s achievements with respect to execution of long-term strategy and evaluates executive performance in light of such achievements.
Regularly reviews legislative and regulatory developments affecting compensation in the U.S. and globally.
Annually reviews the Company’s incentive compensation arrangements to help ensure that such arrangements are consistent with the safety and soundnessEffective January 6, 2016, Mr. Kelleher became President of the Company, and do not encourage excessive risk-taking, and areMr. Fleming ceased to be an executive officer. Unless otherwise consistent with applicable related regulatory rules and guidance.
Grants senior executive annual incentive compensation after a comprehensive review and evaluation of Company, business unit and individual performance fornoted, the year, both on a year-over-year basis andterm NEO as compared to our key competitors.
Oversees plans for management development and succession.
Regularly meets throughout the year and regularly meetsused in executive session without the presence of management or its compensation consultant.
Receives materials for meetings in advance, and the Chair of the CMDS Committee participates in pre-meetings with management to review the agendas and materials.
Regularly reports on its meetings to the Board.
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As mentioned above, to perform its duties, the CMDS Committee retains the services of a qualified and independent compensation consultant that possesses the necessary skill, experience and resources to meet the CMDS Committee’s needs and that has no relationship with the Company that would interfere with its ability to provide independent advice. 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. Other than the aforementioned consulting services, Pay Governancethis CD&A does not provide other servicesinclude Ms. Porat, due 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.
The Company’s Human Resources department acts as a liaison between the CMDS Committee and its independent consultant and also prepares materials for the CMDS Committee’s use in making compensation decisions. Separately, the Human Resources department may itself engage third-party compensation consultants to assist in the development of compensation data and analyze potential compensation structures to inform and facilitate the CMDS Committee’s deliberations.
The principal compensation plans and arrangements applicable to our NEOs are described in the CD&A and the tables in the “Executive Compensation” section. The CMDS Committee may delegate the administration of plans and arrangements as appropriate, including to executive officers ofher departure from the Company, and members of the Company’s Human Resources department. The CMDS Committee may also create subcommittees with authorityterm “CFO” refers to act on its behalf. Significant delegations made by the CMDS Committee include the following:
The CMDS Committee has delegated to the Equity Awards Committee (which consists of the CEO) its authority to make special new hire and retention equity awards; however, this delegation of authority does not extend to awards to our executive officers and certain other senior executives of the Company. Awards granted by the Equity Awards Committee are subject to a share limit imposed by the CMDS Committee and are reported to the CMDS Committee on a regular basis.
The CMDS Committee has delegated to the Chief Operating Officer its authority to administer the Company’s cash-based nonqualified deferred compensation plans, including the Morgan Stanley Compensation Incentive Plan (discussed in the CD&A); however, the CMDS Committee has sole authority relating to grants of cash-based nonqualified deferred compensation plan awards to, or amendments to such awards held by, executive officers and certain other senior executives, material amendments to any such plans or awards, and the decision to implement certain of these plans in the future.
Our executive officers do not engage directly with the CMDS Committee in setting the amount or form of executive officer compensation. However, as discussed in the CD&A, as part of the annual performance review for our executive officers other than the CEO, the CMDS Committee considers our CEO’s assessment of each executive officer’s individual performance, as well as the performance of the Company and our CEO’s compensation recommendations for each executive officer, other than himself.
Annual equity and cash-based incentive awards are typically granted by the CMDS Committee after the end of the year. This schedule coincides with the time when year-end financial results are available and the CMDS Committee can evaluate individual and Company performance as described in the CD&A. Special equity and cash-based incentive awards are generally approved on a monthly basis; however, they may be granted at any time, as deemed necessary for new hires, promotions or recognition or retention purposes. We do not coordinate or time the release of material information around our grant dates in order to affect the value of compensation.
Consideration of Risk Matters in Determining Compensation
The CMDS Committee works with the Company’s Chief Risk Officer and the CMDS Committee’s independent compensation consultant to evaluate whether the Company’s compensation arrangements encourage unnecessary
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or excessive risk-taking and whether risks arising from the Company’s compensation arrangements are reasonably likely to have a material adverse effect on the Company. Morgan Stanley is a financial institution that engages in significant trading and capital market activities that are subject to market and other risks. The Company employs risk management practices, including trading limits, marking-to-market positions, stress testing and employment of models. The Company believes in pay-for-performance and as a result also evaluates its compensation programs to recognize these risks.
In 2014, the Chief Risk Officer met with representatives from the Company’s Human Resources and Legal departments to evaluate each compensation program across each of the Company’s major areas – Institutional Securities, Wealth Management, Investment Management and Company/Infrastructure – and to identify whether there were any material risks to the Company arising from such compensation programs, including those programs in which our NEOs participate. The review covered numerous programs, including equity and cash-based deferred compensation programs, discretionary bonus programs and performance-based formulaic bonus programs. The working group reviewed a number of factors, including the eligibility, form of payment, applicable performance measures, vesting, clawback and cancellation provisions and governance and oversight aspects of each program.
In 2014, the Chief Risk Officer concluded that Morgan Stanley’s current compensation programs do not incentivize employees to take unnecessary or excessive risk and that such programs do not create risks that are reasonably likely to have a material adverse effect on the Company. The following are among the factors considered in making his determination:
Our balance of fixed compensation and discretionary compensation;
Our balance between short-term and long-term incentives;
Our mandatory deferrals into both equity-based and cash-based incentive programs;
The governance procedures followed in making compensation decisions, including our rigorous up-front risk adjustment process for assessing performance based on financial, capital and risk metrics;
The risk-mitigating features of our awards, such as cancellation and clawback provisions; and
Our equity ownership commitment.
The Chief Risk Officer reviewed his findings with the CMDS Committee and its independent compensation consultant. It is intended that the Chief Risk Officer will continue to evaluate any new incentive arrangements for the NEOs and material arrangements for other employees, report periodically to the CMDS Committee and be involved in the design and assessment of our incentive arrangements to the extent appropriate or required under applicable law.
In addition to the foregoing, together with senior management, the CMDS Committee oversees the Company’s controls regarding the year-end compensation process. These controls are structured to help eliminate incentives for excessive risk-taking and have been designed to be consistent with the Federal Reserve Board’s principles for safety and soundness. Such controls include:
Sizing the incentive compensation pool to more fully consider risk-adjusted returns, compliance with risk limits and the market and competitive environment;
Allocating the incentive compensation pool among businesses after consideration of the businesses’ returns on certain financial and return on capital metrics;
For more senior-level employees, delivering a substantial portion of compensation in mandatory multi-year deferrals subject to clawback and cancellation provisions; and
Directing compensation managers to consider clawback and cancellation events and an employee’s risk management activities and outcomes in making compensation decisions, and undertaking a rigorous review process by the independent control functions to identify potential clawback and cancellation situations.
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Compensation Discussion and Analysis
Mr. Pruzan.
The CD&A is comprised of the following sections:
Page: | ||||
1. Overview | 39 | |||
44 | ||||
44 | ||||
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The Compensation, Management Development and Succession (CMDS) Committee of the Board is responsible for the pay structure and decisions that are outlined in this CD&A. The CMDSCommittee considers multiple factors in determining executive compensation to ensure that theMorgan Stanley’s compensation program is highlyshareholder-aligned, motivating, and competitive, and shareholder-aligned 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 performance orientation is demonstrated in the structure of executive compensation and the performance results that drive compensation decisions for our NEOs. The Committee’s approach to executive pay is also informed by input from shareholders.
At the start of 2015, as in prior years, the CMDS Committee established a target range of CEO compensation and the resulting executiveperformance factors to be considered in determining year-end compensation. At year end, CEO total compensation decisionswas set at $21 million for the CEO, James Gorman,2015, a 7% decrease from $22.5 million in 2014, with shareholder-aligned features:
● | 72% deferred over three years and subject to clawback, |
● | 39% of such deferred compensation delivered through future performance-vested equity awards. |
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1.1. Performance-Based Approach to Executive Compensation and the other NEOs.
I.A. 20142015 Performance Highlights
In its assessment of 2014 results,2015 performance, the CMDS Committee considered Morgan Stanley’s progress in relation to its strategic objectives, financial performance, and shareholder returns.
Strategic Objectives
In 2015, the improvement in the Company’s business results relative to 2013 and continued progress onCompany achieved a number of important strategic priorities, which resultedincluding improvement of Wealth Management profit margin, growth in industry leading shareholder returns for the second consecutive year. On February 25, 2015, following the CMDS Committee’s assessment of Morgan Stanley’s 2014 performance for compensation purposes in January 2015, legal reserves wereStanley U.S. Bank(1), prudent expense management, and increased by $2.8 billion for legacy (pre-2008) residential mortgage matters (the “subsequent event”)(1). The CMDS Committee subsequently determined that its 2014 compensation decisions for the CEO and other NEOs should not change. Section III.B contains more details about Company performance; see also Section V. “Notescapital return to the Compensation Discussion and Analysis.”shareholders.
Business Results(2)(3)
Ongoing Wealth Management upside through additional margin improvement |
| ✓ | |
2. | Continued execution of | Achieved 46% NII growth in U.S. Bank versus 2014 | ✓ |
3. | Progress in Fixed Income and Commodities ROE | Failed to meet objective and subsequently initiated major restructuring | ✕ |
4. | Maintain leadership in Institutional Equities and Investment Banking | Ranked 1st in Institutional Equities revenue market share for the second consecutive year(4) | ✓ |
5. | Tailwind from lower funding costs | Continued to benefit as new debt issued at tighter spreads than maturing debt | ✓ |
6. | Maintain focus on expense management | Achieved 37% Institutional Securities compensation ratio ex-DVA, down from 48% (42% excluding deferred compensation adjustments) in 2014(5) | ✓ |
7. | Rating upgrade | Received two-notch upgrade from Moody’s: Morgan Stanley’s long-term senior debt rating increased from Baa2 to A3 | ✓ |
8. | Steadily increase capital return to shareholders | Received non-objection from the Federal Reserve Board to the 2015 Capital Plan, which included an increase in authorized share repurchase to $3.1 billion from $1.0 billion in the 2014 Capital Plan and the quarterly common stock dividend to $0.15 per share from $0.10 per share in the 2014 Capital Plan | ✓ |
Financial Performance(6)(7)
Return on average common equity (return on equity or ROE) excluding the impact of the subsequent event showed improvementThe Company delivered improved financial performance in 2015. Net revenues and income from the prior year,continuing operations before taxes (Pre-tax Profit) increased in 2015 from 2014, both as reported and excluding the impact of DVADebt Valuation Adjustment (DVA)(8). Return on average common equity (ROE) also increased from the prior year, but still has room for continued improvement.
MS Firm Financials Results Ex-DVA ($ Billion) | 2011 | 2012 | 2013 | 2014 | 2015 | % Δ 2015 vs. 2014 | |
Net Revenues(9) | 28.6 | 30.6 | 33.2 | 33.6 | 34.5 | +3% | |
Pre-tax Profit(9) | 2.5 | 5.0 | 5.2 | 2.9 | (10) | 7.9 | +168% |
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Morgan Stanley ROE (2011 – 2015)(11)(12) |
Overall business performance continued to be strong:
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Summary of Company Results |
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$ Millions | ||||||||||||||||
As Reported | Excluding DVA(4) | |||||||||||||||
2013 | 2014 | 2013 | 2014 | |||||||||||||
Net Revenues(7) | $ | 32,493 | $ | 34,275 | $ | 33,174 | $ | 33,624 | ||||||||
Income from Continuing Operations Applicable to Morgan Stanley(7) | $ | 2,975 | $ | 3,481 | $ | 3,427 | $ | 3,063 | ||||||||
Return on Equity(7) | 4% | 5% | 5% | 4% | ||||||||||||
Income from Continuing Operations Applicable to Morgan Stanley, excluding the Subsequent Event(1)(8) | $ | 6,151 | $ | 5,733 | ||||||||||||
Return on Equity, excluding the Subsequent Event(9) | 9% | 8% |
Strategic Execution
Morgan Stanley continued to execute its strategy and made progress on the key strategic objectives that were expressed as part of the strategic update at the beginning of 2014
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Shareholder Returns
Morgan Stanley’s significant strategic progress and improved financial performance in 2015 notwithstanding, TSR in the year trailed peers in a challenging year for global financials – only two of our eight global peers delivered positive returns. However, over the three-year period from 2013 to 2015, Morgan Stanley’s TSR ranks first among peers.
MS and Peer Total Shareholder Return(14) |
Section 3.2 contains further details about Company performance; see also Section 5 “Notes to the Compensation Discussion and Analysis.”
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1.2 Framework for Compensation Decisions and Performance Evaluation
At the start of 2015, the CMDS Committee, in 2014 from progress against strategic goals, strong business resultsconsultation 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 effective execution
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I.B. Executive Compensation Structureset 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 Compensation RangePay.”
Our executive compensation program rewards achievement of Morgan Stanley’s financial and strategic objectives, in addition to individual performance. The ultimate2015 pay opportunitiesdecision for the CEO and other NEOs arewas made by the CMDS Committee, in consultation with the full Board, based on the CMDS Committee’s judgment, which is informedassessment of Morgan Stanley’s improvement in financial performance with room for continued improvement on ROE, Mr. Gorman’s strong individual performance through Morgan Stanley’s continued successful execution of the long-term strategic objectives approved by consultation with the full Board, and an assessmentMorgan Stanley’s shareholder returns as trailing peers in a challenging year for global financials.
As a result, the CMDS Committee determined that Company and individual performance warranted a 2015 pay decision for Mr. Gorman of $21 million, 7% below Mr. Gorman’s 2014 pay of $22.5 million. The CMDS Committee believes that this decision appropriately aligns Mr. Gorman’s 2015 pay with 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 business results, strategic execution and shareholder returns described in this CD&A.three-year total TSR for the same period is 72%(15).
Section 3.2 contains more details about individual NEO performance.
1.3 Compensation Elements
Pay opportunity in a given year is delivered in a combination of fixed compensation (generally, 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. A significant portion of the pay opportunity 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 targets. Sections IV.B and IV.C contain more detail about the elements of our compensation program.
In 2014, the CMDS Committee, in consultation with its independent compensation consultant, establishedgoals over a target range for the CEO pay opportunity of $23 million or more for superior performance to $13 million or less for performance substantially below expectations. This target range is reviewed annually and serves as a guideline for the CMDS Committee. To inform its decision-making with respect to the appropriate target range,
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the CMDS Committee considers compensation information for peer companies as described in Section III.A under “Benchmarking Target CEO Pay.” The 2014 CEO pay opportunity was evaluated based on the CMDS Committee’s assessment of Morgan Stanley’s performance and Mr. Gorman’s individual performance as described in Section I.C.
I.C. 2014 CEO Performance and Compensation Decision
Our strong business results, strategic execution and shareholder returns are reflected in the 2014 pay decisions for the CEO and other NEOs. 2014 CEO compensation was based on the CMDS Committee’s assessment of Morgan Stanley’s performance and shareholder returns as strong, with room for continued progress, and Mr. Gorman’s individual performance as exceeding expectations. The CMDS Committee has applied a consistent approach to align pay with performance and determined that Company and individual performance warranted a pay opportunity for Mr. Gorman of $22.5 million for 2014.
Similar to the process for determining CEO compensation, the CMDS Committee weighed the Company’s overall business performance, performance for shareholders and progress toward strategic objectives to establish compensation for the remaining NEOs. Section III.B contains more details about individual NEO performance and Section IV.A contains the 2014 compensation decisions for each NEO.
I.D. 2014 CEO Compensation Elements
three-year period.
Mr. Gorman’s 2015 pay opportunity was delivered in a combination of base salary, cash bonus, deferred cash, deferred equity, and LTIP award,these compensation elements, as outlined in the chart below. A significant portion of the pay opportunity for Mr. Gorman is deferred, awarded in equity and subject to future-oriented performance goals. We believeThe CMDS Committee believes this approach to executive compensation is consistent with shareholder alignment, executive motivation, best practices, and regulatory principles.
On December 1, 2014, Sections 4.2 and 4.3 contain more detail about the CMDS Committee approved a change in the compensation structure that reduced the average deferral of discretionary incentive compensation from an approximate 80% to an approximate baseline of
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50% (with more highly compensated employees continuing to be subject to higher deferral levels). With its business strategy in place and greater financial stability, the Company was in a position to change the level of deferrals. We believe the Company’s new deferral levels are more consistent with deferral levels at our global peers and remain at the high end of historical deferral levelselements of our U.S. peers. This change in compensation program.
42 Morgan Stanley’s deferral approach affects employees who received discretionary deferred compensation, including the CEO and the other NEOs – whose deferral levels, however, remain well above the average with Mr. Gorman’s deferral level at 72%.Stanley 2016 Proxy Statement
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MS 2015 CEO Compensation Elements* | |||||
$ Million % of | % of Total | ||||
Performance-Vested Long-Term Equity Incentive Compensation | |||||
●Realizable value determined after three years (2016-2018), based equally on two performance metrics: target average ROE of 10% and shareholder returns relative to the S&P Financials Index ●Shares delivered can range from 0 – 1.5x target, depending on performance relative to target. TSR portion will not exceed 1.0x if there is negative TSR for the performance period ●Subject to cancellation and clawback | |||||
Deferred Incentive Compensation | |||||
Deferred Cash and Deferred Equity ●Deferred over three years ●Subject to cancellation and clawback | |||||
Current Compensation | |||||
Base Salary and Cash Bonus ●Cash bonus was awarded consistent with the Company-wide deferral schedule | |||||
* | $21 million is the amount the CMDS Committee awarded to the CEO in early |
With the exception of Mr. Kelleher, who iswas 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 20142015 compensation in the same formelements 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 IV.A4.1 contains the 20142015 compensation decisions for each NEO.NEO, which follow a similar performance evaluation process.
I.E.1.4 Shareholder Engagement and “Say on Pay” Vote in 2014 and Shareholder Engagement
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 perspectiveperspectives and provide information about Morgan Stanley’s programs, performance assessment, and decision-making process. Morgan Stanley holds an advisory vote on executive compensation (“Say on Pay”) each year.
A substantial majority (92%(88.6%) of the votes cast at the May 20142015 annual meeting of shareholders were in favor of theour annual “Say on Pay” proposal. In anticipation of the 2015, “Say on Pay” vote, Company management solicitedwe continued our engagement program, seeking feedback from shareholders and from proxy advisory firms on the Company’s 2014 compensation program, anda variety of topics, which was conveyed the feedback received and the results of the 2014 “Say on Pay” vote to the CMDS Committee.
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Committee and the Board. The CMDS Committee will continue to factorfactored shareholder feedback, including the “Say on Pay” vote results, into its consideration of executive compensation structure and determination of NEO pay levels.
After carefully considering shareholder feedback, the CMDS Committee maintained its performance-based approach to executive compensation, and executive pay decreased for 2015 after evaluation against strategic and financial objectives as well as shareholder returns. The CMDS Committee also introduced minimum share ownership requirements for the
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CEO, CFO, President, 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).
2. Compensation Objectives and Strategy |
Morgan Stanley is committed to responsible and effective compensation programs. The CMDS Committee continually evaluates the Company’s compensation programs with a view toward balancing the following key objectives, all of which support shareholders’ interests:
Deliver Pay for Sustainable Performance | ●Emphasize variable annual incentive compensation and performance-vested long-term incentive compensation ●Condition vesting and payment of long-term incentive compensation on future performance against specified financial targets that align with long-term business strategy ●Balance the objectives of delivering returns for shareholders and providing appropriate rewards to motivate superior individual performance | |||
Align Executive | ●Deliver a significant portion of incentive compensation in deferred equity awards that are impacted, up or down, by future stock price performance and are subject to cancellation and clawback over a multi-year period ●Tie a significant portion of executive compensation directly to the Company's stock price and encourage ownership by requiring executives to retain shares ●Ongoing shareholder engagement to understand shareholder views | |||
Attract and Retain | ●Offers competitive pay levels to support the Company's objectives of continuing to attract and retain the most qualified employees in a highly competitive global environment for talent ●Structure incentive awards to include vesting, deferred payment, and cancellation and clawback provisions that protects the Company's interests | |||
Mitigate Excessive | ●Structure and design compensation arrangements that do not incentivize unnecessary or excessive risk-taking that could have a material adverse effect on the Company ●Annually evaluate compensation programs from a risk perspective; review finding with CMDS Committee and independent compensation consultant | |||
Deliver Pay for Sustainable Performance. Our executive compensation program emphasizes discretionary variable annual performance compensation and long-term incentive compensation (LTIP awards) with specific financial targets. Variable annual performance compensation and long-term incentive compensation are adjusted year-over-year to appropriately reward annual achievement of the Company’s financial and strategic objectives. In addition, long-term incentive compensation serves shareholders’ interests by conditioning payment upon future performance that executes on the Company’s long-term business strategy. The structure of the Company’s compensation program balances the objectives of delivering returns for shareholders and providing appropriate rewards to motivate superior individual performance.
Align Executive Compensation with Shareholders’ Interests. The Company delivers a significant portion of incentive compensation in deferred equity awards to align employee interests with those of shareholders. The CMDS Committee believes that linking compensation amounts to performance and delivering a significant portion of annual and long-term incentives as deferred equity awards that are impacted, up or down, by future stock price performance and are subject to cancellation and clawback over a multi-year period, help motivate executives to achieve financial and strategic goals. In addition, members of the Operating Committee, which includes all of the NEOs, are required to retain shares and equity awards at least equal to 75% of the after-tax shares they receive as compensation for service on the Operating Committee. Executives are also prohibited from engaging in hedging strategies, selling short or trading derivatives with Company securities. These policies tie a significant portion of our executive officers’ compensation directly to the Company’s stock price. Our executives also do not engage in pre-established written plans for trading in Company securities, commonly referred to as “Rule 10b5-1 programs.”
Attract and Retain Top Talent. The Company competes for talent globally with investment banks, commercial banks, brokerage firms, hedge funds and other companies offering financial services, and the Company’s ability to sustain or improve its position in this highly competitive environment depends substantially on our ability to continue to attract and retain the most qualified employees. In support of our recruitment and retention objectives, we continually monitor competitive pay levels and we structure our incentive awards to include vesting, deferred payment, and cancellation and clawback provisions that protect the Company’s interests.
Mitigate Excessive Risk-Taking. The CMDS Committee is committed to responsible and effective compensation programs that mitigate excessive risk-taking by employees. The CMDS Committee is advised by the Company’s Chief Risk Officer and the CMDS Committee’s independent compensation consultant to help ensure that the structure and design of compensation arrangements disincentivize unnecessary or excessive risk-taking that threatens the Company’s interests or gives rise to risk that could have a material adverse effect on the Company. The Chief Risk Officer evaluated Morgan Stanley’s current compensation programs and determined that such programs do not encourage such behavior, due in part to (i) our balance of fixed compensation and variable compensation; (ii) our balance between short-term and long-term incentives; (iii) our mandatory deferrals into both equity-based and cash-based incentive programs; (iv) the governance procedures followed in making compensation decisions; (v) the risk-mitigating features of our awards, such as cancellation and clawback provisions; and (vi) our equity ownership commitment. (See also “Compensation Governance – Consideration of Risk Management in Determining Compensation.”)
3. Framework for Making Compensation Decisions |
3.1 Factors Considered in Compensation Decisions
The 20142015 compensation of the NEOs was determined at the discretion ofby the CMDS Committee after consideration of Company business results and strategic performance and individual performance, as well as
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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 use of discretion in determining NEO compensation for 2014, the CMDS Committee evaluates Company and individual performance. The CMDS Committee does not utilize formulaic or non-formulaic financial performance goals or targets, and performance metrics are not assigned any specific weighting for purposes of determining the compensation awarded to the CEO or other NEOs. As market conditions and the macroeconomic environment impact the financial services industry and can change dramatically during a year, the CMDS Committee assesses financial performance at the end of the year in light of the most recent facts and circumstances.
For 2014, the CMDS Committee evaluated Company performance against a number of financial and market metrics on an absolute basis and relative to a comparison group comprised of Bank of America Corp., Barclays Plc, Citigroup Inc., Credit Suisse Group, Deutsche Bank AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., UBS AG, and Wells Fargo & Company (Comparison Group). Our Comparison Group consists of companies that either directly compete with us for business and/or talent or are global organizations with scope, size or other characteristics similar to those of the Company. No single financial or market metric controlled compensation decisions; rather, competitor data were used to help the CMDS Committee better understand Company performance.
Performance Priorities. The CMDS Committee and the full Board review performance priorities at the beginning of each year to guide their evaluation of Company and individual performance throughout the year. To inform its use of discretion in determining NEO compensation for 2014, the CMDS Committee reviewed performance priorities in the following areas:
Financial performance
Business performance and development for each primary business unit
The strategic alliance with MUFG
Financial and operational risk controls
Operations and technology & data infrastructure
Firm compensation and development
Board assessment of risk culture, leadership, strategy and reputation
These performance priorities are a directional assessment made at the beginning of the year and their attainment or non-attainment does not correspond to any specific compensation decision.
Market Data and Review. The Company uses the Comparison Group to understand market practices and trends and to evaluate the competitiveness of our compensation programs and inform its discretionary compensation decisions. Throughout the year, the CMDS Committee reviewed analyses of our competitors’ pay levels, including historical compensation data obtained from public filings and compensation surveys conducted by consultants on an unattributed basis, as well as compensation plan design. The market compensation information considered by the CMDS Committee is either prepared or validated by its independent compensation consultant.
Benchmarking Target CEO Pay. The CMDS Committee, in consultation with its independent compensation consultant, established a target range for 2014 compensation for the CEO of $23 million or more for superior performance to $13 million or less for performance substantially below expectations. To inform its decision-making with respect to the appropriate target range, the CMDS Committee reviewed 2013 compensation levels for the following two sample groups, which are intended to reflect institutions of similar size, scope and complexity: (i) the 13 financial companies in the S&P 100 (AIG, Allstate, American Express, Bank of New York Mellon, Capital One Financial, MasterCard, MetLife, US Bancorp and the five U.S. companies within the Comparison Group) and (ii) the five U.S. companies within the Comparison Group. The CMDS Committee then utilized the range of results as a benchmark from which to set a target range for 2014 compensation for the CEO.
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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 accomplishments, performance assessments and compensation recommendations for each NEO other than himself. The CMDS Committee reviewed these recommendations with the CMDS Committee’s independent compensation consultant to assess whether they were reasonable compared with the market for executive talent and met in executive session to discuss the performance of our CEO and the other NEOs and to determine their compensation. In addition, the CMDS Committee reviewed proposed CEO incentive compensation with the full Board (other than Mr. Gorman) in executive session.
Compensation Expense Considerations. Prior to determining individual NEO incentive compensation, the CMDS Committee reviewed and considered the relationship between Company performance, total compensation expense (which includes fixed compensation costs such as base salaries, allowances, benefits, and commissions) and incentive compensation as a subset of overall compensation expense. This furthers the balancing of the objectives of delivering returns for shareholders and providing appropriate rewards to motivate superior individual performance.
Global Regulatory Principles. The Company’s compensation practices are subject to oversight by our regulators in the U.S. and internationally. Throughout 2014, senior management briefed the CMDS Committee on relevant regulatory developments, including with regard to the mix of incentive compensation and the portion of compensation that should be deferred for certain populations, as well as principles of balanced risk-taking. For example, the Company is subject to the Federal Reserve’s guidance that is designed to help ensure that incentive compensation paid by banking organizations does not encourage imprudent risk-taking that threatens the organizations’ safety and soundness. The Company is also subject to the current and pending compensation-related provisions of the Dodd-Frank Act and the remuneration code of the U.K. Prudential Regulatory Authority which prescribes the deferred compensation structure for certain employees who are identified as “Code Staff.”
● | Company and Individual Performance Review.To inform its decision-making process for NEO compensation for 2015, the CMDS Committee evaluated Company and individual performance. For 2015, a number of performance priorities were set by the CMDS Committee and the Board at the beginning of the year. The performance priorities are established based on a directional assessment made at the beginning of the year in light of the market environment and the Company’s strategic objectives, and their attainment or non-attainment does not correspond to any specific compensation decision. | |
For 2015, the CMDS Committee reviewed performance priorities in the following areas: |
○ | Financial performance, including ROE, ex-DVA |
○ | Shareholder return |
○ | Capital and liquidity strength |
○ | Business performance and development for each primary business unit |
44 Morgan Stanley 2016 Proxy Statement
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○ | The strategic alliance with Mitsubishi UFJ Financial Group, Inc. (MUFG) |
○ | Firm risk management and controls |
○ | Operations and technology and data infrastructure initiatives |
○ | Firm compensation and talent development |
○ | Board assessment of risk culture, leadership, strategy, and reputation |
Performance against certain of the performance priorities is evaluated by the CMDS Committee on a relative basis to a comparison group comprised of Bank of America Corp., Barclays Plc, Citigroup Inc., Credit Suisse Group, Deutsche Bank AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., and UBS AG (together with Wells Fargo & Company, Comparison Group). Our Comparison Group consists of companies that either directly compete with us for business and/or talent or are global organizations with scope, size, or other characteristics similar to those of the Company. | |
● | Compensation Market Data. The Company uses the Comparison Group to understand market practices and trends, evaluate the competitiveness of our compensation programs, and inform its compensation decisions. During 2015, the CMDS Committee reviewed analyses of our competitors’ pay levels, including historical compensation data obtained from public filings and compensation surveys conducted by consultants on an unattributed basis, as well as compensation plan design. |
● | Benchmarking Target CEO Pay. As discussed in Section 1.2, the CMDS Committee, in consultation with its independent compensation consultant, established a target range for 2015 compensation for the CEO of $28 million or more for superior performance to $10 million or less for performance substantially below expectations. To inform its decision-making with respect to the appropriate target range, the CMDS Committee reviewed 2014 compensation levels for the following two sample groups, which are intended to reflect institutions of similar size, scope, and complexity: (i) the 13 financial companies in the S&P 100 (AIG, Allstate, American Express, Bank of New York Mellon, Capital One Financial, MasterCard, MetLife, US Bancorp, and the five U.S. companies within the Comparison Group), and (ii) the five U.S. companies within the Comparison Group. The CMDS Committee then utilized the range of results as a benchmark from which to set the target range for 2015 compensation for the CEO. |
● | Input and Recommendations from the CEO, Independent Directors and CMDS Committee’s Independent Consultant. At the end of the year, Mr. Gorman presented the CMDS Committee with performance assessments and compensation recommendations for each NEO other than himself. The CMDS Committee reviewed these recommendations with the CMDS Committee’s independent compensation consultant to assess whether they were reasonable compared with the market for executive talent and met in executive session to discuss the performance of our CEO and the other NEOs and to determine their compensation. In addition, the CMDS Committee reviewed proposed NEO incentive compensation with the full Board (other than Mr. Gorman) in executive session. |
● | Compensation Expense Considerations. Prior to determining individual NEO incentive compensation, the CMDS Committee reviewed and considered the relationship between Company performance, total compensation expense (which includes fixed compensation costs such as base salaries, allowances, benefits, and commissions), and incentive compensation as a subset of overall compensation expense. This exercise furthers the balancing of the objectives of delivering returns for shareholders and providing appropriate rewards to motivate superior individual performance. |
● | Global Regulatory Principles.The Company’s compensation practices are subject to oversight by our regulators in the U.S. and internationally. Throughout 2015, senior management briefed the CMDS Committee on relevant regulatory developments, including with regard to the mix of incentive compensation and the portion of compensation that should be deferred for certain populations, as well as principles of balanced risk-taking. For example, the Company is subject to the Federal Reserve’s guidance that is designed to help ensure that incentive compensation paid by banking organizations does not encourage imprudent risk-taking that threatens the organizations’ safety and soundness. The Company is also subject to the compensation-related provisions of the Dodd-Frank Act and the remuneration code of the U.K. Prudential Regulatory Authority, which prescribes the deferred compensation structure for certain employees who are identified as “Code Staff.” |
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● | Relative Pay |
● | Tax Deductibility.Section 162(m) of the Internal Revenue Code (Section 162(m)) limits the tax deductibility of compensation for certain executive officers (other than the CFO) that is more than $1 million, unless the compensation qualifies as “performance-based.” To qualify as “performance-based” compensation, the award must be based on objective, pre-established performance criteria approved by shareholders or otherwise qualify as “performance-based” under Section 162(m). While our policy, in general, is to maximize the tax deductibility of compensation paid to executive officers covered under Section 162(m), the CMDS Committee nevertheless may authorize awards or payments that might not be tax deductible if it believes they are in the best interests of the Company and its shareholders. |
3.2 Evaluating Company and Individual Performance for Alignment with Executive Compensation
Clawback Policies and Procedures.In 2008, Morgan Stanley implemented a clawback for a substantial portion of incentivedetermining the annual performance compensation and in the years since, we have expanded the application of the clawback to cover all incentive compensation awardsCEO and a broad scope of employee behavior. (See Section IV.B “2014 Annual Compensation Program Details.”) The Company’s independent control functions (the Internal Audit, Legal, Risk, Human Resources and Finance departments) take part in an enhanced, formalized review process for identifying and evaluating situations occurring throughout the course of the year that could require clawback or cancellation of previously awarded compensation, as well as adjustments to current year compensation. Clawbacks of previously awarded compensation are reviewed quarterly with a committee of senior management and reported to the CMDS Committee. In addition,other NEOs, the CMDS Committee adopted a policy that sets forth standards for managers onweighed the use of discretion when making annual compensation decisionsCompany’s overall financial performance, progress toward long-term strategic objectives, and, considerations for assessing risk managementas applicable, business unit performance. Morgan Stanley’s overall 2015 financial performance was meaningfully improved, and outcomes.
Tax Deductibility. Section 162(m) of the Internal Revenue Code (Section 162(m)) limits the tax deductibility of compensation for certain executive officers (other than the CFO) that is more than $1 million, unless the compensation qualifies as “performance-based.” To qualify as “performance-based” compensation, the award must be based on objective, pre-established performance criteria approved by shareholders or otherwise qualify as “performance-based” under Section 162(m). While our policy, in general, is to maximize the tax deductibility of compensation paid to executive officers covered under Section 162(m), the CMDS Committee nevertheless may authorize awards or payments that might not be tax deductible if it believes they are in the best interests of the Company entered 2016 well positioned strategically and its shareholders.with strong capital and liquidity. The significant strategic progress and improved financial performance were, however, not reflected in Morgan Stanley’s share price. Morgan Stanley’s TSR(14)
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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 factors describedperformance indicated below, in determining compensation for our NEOs: Mr. Gorman, the CEO; Ms. Porat, the Chief Financial Officer; Mr. Fleming, the President of Wealth Management and Investment Management; Mr. Kelleher, the President of Institutional Securities; and Mr. Rosenthal, the Chief Operating Officer.
NEOs.
Strategic Objectives.During 2015, the Company achieved several milestones in connection with its overall strategy to continue to enhance shareholder returns: |
○ | Achieved Wealth Management pre-tax margin target of 22% in 2015(2). |
○ | Continued execution of U.S. Bank strategy in Wealth Management and Institutional Securities to support growthin net interest income (46% total NII growth in U.S. Bank over the prior year) and lending (31% growth in Wealth Management lending in U.S. Bank over the prior year)(3). |
○ | Progress toward a strategic solution for the Commodities franchise, with the sale of the Global Oil Merchantingbusiness. |
○ | Achievement of #1 ranking in Institutional Equities revenue market share and #1 ranking globally in Initial PublicOfferings, #2 ranking globally in Announced Mergers and Acquisitions and Global Equity(4). |
○ | Tailwind from lower funding costs as new debt issued at tighter spreads than maturing debt. |
○ | Reduction in the Institutional Securities compensation ratio excluding DVA to 37%, achieving the target of 39% orlower(5). |
○ | Received two-notch upgrade from Moody’s: Morgan Stanley’s long-term senior debt ratings increased from Baa2 toA3. |
○ | Received non-objection from the Federal Reserve Board to the 2015 Capital Plan, which included share repurchase ofup to $3.1Bn and an increase in the quarterly common stock dividend to $0.15 per share from $0.10 per share. |
● | Company Financial Performance. |
○ | Company-wide. Morgan |
46 Morgan Stanley 2016 Proxy Statement
EXECUTIVE COMPENSATION
of $34.3 billion and net income applicable to Morgan Stanley of $ 3.5 billion, or $1.60 per diluted common share for 2014. Excluding the impact of DVA, |
○ | Institutional Securities. Institutional Securities reported |
○ | Wealth Management. Wealth Management reported pre-tax income from continuing operations of |
○ | Investment Management.Investment Management reported pre-tax income |
Strategic Execution. During 2014, the Company achieved several milestones in connection with its overall strategy to enhance shareholder returns:
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○ | Mr. Gorman’s continued outstanding leadership of the Company, including: articulating and executing a Company-wide long-term strategy (with financial and non-financial goals) to enhance profitability and returns to shareholders; maintaining strong liquidity and capital positions; reducing expenses; maintaining sound risk management and controls; playing a leadership role in industry efforts to improve culture and set the tone for enhancements to existing strong culture at the Company; and continuing to strengthen the Company’s reputation among employees, research analysts, rating agencies, the media, and regulators. |
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○ | Mr. Fleming’s strong business results for Wealth Management, including increased profit before tax and continued |
○ | Mr. Kelleher’s solid business results for Investment Banking and Equities Sales & Trading business in terms of |
○ | Mr. Rosenthal’s role in advising the Board of Directors and Operating Committee on |
Morgan Stanley 2016 Proxy Statement 47
Progress toward a strategic solution for the Commodities franchise, with the saleTable of TransMontaigne and CanTerm Canadian Terminals and commitment to explore strategic options for the Global Oil Merchanting businessContents
EXECUTIVE COMPENSATION
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Continued execution of bank strategy to support growth in net interest income and lending growth in Wealth Management and Institutional Securities, with increased bank assets and loan balances in 2014 over the prior year
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Doubling of the quarterly common stock dividend and share repurchase program over the prior year
As a result of these and other actions, Morgan Stanley’s overall 2014 performance was significantly improved as reflected by TSR of 25%(13), and the Company entered 2015 well positioned strategically and with strong capital and liquidity. While ROE improved, it was still below expectation, and management has articulated a clear path to ROE improvement. These results, as well as the performance indicated above, are reflected in the CMDS Committee’s pay decisions.
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Mr. Gorman’s continued outstanding leadership of the Company, including his efforts in articulating and executing a Company-wide strategy to enhance profitability, share price and market capitalization; maintaining sound risk management and controls; and promoting cultural cohesion and engagement among employees.
Ms. Porat’s execution of an efficient liquidity and funding program; driving successful capital management processes; working closely with global and U.S. regulators, investors, counterparties and rating agencies; and her leadership with respect to initiatives for talent globally, with particular focus on women throughout the Company.
Mr. Fleming’s strong business results for Wealth Management and Investment Management, including increased profit before tax, continued margin improvement and investment performance, transition of the merchant banking/real estate fund business model in light of the Volcker Rule, efforts to increase collaboration with Institutional Securities, and his leadership in improving morale across the businesses.
Mr. Kelleher’s strong business results for Investment Banking and Equities Sales & Trading business, including efforts to enhance ROE of Fixed Income and Commodities, increase collaboration with Wealth Management and position Institutional Securities for regulatory changes, and reduced Fixed Income Basel III RWAs ahead of previously determined targets, as well as Mr. Kelleher’s successful management of his global role, global regulatory obligations, and client interactions across many jurisdictions.
Mr. Rosenthal’s role in advising the Board of Directors and Operating Committee on the Company’s strategic and cost reduction initiatives; leadership of several support functions including Operations and Technology and Data; chairing of the Financial Holding Company Governance Committee that coordinates important cross-functional operational improvement and regulatory initiatives; and becoming chairman of the Company’s U.S. bank subsidiaries.
36
4. Compensation Decisions and Program |
4.1 Compensation Decisions
The table below shows how the CMDS Committee viewed itsCommittee’s compensation decisions for 20142015 for the NEOs. This view differsNEOs, and is different from but is not a replacement for, the SEC required disclosure required in the “2014“2015 Summary Compensation Table.”
Mr. Gorman | Ms. Porat | Mr. Fleming | Mr. Kelleher | Mr. Rosenthal | ||||||||||||||||
Base Salary(a) | $ | 1,500,000 | $ | 1,000,000 | $ | 1,000,000 | $ | 6,795,386 | $ | 1,000,000 | ||||||||||
Cash Bonus(a) | $ | 4,697,500 | $ | 2,897,500 | $ | 3,497,500 | $ | 383,418 | $ | 2,597,500 | ||||||||||
Deferred Equity Award(b) | $ | 4,422,675 | $ | 2,198,675 | $ | 2,906,675 | $ | 2,579,119 | $ | 1,844,675 | ||||||||||
Deferred Cash-based Award(c) | $ | 5,379,825 | $ | 3,003,825 | $ | 3,795,825 | $ | 1,442,077 | $ | 2,607,825 | ||||||||||
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2014 Compensation Total: | $ | 16,000,000 | $ | 9,100,000 | $ | 11,200,000 | $ | 11,200,000 | $ | 8,050,000 | ||||||||||
2015-2017 LTIP Award:(d) | $ | 6,500,000 | $ | 3,900,000 | $ | 4,800,000 | $ | 4,800,000 | $ | 3,450,000 | ||||||||||
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Comprehensive Pay Opportunity: | $ | 22,500,000 | $ | 13,000,000 | $ | 16,000,000 | $ | 16,000,000 | $ | 11,500,000 | ||||||||||
Supplemental Award:(a) | $ | 2,000,000 |
Mr. Gorman | Mr. Pruzan | Mr. Fleming | Mr. Kelleher | Mr. Rosenthal | ||||||
Base Salary(a) | $ | 1,500,000 | $ | 802,740 | $ | 1,000,000 | $ | 6,305,228 | $ | 1,000,000 |
Cash Bonus(b) | $ | 4,397,500 | $ | 2,136,952 | $ | 3,347,500 | $ | 417,424 | $ | 2,497,500 |
Deferred Equity Award (RSUs)(c) | $ | 4,626,250 | $ | 1,390,702 | $ | 5,451,250 | $ | 3,158,001 | $ | 1,751,250 |
Deferred Cash-based Award(d) | $ | 4,626,250 | $ | 3,030,154 | $ | 5,451,250 | $ | 2,080,948 | $ | 3,751,250 |
2016-2018 Performance-vested LTIP Award(e) | $ | 5,850,000 | $ | 1,639,452 | — | $ | 3,288,399 | $ | 2,000,000 | |
Total: | $ | 21,000,000 | $ | 9,000,000 | $ | 15,250,000 | $ | 15,250,000 | $ | 11,000,000 |
(a) | As CFO effective May 1, 2015, Mr. |
(b) | Mr. Kelleher’s cash bonus was paid in British pounds sterling in the amount of |
Mr. Gorman received |
Deferred cash-based awards under the |
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.”
3748 Morgan Stanley 2016 Proxy Statement
EXECUTIVE COMPENSATION
IV.B. 20144.2 Annual Compensation Program DetailsElements
The following chart provides a brief summary of the principal elements of the Company’s 20142015 annual compensation program for our NEOs. Each NEO receives a base salary and is eligible to receive discretionary annual performance compensation for prior-year performance. Annual performance compensation is intended to reward NEOs for achievement of the Company’s financial and strategic objectives over the prior year and is delivered in a mix of a cash bonus, a deferred equity award, and a deferred cash-based award.
The LTIP awards, which are deferred equity awards that are subject to future achievement of specified financial goals over a three-year period, are described in Section 4.3 “Long-Term Incentive Program”.
Purpose | Features | |||
Base Salary* | Base salary reflects | Base salaries are reviewed periodically and are subject to change for, among other reasons, a change in responsibilities or the competitive environment. | ||
Cash Bonus | Paying a portion of compensation in cash bonus is aligned with competitive pay approaches. | The portion of cash bonus | ||
Deferred Equity Award – | Equity awards link realized value to shareholder returns, and the terms of the awards support retention objectives and
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Awards are subject to cancellation for competition, cause (i.e., any act or omission that constitutes a breach of obligation to the Company, including failure to comply with internal compliance, ethics or risk management standards, and failure or refusal to perform duties satisfactorily, including supervisory and management duties), disclosure of proprietary information, and solicitation of employees or clients. | ||
Deferred Cash-Based Award – | The terms of deferred cash-based awards support retention objectives and mitigate excessive risk-taking. The awards provide a cash incentive with a rate of return based upon notional reference | Awards are subject to clawback if an employee’s act or omission (including with respect to direct supervisory responsibilities) causes a restatement of the Company’s consolidated financial results, constitutes a violation of the Company’s global risk management principles, policies and standards, or causes a loss of revenue associated with a position on which the employee was paid and the employee operated outside of internal control policies. | ||
Awards to Operating Committee members (including NEOs) are also subject to clawback if the CMDS Committee determines that the Operating Committee member had significant responsibility for a material adverse outcome for the Company or any of its businesses or functions.** |
* | Mr. Kelleher |
** | In addition, as “Code Staff,” Mr. Kelleher’s |
Morgan Stanley 2016 Proxy Statement49
EXECUTIVE COMPENSATION
38
IV.C. 2015-20174.3 Long-Term Incentive Program Details
For the past five years, the Company has granted a substantial portion of compensation to key executives in the form of a long-term incentive award that delivers value only if the Company achieves objective performance goals. The 2016-2018 LTIP was introduced by the Company in 2013 and builds upon the performance stock unit program of previous years. The LTIP tiesawards tie a meaningful portion of each executive’sNEO’s compensation to the Company’s long-term financial performance and reinforcesreinforce the executive’sNEO’s accountability for the achievement of the Company’s future financial and strategic goals by directly linking the ultimate realizable award value to prospective performance against core financial measures over a forward-looking three-year period.
Award Terms. The LTIP awards will vest and convert to shares of the Company’s common stock in 2018 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, 2015 and ending December 31, 2017. While each key executive was awarded a target number of performance stock units, the actual number of units earned could vary from as few as zero, if performance goals are not met, to as much as 1.5 times target, if performance goals are meaningfully exceeded. No participant will receive any portion of the LTIP award if the threshold performance goals are not met.
The LTIP awards remain subject to cancellation upon certain events until conversion to shares of Company common stock. If, after conversion of the LTIP awards, the CMDS Committee determines that the performance certified by the CMDS Committee was based on materially inaccurate financial statements, then the shares delivered will be subject to clawback by the Company.
Performance Goals. One-half of the target LTIP award is earned based on the Company’s average ROE over the three-year performance period (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 | |||||
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 |
● | General Terms. The 2016-2018 LTIP awards will vest and convert to shares of the Company’s common stock at the end of the three-year performance period only if the Company achieves predetermined performance goals with respect to ROE and relative TSR, as set forth below, over the period beginning January 1, 2016 and ending December 31, 2018. While each participant was awarded a target number of performance stock units, the actual number of units earned could vary from 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 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 | |||
11.5% or more | 1.50 | 25% or more | 1.50 | |||
10% | 1.00 | 0% | 1.00 | |||
5% | 0.50 | -50% | 0.50 | |||
Less than 5% | 0.00 | Less than -50% | 0.00 |
* | MS Average ROE, for this purpose, excludes (a) the impact of DVA, (b) certain gains or losses associated with the sale of specified businesses, (c) specified goodwill impairments, (d) certain gains or losses associated with specified legal settlements relating to business activities conducted prior to January 1, 2011, and (e) specified cumulative catch-up adjustments resulting from changes in, or application of a new, accounting rule that are not applied on a full retrospective basis. If MS Average ROE is between two of the thresholds noted in the table, the number of stock units earned will be determined by straight-line interpolation between the two thresholds. |
** | 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 Grants of Plan-Based Awards Table,” each of our NEOs (including Ms. Porat, but excluding Mr. Pruzan) received an LTIP award in 2015 on similar terms as described above. Additionally, as described in note 3 to the “2015 Option Exercises and Stock Vested Table,” LTIP awards granted in 2013 vested at 134.77% of target, based on performance over the three-year performance period ended December 31, 2015.
IV.D.4.4 Additional Compensation and Benefits Details.Information
● | Clawback Policies and Procedures. The Company’s independent control functions (the Internal Audit, Legal, Risk, Human Resources and Finance departments) take part in a formalized review process for identifying and evaluating situations occurring throughout the course of the year that could require clawback or cancellation of previously awarded compensation, as well as downward adjustments to current year compensation. Clawbacks of previously awarded compensation are reviewed quarterly with a committee of senior management (currently the Chief Legal Officer, CRO, Chief Human Resources Officer, COO, and Chief Compliance Officer) and reported to the CMDS Committee. In addition, the Global Incentive Compensation Discretion Policy, which was adopted by the CMDS Committee in 2011, sets forth standards for managers on the use of discretion when making annual compensation decisions and considerations for assessing risk management and outcomes. |
Health and Insurance Benefits. All NEOs are eligible to participate in Company-sponsored health and insurance benefit programs available in the relevant jurisdiction to similarly situated employees. In the U.S., higher compensated employees pay more to participate in the Company’s medical plan. NEOs are also eligible to participate in Morgan Stanley’s Executive Health Program under which each NEO is eligible to receive Company-funded access to a private primary care physician offering on-call services and an annual executive health care assessment. Upon retirement, NEOs may be eligible to participate in retiree medical coverage under the 50Morgan Stanley Medical Plan on the same basis as other retired employees.2016 Proxy Statement
EXECUTIVE COMPENSATION
39
Personal Benefits. The Company provides limited 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 an aircraft 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. Personal benefits provided to NEOs are discussed under the “2014 Summary Compensation Table.”
Pension and Retirement. Company-provided retirement benefits in the U.S. include a tax-qualified 401(k) plan and a frozen tax-qualified pension plan (the Employees Retirement Plan (ERP)). Certain NEOs may also be eligible to participate in the Company’s frozen Supplemental Executive Retirement and Excess Plan (SEREP). The SEREP was originally intended to compensate for the limitations imposed under the ERP and Internal Revenue Code. No NEO is awarded with credited service in excess of his/her actual service under the ERP or SEREP. In 2014, the SEREP was amended to cease further benefit accruals.
Severance. NEOs are not contractually entitled to cash severance payments upon termination of employment.
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. Since 2009, the Company has requested approval of additional shares to cover only one year of grant needs. In 2014, after a year in which the Company’s stock price increased substantially, the Company expected to have sufficient shares for grants to be made over the next year and, therefore, did not request shareholder approval for additional shares at the 2014 annual meeting of shareholders. The Company has evaluated, as it does annually, whether to return to shareholders to request approval of additional shares at the 2015 annual meeting of shareholders and has determined to request 25 million shares to cover one year of grant needs – this is less than the 47 million shares the Company has repurchased since 2013. In addition, the Company has an active share repurchase program and is authorized by the Board to repurchase up to an additional $3.1 billion of common shares of the Company (85 million shares based on the March 23, 2015 closing price of $36.31) through the end of the second quarter of 2016.
Change-in-Control Tax Gross-Up. NEOs are not contractually entitled to any golden parachute excise tax protection upon a change-in-control of Morgan Stanley.
5. Notes to the Compensation Discussion and Analysis |
The following notes are an integral part of the Company’s financial and operating performance described in this CD&A:
(1) |
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(2) | Pre-tax margin is calculated as income (loss) from continuing operations |
(3) | Net interest income (NII) growth in U.S. Bank represents the total year-over-year NII percentage increase for the |
(4) | Institutional Equities revenue market share is based on the sum of the reported net revenues for the equity sales and trading businesses of Morgan Stanley and the companies within the Comparison Group (excluding Wells Fargo & Company); where applicable, the reported net revenues exclude DVA. Equity sales and trading net revenues, ex-DVA is a non-GAAP financial measure that the Company considers useful for investors to allow better comparability of period to period operating performance. The Company’s capital markets rankings are reported by Thomson Reuters as of January 4, 2016 for the period of January 1, 2015 to December 31, |
(5) | Institutional Securities compensation ratios, ex-DVA of 37% and 48% for 2015 and 2014, respectively, represent the segment’s compensation and benefits expense (2015: $6,467 million; 2014: $7,786 million) as a percentage of net revenues, ex-DVA (2015: $17,335 million, excluding the positive impact of $618 million from DVA; 2014: $16,220 million, excluding the positive impact of $651 million from DVA). The 2014 compensation ratio of 42% also excludes $904 million of compensation and benefits expense associated with the 2014 compensation actions. For further information regarding the incentive compensation actions taken in 2014, see pages 68 and 69 of the 2015 Form 10-K. The Institutional Securities compensation ratio, ex-DVA and the impact of the 2014 compensation actions, are non-GAAP financial measures the Company considers useful for investors to assess operating performance. |
Morgan Stanley 2016 Proxy Statement51
EXECUTIVE COMPENSATION
A detailed analysis of the Company’s financial and operational performance for |
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DVA represents the change in fair value of certain of the Company’s long-term and short-term borrowings outstanding resulting from the fluctuation in the Company’s credit spreads and other credit factors. The Company believes that most investors assess its |
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(10) | Pre-tax profit in 2014 includes litigation costs related to residential mortgage-backed securities and credit crisis matters of $3,083 million, 2014 compensation actions of approximately $1,137 million, and a funding valuation adjustment implementation charge of $468 million. For further information regarding these items, see page 39 of the 2015 Form 10-K. |
(11) | The |
2013 ($) | 2014 ($) | |||||||
Income from continuing operations applicable to MS, excluding subsequent event – Non-GAAP | 2,975 | 6,151 | ||||||
Subsequent event impact | — | (2,670 | ) | |||||
Income from continuing operations applicable to MS – GAAP | 2,975 | 3,481 |
Additionally, the reconciliation of income from continuing operations applicable to Morgan Stanley, excluding DVA (a current non-GAAP measure utilized by the Company – see note 7 above), to the same measure also excluding the impact of the subsequent event (another non-GAAP measure) is as follows (amounts are presented in millions):
2013 ($) | 2014 ($) | |||||||
Income from continuing operations applicable to MS, excluding DVA and subsequent event – Non-GAAP | 3,427 | 5,733 | ||||||
Subsequent event impact | — | (2,670 | ) | |||||
Income from continuing operations applicable to MS, excluding DVA – Non-GAAP | 3,427 | 3,063 |
percentage of average common equity. To determine |
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2013 ($) | 2014 ($) | |||||||
Adjusted non-compensation expenses – Non-GAAP | 9,791 | 9,847 | ||||||
Increase in legal expenses, 2013 and 2014, respectively, over 2012 baseline | 1,554 | 3,013 | ||||||
Investments/impairments/write-offs | 313 | — | ||||||
Non-compensation expenses – GAAP | 11,658 | 12,860 |
(12) |
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(13) | ROE, ex-DVA in 2014 includes the after tax impact of the costs and charges discussed in note (10) and net discrete tax benefits of $2,226 million. For further information regarding these items, see pages 39 and 40 of the 2015 Form 10-K. |
(14) | TSR |
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(16) | Company net revenues, ex-DVA, net income applicable to Morgan Stanley, ex-DVA, and earnings per diluted common share, ex-DVA, are non- GAAP financial measures that the Company considers useful measures for investors to assess operating performance. For further information regarding these measures, see pages 42 and 43 of the 2015 Form 10-K. |
(17) | Institutional Securities pre-tax profit, ex-DVA excludes positive revenues from |
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2013 ($) | 2014 ($) | |||||||
Income from continuing operations before taxes, excluding DVA and subsequent event – Non-GAAP | 1,627 | 2,089 | ||||||
DVA impact | (681 | ) | 651 | |||||
Subsequent event impact | — | (2,798 | ) | |||||
Income (loss) from continuing operations before taxes – GAAP | 946 | (58 | ) |
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Compensation, Management Development and Succession Committee Report
We, the Compensation, Management Development and Succession Committee of the Board of Directors of Morgan Stanley, have reviewed and discussed with management the Compensation Discussion and Analysis contained in this proxy statement. Based on such review and discussions, we have recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into the Company’s Annual Report on Form 10-K for the year ended December 31, 20142015 filed with the SEC.
Respectfully submitted,
Donald T. Nicolaisen, Chair
Erskine B. Bowles
C. Robert Kidder
Hutham S. Olayan,
Chair52Morgan Stanley 2016 Proxy Statement
43EXECUTIVE COMPENSATION
2014 Summary Compensation TableEXECUTIVE COMPENSATION TABLES
The following table summarizestables summarize the compensation of our named executive officersNEOs (including for this purpose, our former CFO, Ms. Porat) in the format specified by the SEC. Our NEOs are our Chief Executive Officer, Chief Financial Officer and the three other most highly compensated executive officers as determined by their total compensation for the year ended December 31, 2014 set forth in the table below, excluding, in accordance with SEC rules, the amount in the column captioned “Change in Pension Value and Nonqualified Deferred Compensation Earnings.”
2015 Summary Compensation Table |
Pursuant to SEC rules, the following table is required to include for a particular year only those stock awards and option awards grantedduring the year, rather than awards grantedafter year-end that were awarded for performance in that year. Through 2014,2015, our annual equity awards relating to performance in a year are made shortly after year-end. Therefore, compensation in the table includes not only non-equity compensation 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-basedperformance-vested compensation. A summary of the CMDS Committee’s decisions on the compensation awarded to our NEOs for 20142015 performance (which, in accordance with SEC rules, are in large part not reflected in the Summary Compensation Table) can be found in the CD&A.
Name and Principal Position | Year(1) | Salary ($)(2) | Bonus ($)(3) | Stock Awards ($)(4)(5) | Option Awards ($)(5) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(6) | All Other Compensation ($)(7) | Total ($) | ||||||||||||||||||||||||
James P. Gorman | 2014 | 1,500,000 | 10,077,325 | 11,241,190 | — | 195,398 | 256,131 | 23,270,044 | ||||||||||||||||||||||||
Chairman and | 2013 | 1,500,000 | 5,408,000 | 4,349,344 | 2,624,999 | 497,893 | 28,327 | 14,408,563 | ||||||||||||||||||||||||
Chief Executive Officer | 2012 | 800,000 | 2,575,000 | 6,984,208 | — | 292,454 | 20,552 | 10,672,214 | ||||||||||||||||||||||||
Ruth Porat* | 2014 | 1,000,000 | 5,901,325 | 7,476,460 | — | 388,313 | 16,746 | 14,782,844 | ||||||||||||||||||||||||
Executive Vice | 2013 | 1,000,000 | 3,623,000 | 5,439,519 | — | 25,307 | 16,103 | 10,103,929 | ||||||||||||||||||||||||
President and | 2012 | 750,000 | 2,250,000 | 4,800,178 | — | 278,030 | 15,497 | 8,093,705 | ||||||||||||||||||||||||
Chief Financial Officer | ||||||||||||||||||||||||||||||||
Gregory J. Fleming | 2014 | 1,000,000 | 7,293,325 | 9,147,181 | — | — | — | 17,440,506 | ||||||||||||||||||||||||
Executive Vice | 2013 | 1,000,000 | 4,473,000 | 3,479,475 | 2,425,000 | — | — | 11,377,475 | ||||||||||||||||||||||||
President and President of Wealth Management and Investment Management | 2012 | 750,000 | 2,425,000 | 5,100,174 | — | — | — | 8,275,174 | ||||||||||||||||||||||||
Colm Kelleher | 2014 | 6,795,386 | (8) | 2,825,495 | (9) | 9,348,854 | — | 735,935 | 317,127 | 20,022,797 | ||||||||||||||||||||||
Executive Vice | 2013 | 978,102 | 4,293,225 | 3,479,475 | 2,411,665 | 792,321 | 385,313 | 12,340,101 | ||||||||||||||||||||||||
President and President of Institutional Securities | 2012 | 776,661 | 2,411,670 | 4,232,218 | — | 576,399 | 279,045 | 8,275,993 | ||||||||||||||||||||||||
James A. Rosenthal | 2014 | 1,000,000 | 5,205,325 | 6,474,027 | — | 12,384 | 10,400 | 12,702,136 | ||||||||||||||||||||||||
Executive Vice President | 2013 | 1,000,000 | 3,113,000 | 3,189,519 | 2,024,997 | — | 10,200 | 9,337,716 | ||||||||||||||||||||||||
and Chief Operating Officer |
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 |
* |
Morgan Stanley 2016 Proxy Statement53
EXECUTIVE COMPENSATION
44
(1) | Includes any elective deferrals to the Company’s employee benefit plans. |
(2) | For 2015, includes 2015 annual cash bonus paid in February 2016 and awards granted in January 2016 under MSCIP for performance in 2015: |
Name | 2015 Cash Bonus ($) | 2015 MSCIP Award ($) | Total ($) | |||||
James P. Gorman | 4,397,500 | 4,626,250 | 9,023,750 | |||||
Jonathan Pruzan | 2,136,952 | 3,030,154 | 5,167,106 | |||||
Ruth Porat | — | — | — | |||||
Gregory J. Fleming | 3,347,500 | 5,451,250 | 8,798,750 | |||||
Colm Kelleher | 417,424 | 2,080,948 | 2,498,372 | |||||
James A. Rosenthal | 2,497,500 | 3,751,250 | 6,248,750 |
With the exception of Mr. Kelleher’s award, the 2015 MSCIP awards are scheduled to vest and be distributed on January 22, 2018. Mr. Kelleher’s 2015 MSCIP award is scheduled to vest and be distributed according to the following schedule as prescribed by the U.K. Prudential Regulatory Authority: 1/3 on January 23, 2017, 1/2 of remaining balance on January 22, 2018, and the remaining balance on January 28, 2019. MSCIP awards are subject to cancellation and clawback. For further details on 2015 MSCIP awards, see the CD&A. | |
(3) | For 2015, consists of RSUs granted on January 21, 2015 for performance in 2014 and forward-looking 2015 LTIP awards granted on January 21, 2015, the realizable value of which is dependent entirely on the satisfaction of predetemined performance goals over a three-year performance period. For further details on 2014 RSUs and 2015 LTIP awards, see “2015 Grants of Plan-Based Awards Table.” |
(4) | Represents aggregate grant date fair value of awards granted during the applicable period for service during the prior year, as well as forward-looking performance-based compensation, determined in accordance with the applicable accounting guidance for equity-based awards. |
The following table lists the aggregate grant date fair value of stock unit awards granted to the NEOs during 2015. The aggregate grant date fair value of RSUs included in the table is based on the volume-weighted average price of the common stock on the grant date, and the aggregate grant date fair value of 2015 LTIP awards included in the table is based on the volume-weighted average price of the common stock on the grant date and the probable outcome of the performance conditions as of the grant date, in each case, as determined in accordance with applicable accounting guidance for equity-based awards. The value of the 2015 LTIP awards on the grant date, assuming that the highest level of performance conditions will be achieved, is $9,750,000 for Mr. Gorman; $5,850,000 for Ms. Porat; $7,200,000 for Messrs. Fleming and Kelleher; and $5,175,000 for Mr. Rosenthal. |
Stock Unit Awards Granted During 2015 ($) | ||||||||
Name | 2014 RSUs | 2015 LTIP Awards | Total | |||||
James P. Gorman | 4,422,675 | 6,827,645 | 11,250,320 | |||||
Jonathan Pruzan | 3,472,275 | — | 3,472,275 | |||||
Ruth Porat | 2,198,675 | 4,096,587 | 6,295,262 | |||||
Gregory J. Fleming | 2,906,675 | 5,041,954 | 7,948,629 | |||||
Colm Kelleher | 3,579,119 | 5,041,954 | 8,621,073 | |||||
James A. Rosenthal | 1,844,675 | 3,623,904 | 5,468,579 |
(1)For Mr. Rosenthal, compensation is not shown for 2012 because he was not a NEO in 2012.
(2)Includes any elective deferrals to the Company’s employee benefit plans.
(3) Includes any elective deferrals to the Company’s employee benefit plans. For 2014, includes 2014 annual cash bonus amounts paid in February 2015 and amounts awarded in January 2015 under MSCIP for performance in 2014:
Name | 2014 Cash Bonus ($) | 2014 MSCIP Award ($) | Total ($) | |||
James P. Gorman | 4,697,500 | 5,379,825 | 10,077,325 | |||
Ruth Porat | 2,897,500 | 3,003,825 | 5,901,325 | |||
Gregory J. Fleming | 3,497,500 | 3,795,825 | 7,293,325 | |||
Colm Kelleher | 383,418 | 2,442,077 | 2,825,495 | |||
James A. Rosenthal | 2,597,500 | 2,607,825 | 5,205,325 |
With the exception of Mr. Kelleher’s award, the 2014 MSCIP awards are scheduled to vest and be distributed on January 23, 2017. Mr. Kelleher’s 2014 MSCIP award is scheduled to vest and be distributed according to the following schedule as prescribed by the U.K. Prudential Regulatory Authority: 1/3 on January 25, 2016, 1/2 of the remaining balance on January 23, 2017, and the remaining balance on January 22, 2018. 2014 MSCIP awards are subject to cancellation and clawback. For further details on 2014 MSCIP awards, see the CD&A.
(4) For 2014, consists of RSUs granted on January 21, 2014 for performance in 2013 and forward-looking 2014 LTIP awards granted on January 21, 2014, the realizable value of which is dependent entirely on the satisfaction of predetermined performance goals over a three-year performance period. For further details on 2013 RSUs and 2014 LTIP awards, see “2014 Grants of Plan-Based Awards Table.”
(5)Represents aggregate grant date fair value of awards granted during the applicable period determined in accordance with the applicable accounting guidance for equity-based awards. Therefore, values disclosed in the table include the values of awards granted during the applicable period for service during the prior year, as well as forward-looking performance-based compensation. NEOs do not realize the value of equity-based awards until the awards are settled or exercised. The actual value that a NEO will realize from these awards is determined by future Company performance and share price, and may be higher or lower than the amounts indicated in the table.
The following table lists the aggregate grant date fair value of stock unit awards granted to the NEOs during 2014. The aggregate grant date fair value of RSUs included in the table is based on the volume-weighted average price of the common stock on the grant date, as determined in accordance with applicable accounting guidance for equity-based awards. The aggregate grant date fair value of 2014 LTIP awards included in the table is based on the volume-weighted average price of common stock on the grant date as well as the probable outcome of the performance conditions as of the grant date as determined in accordance with applicable accounting guidance for equity-based awards. The value of the 2014 LTIP awards on the grant date, based on the volume-weighted average price of the common stock on the grant date and assuming that the highest level of performance conditions will be achieved, is $9,000,000 for Mr. Gorman; $6,000,000 for Ms. Porat; $7,250,000 for Messrs. Fleming and Kelleher; and $5,250,000 for Mr. Rosenthal.
Stock Unit Awards Granted During 2014 ($) | ||||||
Name | 2013 RSUs | 2014 LTIP Awards | Total | |||
James P. Gorman | 5,092,000 | 6,149,190 | 11,241,190 | |||
Ruth Porat | 3,377,000 | 4,099,460 | 7,476,460 | |||
Gregory J. Fleming | 4,193,667 | 4,953,514 | 9,147,181 | |||
Colm Kelleher | 4,395,340 | 4,953,514 | 9,348,854 | |||
James A. Rosenthal | 2,887,000 | 3,587,028 | 6,474,027 |
For further information on the valuation of the Company’s RSUsRSU and LTIP awards, see notes 2and 18to the consolidated financial statements included in the 20142015 Form 10-K.
45
(6)The following table lists the change in pension value and the amount of any above-market earnings on nonqualified deferred compensation plans for the NEOs for 2014.
54Morgan Stanley 2016 Proxy Statement
Name | 2014 | 2014 Above-Market Earnings on Nonqualified Deferred Compensation ($)(b) | ||
James P. Gorman | 18,374 | 177,024 | ||
Ruth Porat | 380,596 | 7,717 | ||
Gregory J. Fleming | — | — | ||
Colm Kelleher | 458,966 | 276,969 | ||
James A. Rosenthal | — | 12,384 |
EXECUTIVE COMPENSATION
(5) | The following table lists the change in pension value and the amount of any above-market earnings on nonqualified deferred compensation plans for the NEOs for 2015. Negative amounts included below are reflected as zero in the “2015 Summary Compensation Table”. |
Name | 2015 Change in Pension Value ($)(a) | 2015 Above-Market Earnings on Nonqualified Deferred Compensation ($)(b) | |||||
James P. Gorman | (3,737) | 149,572 | |||||
Jonathan Pruzan | (16,640) | 13,864 | |||||
Ruth Porat | 48,162 | 12,160 | |||||
Gregory J. Fleming | — | — | |||||
Colm Kelleher | 108,935 | 244,633 | |||||
James A. Rosenthal | — | — |
(a) | The |
(b) |
|
(7)The “All Other Compensation” column for 2014 includes (a) contributions made by the Company under our defined contribution plans with respect to such period and (b) perquisites and other personal benefits, as detailed below. Perquisites are valued based on the aggregate incremental cost to the Company. Any of the perquisites and other personal benefits listed below but not separately quantified do not individually exceed the greater of $25,000 or 10% of the total amount of all perquisites received by the NEO. In addition, our NEOs may participate on the same terms and conditions as other investors in investment funds that we may form and manage primarily for client investment, except that we may waive or lower applicable fees and charges for our employees.
(6) | The “All Other Compensation” column for 2015 includes (a) contributions made by the Company under our defined contribution plans with respect to such period and (b) the incremental cost to the Company of perquisites and other personal benefits, as detailed below. In addition, our NEOs may participate on the same terms and conditions as other investors in investment funds that we may form and manage primarily for client investment, except that we may waive or lower applicable fees and charges for our employees. | |
(a) |
|
(b) | Mr. Gorman’s |
46
| ||
Messrs. Gorman’s, Fleming’s and Rosenthal’s amounts each include $20,000 related to participation in the Company’s Executive Health Program. Ms. Porat’s amount includes $33,008 paid by the Company (consistent with Company practice for all SEREP participants) in satisfaction of the employee portion of Federal Insurance Contributions Act (FICA) taxes due upon commencement of payment of her SEREP benefit. Mr. Kelleher’s | ||
(7) | For 2015, Mr. Kelleher’s base salary was £625,000 and his fixed allowances were £3,500,000. For further details on Mr. Kelleher’s 2015 fixed allowances, see the CD&A. The amount of British pounds sterling was converted to U.S. dollars using the 2015 average of daily spot rates of £1 to $1.5285. | |
(8) | Mr. Kelleher’s 2015 cash bonus paid in February 2016 was $417,424, which was paid in British pounds sterling in the amount of £273,087. The amount of U.S. dollars was converted to British pounds sterling using the 2015 average of daily spot rates of $1 to £0.6542. |
Morgan Stanley 2016 Proxy Statement55
(8)For 2014, Mr. Kelleher’s base salary was £625,000 and his fixed allowances were £3,500,000. For further details on Mr. Kelleher’s 2014 fixed allowances, see the “Compensation Discussion and Analysis.” The amount of British pounds sterling was converted to U.S. dollars using the 2014 average of daily spot rates of £1 to $1.6474.EXECUTIVE COMPENSATION
(9) Mr. Kelleher’s 2014 cash bonus paid in February 2015 was $383,418, which was paid in British pounds sterling in the amount of £232,746. The amount of U.S. dollars was converted to British pounds sterling using the 2014 average of daily spot rates of $1 to £0.6070.
2014 Grants of Plan-Based Awards Table(1)
2015 Grants of Plan-Based Awards Table(1) |
The following table sets forth information with respect to RSUs granted to the NEOs in January 20142015 for 20132014 performance and 20142015 LTIP awards granted in January 20142015 for forward-looking performance. All RSUs and 2014 LTIP awards are subject to cancellation if a cancellation event occurs at any time prior to the scheduled conversion date. For further details on cancellation of awards, see “Potential Payments Upon Termination or Change-in-Control.”
Name | Grant Date (mm/dd/ | Approval (mm/dd/ | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | All Other Awards: Shares of Units (#)(3) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise Price of Option Awards ($/Sh) | Grant Date Value of and Awards ($)(4) | |||||||||||||
Threshold (#) | Target (#) | Maximum (#) | ||||||||||||||||||
James P. Gorman | 1/21/2014 | 1/13/2014 | — | 182,883 | 274,325 | — | — | — | 6,149,190 | |||||||||||
1/21/2014 | 1/13/2014 | — | — | — | 155,207 | — | — | 5,092,000
| ||||||||||||
Ruth Porat | 1/21/2014 | 1/13/2014 | — | 121,922 | 182,883 | — | — | — | 4,099,460 | |||||||||||
1/21/2014 | 1/13/2014 | — | — | — | 102,933 | — | — | 3,377,000
| ||||||||||||
Gregory J. Fleming | 1/21/2014 | 1/13/2014 | — | 147,323 | 220,984 | — | — | — | 4,953,514 | |||||||||||
1/21/2014 | 1/13/2014 | — | — | — | 127,825 | — | — | 4,193,667
| ||||||||||||
Colm Kelleher | 1/21/2014 | 1/13/2014 | — | 147,323 | 220,984 | — | — | — | 4,953,514 | |||||||||||
1/21/2014 | 1/13/2014 | — | — | — | 133,972 | — | — | 4,395,340
| ||||||||||||
James A. Rosenthal | 1/21/2014 | 1/13/2014 | — | 106,682 | 160,023 | — | — | — | 3,587,028 | |||||||||||
1/21/2014 | 1/13/2014 | — | — | — | 87,997 | — | — | 2,887,000
|
Grant Date Approval All Other All Other Exercise Grant Date Name Threshold Target Maximum 56 Morgan Stanley EXECUTIVE COMPENSATION 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 Each NEO is entitled to receive cash dividend equivalents on the 2015 LTIP awards, subject to the same vesting, cancellation and payment provisions as the underlying award. Morgan Stanley 2016 Proxy Statement 57 The following table discloses the number of shares covered by unexercised stock options and unvested stock awards held by our NEOs on December 31, Number of Exercisable (#)(1)(2) Number of Unexercisable (#)(1) Option (mm/dd/ yyyy) James P. Gorman Ruth Porat Gregory J. Fleming Colm Kelleher James A. Rosenthal (1) The stock option awards in this table vested and became exercisable as follows: 60% of the award became exercisable on 2/17/2006 and 40% of the award became exercisable on 2/16/2007 50% of the award became exercisable on each of 1/2/2009 and 1/2/2010 One-third of the award became exercisable on each of 2/2/2012, 2/2/2013 and 2/2/2014 One-third of the award became exercisable on each of 1/27/2014, 1/26/2015 and 1/ (2) Stock options were granted with an exercise price equal to the fair market value of the the date of grant. 58 Morgan Stanley 2016 Proxy Statement The following table contains information about the stock options exercised by NEOs during Morgan Stanley 2016 Proxy Statement 59 EXECUTIVE COMPENSATION Number of Shares Acquired (#) Value Realized on Exercise ($)(1) Number of Shares Acquired on Vesting (#)(2) James P. Gorman Ruth Porat Gregory J. Fleming Colm Kelleher James A. Rosenthal 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, Number of Years Credited Service(1) Retirement Age for Full Benefits Present Value of Accumulated Benefit ($)(2) Payments During Last Fiscal Year ($) Morgan Stanley Employees Retirement Plan Morgan Stanley Supplemental Executive Retirement and Excess Plan — Morgan Stanley Supplemental Executive Retirement and Excess Plan Employees Retirement Plan (ERP) Substantially all of the 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, a non-contributory, defined benefit pension plan that is qualified under Section 401(a) of the Internal Revenue Code. Effective after December 31, 2010, the ERP was frozen and no further benefit accruals will occur. Benefits are generally payable as an annuity at age 65 (or earlier, subject to certain reductions in the amounts payable). Under the pre-2004 provisions of the ERP, benefits are payable in full at age 60 and reduced 4% per year for retirement between ages 55 and 60 for employees who retire after age 55 with ten years of service. Before the ERP was frozen, annual benefits were equal to 1% of eligible earnings plus 0.5% of eligible earnings in excess of Social Security covered compensation for each year of service. Eligible earnings generally included all taxable compensation, other than certain equity-based and non-recurring amounts, up to $170,000 per year. ERP participants who, as of January 1, 2004, had age plus service equal to at least 65 and who had been credited with five years of service, received benefits determined under the ERP’s pre-2004 benefit formula, if greater. Pre-2004 benefits equaled 1.15% of final average salary, plus 0.35% of final average salary in excess of Social Security covered compensation, in each case multiplied by credited service up to 35 years, where final average salary was base salary, up to specified limits set forth in the ERP, for the highest paid 60 consecutive months of the last 120 months of service. 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 $140,000 at age 60, reduced by 4% per year for payments beginning before age 60. The SEREP was restricted effective January 1, 2004 to U.K. Group Pension Plan Morgan Stanley 2016 Proxy Statement 61 EXECUTIVE COMPENSATION The following table contains information with respect to the participation of the NEOs in the Company’s unfunded cash deferred compensation plans that provide for the deferral of compensation on a basis that is not tax-qualified, as well as with respect to RSUs granted to the NEOs that are vested but have not yet converted to shares of Morgan Stanley common stock. 62 Morgan Stanley 2016 Proxy Statement EXECUTIVE COMPENSATION Registrant ($) James P. Gorman LCIP MSCIP RSUs(5) Total Ruth Porat KEPER LCIP MSCIP PTIP RSUs(5) Total Gregory J. Fleming MSCIP RSUs(5) Total Colm Kelleher LCIP MSCIP RSUs(5) ARP Total James A. Rosenthal LCIP MSCIP RSUs(5) Total With respect to our cash-based nonqualified deferred compensation plans, represents the change in (i) the balance of the NEO’s account reflected on the Company’s books and records at December 31, 2015, without giving effect to any withdrawals or distributions, compared to (ii) the sum of the balance of the NEO’s account reflected on the Company’s books and records at December 31, 2014 and the value of any contributions made during 2015. Includes any nonqualified deferred compensation earnings that are disclosed in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column of the “2015 Summary Compensation Table” for 2015 and described in note 5 thereto. 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 Leveraged Co-Investment Plan (LCIP) Under LCIP, participants were permitted to allocate a portion of their The Company contributed a notional investment in an amount equal to participants could elect to forgo the notional investment). Contributions are notionally invested by the Company in reference investments, which may include the Company’s proprietary investment funds, “funds of funds” that include Company proprietary investment funds and third-party investment funds, and other third-party investment funds. All amounts contributed by a participant plus any earnings on participant contributions and the Company notional investment were subject to cancellation under specified circumstances until three years after deferral. Participants generally are entitled to receive distributions in respect of their contributions plus any earnings on their contributions and on the Company notional investment on the third anniversary of grant and the tenth anniversary of grant, based on the valuation of the notional investments and any realizations of those investments prior to the scheduled distribution date. Participant distributions under LCIP are offset by the Company notional investment, excluding any earnings thereon. Morgan Stanley 2016 Proxy Statement 63 EXECUTIVE COMPENSATION Morgan Stanley Compensation Incentive Plan (MSCIP) 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 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 This section describes and quantifies the benefits and compensation to which each NEO would have been entitled under our existing plans and arrangements if his or her employment had terminated or if the Company had undergone a change-in-control, in each case on December 31, General Policies 64 Morgan 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 Even if a NEO is considered vested in a deferred incentive compensation award, the award may be subject to cancellation through the distribution date Clawback of deferred With respect to Mr. Kelleher’s awards, pursuant to U.K. Prudential Regulatory Authority requirements, any amounts distributed in respect of his deferred compensation awards are subject to clawback and repayment in certain circumstances for a minimum period of seven years following grant pursuant to the Morgan Stanley Code Staff Clawback Policy. In addition to the cancellation and clawback events described above, each NEO is party to a Notice and Non-Solicitation Agreement that provides for injunctive relief and cancellation of Morgan Stanley 2016 Proxy Statement 65 EXECUTIVE COMPENSATION Termination of Employment / The table below sets forth the value as of December 31, 66 Morgan Stanley 2016 Proxy Statement EXECUTIVE COMPENSATION Amounts payable in connection with Ms. Porat’s termination of employment Prior to her departure from the Company on 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 disclosed in the “All Other Compensation” column of the “2015 Summary Compensation Table,” consistent with Company practice with respect to Morgan Stanley 2016 Proxy Statement 67 EXECUTIVE EQUITY OWNERSHIP COMMITMENT Members of the The Equity Ownership Commitment now requires each of our CEO, CFO, President, and COO (Covered Officers) to achieve ownership of a number of shares of common stock with a value equal to a specified multiple of his base salary within five years. Our CEO is required to achieve ownership of shares of common stock and equity awards with a value equal to 10x his base salary and each other Covered Officer is required to achieve ownership of shares of common stock and equity awards with a value equal to 6x his base salary. In addition, the Equity Ownership Commitment continues to impose retention requirements for 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 DIRECTOR EQUITY OWNERSHIP REQUIREMENT As indicated under “Director Compensation,” our independent directors generally receive an equity award upon initial election to the Board and receive an annual equity award thereafter with a grant date fair value of $250,000 (prorated in the case of the initial award) as 68 Morgan Stanley 2016 Proxy Statement Table of OWNERSHIP OF OUR STOCK STOCK OWNERSHIP OF EXECUTIVE OFFICERS AND DIRECTORS Each director, NEO and executive officer has sole voting and investment power with respect to his or her shares, except with respect to the following shares owned indirectly through family trusts, the sole beneficiaries of which are family members, and custodial accounts: Mr. Gorman – 40,115 shares, 1,400 shares of which he disclaims ownership; Mr. Fleming – 104,550 shares; Mr. Rosenthal – 170,197 shares; and Mr. Bowles – 1,000 shares. Shares of common stock held in a trust (Trust) corresponding to certain outstanding restricted stock units (RSUs). Directors and executive officers may direct the voting of the shares corresponding to such RSUs. Voting by executive officers is subject to the provisions of the Trust, as described in “Information about the Annual Meeting – How Do I Submit Voting Instructions for Shares Held in Employee Plans?”. Excludes LTIP awards because executive officers may not direct the voting of any shares corresponding to such awards prior to settlement of the award. Each NEO and director beneficially owned less than 1% of the shares of common stock outstanding. All executive officers and directors as a group as of February 29, 2016 beneficially owned less than 1% of the common stock outstanding. Following her departure from the Company, Ms. Porat pledged 714,408 shares of common stock to a bank as collateral. Messrs. Hirano and Tamakoshi were designated by MUFG and elected to the Board pursuant to the Investor Agreement. They are not compensated by Morgan Stanley for their service on the Board. See “Principal Shareholders” regarding MUFG’s beneficial ownership of Company common stock. Morgan Stanley 2016 Proxy Statement 69 Audit Fees(1) Audit-Related Fees(2) Tax Fees(3) All Other Fees Total OWNERSHIP OF OUR STOCK The following table contains information regarding the SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Audit Fees Audit-Related Fees Tax Fees 70Morgan Stanley 2016 Proxy Statement Our Board unanimously recommends that you vote“FOR” this proposal. Upon the recommendation of the CMDS Committee, on March 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 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, The Board believes that the EICP amendment is in the best interest of shareholders and supports this proposal for the following reasons: In January 2016, approximately 33.8 million shares underlying equity awards were granted as part of the 2015 year-end compensation process and approximately 1.1 million shares (representing the target number of performance stock units) were granted as LTIP awards. After these grants, as of January 31, 2016, approximately 33.9 million shares were available for future equity awards under the EICP and the Company’s legacy equity plans, with only 27.5 million of such shares available under the EICP. Given the significant portion of incentive compensation paid as equity awards, the number of shares currently available under the Company’s plans is not expected to be sufficient for grants that would be made over the next year until the 2017 annual meeting of shareholders. The Company strives to maximize employee and shareholder alignment through the use of deferred equity awards, while minimizing dilution. Since 2009, the Company has requested approval of a number of additional shares that we anticipate will be sufficient to cover only one year of grant needs. The Company has evaluated, as it does annually, whether to return to shareholders to request approval of additional shares at the 2016 annual meeting of shareholders and has determined to request 20 million shares to cover one year of grant needs, which is down from the 25 million shares approved by 92% of voting shareholders last year and less than the 59 million shares the Company repurchased in 2015. If the proposed amendment is not approved, the Company will not have sufficient shares for grant needs and will be compelled to increase the cash-based component of employee compensation, which is contrary to regulatory guidance and could reduce the alignment of employee and shareholder interests. If the proposed amendment is not approved, the Company will not have sufficient shares for grant needs and will lose a critical tool for recruiting, retaining and motivating employees. The Company would thus be at a competitive disadvantage in attracting and retaining talent. Morgan Stanley 2016 Proxy Statement71 EQUITY COMPENSATION PLAN If the proposed amendment is not approved, the Company will have limited flexibility to grant performance-vested awards that are conditioned upon the attainment of criteria related to regulatory factors, risk management, expense management, and contributions to community development and sustainability projects or initiatives and that are tax deductible to the Company under Section 162(m) of the Internal Revenue Code. The terms of our equity and other annual and long-term incentive compensation awards and our employee policies are all designed to protect shareholder interests and encourage employees to focus on the long-term success of the Company. Employees typically cannot fully monetize equity awards until three years after grant. For example, RSUs granted for 2015 generally vest and convert to shares after three years. The Company’s equity awards generally are subject to cancellation for, among other things, engaging in competitive activity, cause (i.e., any act or omission that constitutes a breach of obligation to the Company, including failure to comply with internal compliance, ethics or risk management standards and failure or refusal to perform duties satisfactorily, including supervisory and management duties), soliciting clients or employees, and misuse of proprietary information. Equity awards are subject to clawback if an employee’s act or omission (including with respect to direct supervisory responsibilities) causes a restatement of the Company’s consolidated financial results, constitutes a violation of the Company’s global risk management principles, policies and standards, or causes a loss of revenue associated with a position on which the employee was paid and the employee operated outside of internal control policies. Equity awards to senior executives are also subject to clawback if the CMDS Committee determines that the individual had significant responsibility for a material adverse outcome for the Company or any of its businesses or functions, even absent misconduct. The EICP expressly prohibits the grant of stock option restoration rights and the repricing of stock options and stock appreciation rights (including any amendment to such awards that has the effect of reducing the exercise price and any cancellation of such awards in exchange for cash or another award) other than an equitable adjustment in connection with a corporate transaction. Our Board unanimously recommends that you vote“ SUMMARY OF THE EICP AS PROPOSED TO BE AMENDED 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). Form of Awards. The EICP authorizes the following Awards: (i) restricted stock Awards consisting of one or more shares of common stock granted or sold to a Participant; (ii) stock unit Awards settled in one or more shares of common stock or, as authorized by the CMDS Committee, an amount in cash based on the fair market value of shares of common stock; (iii) stock option Awards consisting of the right to purchase at a specified exercise price a number of shares of common stock determined by the CMDS Committee; (iv) SARs consisting of the grant of a right to receive upon exercise of such right, in cash or common stock (or a combination thereof) as determined by the CMDS Committee, an amount equal to the increase in the fair market value of a share of common stock over the specified exercise price; (v) Qualifying Performance Awards to participants covered by Section 162(m), with the intent that such awards qualify as “performance-based compensation” under Section 162(m); and (vi) other forms of equity-based or equity-related Awards that the CMDS Committee determines to be consistent with the purposes of the EICP (Other Awards). Awards under the EICP may, at the discretion of the CMDS Committee, be made in substitution in whole or in part for cash or other compensation payable to an Eligible Individual. Dividends and Distributions. If we pay any dividend or make any distribution to holders of our common stock, the CMDS Committee may in its discretion authorize payments (which may be in cash, common stock (including restricted stock) or stock units or a combination thereof) with respect to the shares of common stock corresponding to an Award, or may authorize appropriate adjustments to outstanding Awards, to reflect the dividend or distribution. The CMDSCommittee may make any such payments subject to vesting, deferral, restrictions on transfer or other conditions. Dividends are not paid on stock options or SARs. 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. General. Stock options may be either nonqualified stock options or incentive stock options (ISOs). Upon satisfaction of the conditions for exercisability, a Participant may exercise a stock option and receive the number of shares of common stock in respect of which the stock option is exercised. Upon satisfaction of the conditions for payment, each SAR will entitle a Participant to an amount, if any, equal to the amount by which the fair market value of a share of common stock on the date of exercise exceeds the SAR exercise price. At the discretion of the CMDS Committee, SARs may be payable in common stock, cash or a combination thereof. Exercise Price. The exercise price of stock options and SARs awarded under the EICP may not be less than 100% of the fair market value of one share of common stock on the award date; however, the exercise price per share of a stock option or SAR that is granted in substitution for an award previously granted by an entity acquired by the Company or with which the Company combines may be less than the fair market value per share on the award date if such substitution complies with applicable laws and regulations. Prohibition on Repricing of Stock Options and SARs. The CMDS Committee may not “reprice” any stock option or SAR or make any other amendment to a stock option or SAR that has the effect of reducing its exercise price or cancel a stock option or SAR in exchange for cash or another Award, unless the repricing occurs in connection with a merger, acquisition, spin-off or other similar corporate transaction. An equitable adjustment to reflect a corporate transaction is not a prohibited repricing. Prohibition on Restoration Option and SAR Grants. The terms of a stock option or SAR may not provide for a new stock option or SAR to be granted, automatically and without payment of additional consideration in excess of the exercise price of the underlying stock option or SAR, to a Participant upon exercise of the stock option or SAR. Individual Limit on Stock Options and SARs. The maximum number of shares of common stock that may be subject to stock options or SARs granted to or elected by a Participant in any fiscal year will be 2,000,000 shares. This limitation does not apply to shares of common stock subject to stock options or SARs granted to a Participant pursuant to any performance formula or performance measures approved by the Company’s shareholders pursuant to Section 162(m). Maximum Term on Stock Options and SARs. No stock option or SAR may have an expiration date that is later than the tenth anniversary of the Award date. ISO Limit. The full number of shares of common stock available for delivery under the EICP may be delivered pursuant to ISOs, except that in calculating the number of shares that remain available for ISOs, certain share counting provisions will not apply. Eligible Participants. Grants of performance-based long-term incentive awards (other than stock options and stock appreciation rights) that are intended to be qualified performance-based awards under Section 162(m) (Qualifying Awards) will be limited to our officers for whom compensation may not otherwise be tax-deductible under Section 162(m). Currently, the Company expects to grant Awards to some or all members of the Company’s Operating Committee. There are currently 16such officers. Performance Measures. The performance measures for Qualifying Awards may vary by participant and by award, and may be based upon the attainment of specific amounts of, or changes in, one or more of the following: earnings (before or after taxes); earnings per share; shareholders’ equity or return on shareholders’ equity; risk-weighted assets or 74Morgan Stanley 2016 Proxy Statement EQUITY COMPENSATION PLAN 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 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. Individual Award Limits.In any one calendar year, no one participant may be granted Qualifying Awards that allow for payments with an aggregate value determined by the CMDS Committee to be in excess of $10 million. For purposes of calculating this limit, the value of Qualifying Awards that are denominated in shares will be determined by reference to the volume-weighted average price of a share of the Company on the first date of grant of such awards. For purposes of the foregoing, the CMDS Committee will determine the calendar year or years in which amounts under these Qualifying Awards are deemed paid, granted or received. 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 $1 million per fiscal year, with exceptions for certain performance-based compensation. Such performance-based compensation may consist of awards determined by the CMDS Committee under a formula or performance criteria approved by the Company’s shareholders. Our shareholders approved the formula governing annual incentive compensation currently used by the CMDS Committee at our annual meeting on May 14, 2013. Awards of stock options, SARs or performance-based long-term incentive awards granted by the CMDS Committee under the EICP qualify for the performance-based compensation exception to Section 162(m).(1) The 2014 LTIP awards included in this table are also disclosed in the “Stock Awards” column of the “2014 Summary Compensation Table” and the “2014 Outstanding Equity Awards at Fiscal Year-End Table.” The RSU awards included in this table are also disclosed in the “Stock Awards” column of the “2014 Summary Compensation Table,” the “2014 Option Exercises and Stock Vested Table” and, other than Mr. Kelleher’s Stock Bonus Award (described in note 3 below), the “2014 Nonqualified Deferred Compensation Table.” The 2014
(mm/dd/yyyy)
Date
(mm/dd/yyyy)
Estimated Future Payouts
Under Equity Incentive Plan
Awards(2)
Stock
Awards:
Number of
Shares of
Stock or
Units
(#)(3)
Option
Awards:
Number of
Securities
Underlying
Options
(#)
or Base
Price of
Option
Awards
($/Sh)
Fair Value
of Stock
and Option
Awards
($)(4)
(#)
(#)
(#)James P. Gorman 1/21/2015 1/6/2015 0 187,950 281,926 — — — 6,827,645 1/21/2015 1/6/2015 — — — 127,883 — — 4,422,675 Jonathan Pruzan 1/21/2015 1/6/2015 — — — 100,402 — — 3,472,275 Ruth Porat 1/21/2015 1/6/2015 0 112,770 169,155 — — — 4,096,587 1/21/2015 1/6/2015 — — — 63,575 — — 2,198,675 Gregory J. Fleming 1/21/2015 1/6/2015 0 138,794 208,191 — — — 5,041,954 1/21/2015 1/6/2015 — — — 84,048 — — 2,906,675 Colm Kelleher 1/21/2015 1/6/2015 0 138,794 208,191 — — — 5,041,954 1/21/2015 1/6/2015 — — — 103,492 — — 3,579,119 James A. Rosenthal 1/21/2015 1/6/2015 0 99,758 149,637 — — — 3,623,904 1/21/2015 1/6/2015 — — — 53,339 — — 1,844,675 (1) The 2015 LTIP awards included in this table are also disclosed in the “Stock Awards” column of the “2015 Summary Compensation Table” and the “2015 Outstanding Equity Awards at Fiscal Year-End Table.” The RSU awards included in this table are also disclosed in the “Stock Awards” column of the “2015 Summary Compensation Table,” the “2015 Option Exercises and Stock Vested Table” and, other than Mr. Kelleher’s Stock Bonus Award (described in note 3 below), the “2015 Nonqualified Deferred Compensation Table.” The 2015 LTIP awards and RSUs were granted under the Morgan Stanley 2007 Equity Incentive Compensation Plan. All RSUs and 2015 LTIP awards are subject to cancellation if a cancellation event occurs at any time prior to the scheduled conversion date. For further details on cancellation of awards, see “Potential Payments Upon Termination or Change-in-Control.” 2007 Equity Incentive Compensation Plan.2016 Proxy Statement47(2)The 2014 LTIP awards are scheduled to vest and convert to shares in 2017 only if the Company satisfies predetermined performance goals over the three-year performance period consisting of 2014,(2) The 2015 LTIP awards are scheduled to vest and convert to shares in 2018 only if the Company satisfies predetermined performance goals over the three-year performance period consisting of 2015, 2016 and 2017. One-half of the target 2015 LTIP award is earned based on the Company’s average ROE over the three-year performance period (MS Average ROE). The other half of the target 2015 and 2016. One-half of the target 2014 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 2014 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 *If MS Average ROE is between two of the thresholds noted in the table, the number of stock units earned will be determined by straight-line interpolation betweenmultiplying each half of the two thresholds. target award by a multiplier as follows: MS Average ROE* Multiplier Relative TSR** Multiplier 11.5% or more 1.50 25% or more 1.50 10% 1.00 0% 1.00 5% 0.50 -50% 0.50 Less than 5% 0.00 Less than -50% 0.00 * MS Average ROE, for this purpose, excludes (a) the impact of DVA, (b) certain gains or losses associated with the sale of specified businesses, (c) specified goodwill impairments, (d) certain gains or losses associated with specified legal settlements relating to business activities conducted prior to January 1, 2011, and (e) specified cumulative catch-up adjustments resulting from changes in accounting principles that are not applied on a full retrospective basis. If MS Average ROE is between two of the thresholds noted in the table, the number of stock units earned will be determined by straight-line interpolation between the two thresholds. ** Relative TSR will be determined by subtracting the Index Group TSR from the MS TSR. In no event may the multiplier exceed 1.001.0 if MS TSR for the performance period is negative. 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. (3) With the exception of Mr. Kelleher’s awards, the RSUs are scheduled to convert to shares on January 22, 2018. Mr. Kelleher’s RSUs are scheduled to convert to shares in three equal installments on each of January 20, 2016, January 23, 2017 and January 22, 2018, except that 32,878 of Mr. Kelleher’s RSUs (the Stock Bonus Award) plus reinvested dividend equivalents vested and converted to shares on July 21, 2015 as prescribed by the U.K. Prudential Regulatory Authority. With the exception of Mr. Kelleher’s Stock Bonus Award, the NEOs are retirement-eligible under the award terms at grant and, therefore, the awards are considered vested at grant for purposes of this proxy statement. The NEOs are entitled to receive dividend equivalents in the form of additional RSUs, subject to the same vesting, cancellation and payment provisions as the underlying RSUs. (4) Represents the aggregate grant date fair value, in accordance with the applicable accounting guidance for equity-based awards, of the RSUs and 2015 LTIP awards. The aggregate grant date fair value of the RSUs granted on January 21, 2015 is based on $34.5835, the volume-weighted average price of the common stock on the grant date. The aggregate grant date fair value of 2015 LTIP awards is based on the volume-weighted average price of the common stock on the grant date as well as the probable outcome of the performance conditions as of January 21, 2015. For further information on the valuation of the Company’s RSUs and LTIP awards, see notes 2 and 18 to the consolidated financial statements included in the 2015 Form 10-K. Each NEO is entitled to receive cash dividend equivalents on the 2014 LTIP awards, subject to the same vesting, cancellation and payment provisions as the underlying award.EXECUTIVE COMPENSATION(3)With the exception of Mr. Kelleher’s awards, the RSUs are scheduled to convert to shares according to the following schedule: 25% on each of January 26, 2014. As of December 31, 2014, each NEO is retirement-eligible under his or her RSU award terms and, therefore, all of his or her outstanding RSU awards are considered vested and, in accordance with SEC rules, are not included in this table. Outstanding vested stock awards held by the NEOs on December 31, 2014 are disclosed in the “2014 Nonqualified Deferred Compensation Table.”2015. Option Awards Stock Awards Name
Securities
Underlying
Unexercised
Options
Securities
Underlying
Unexercised
Options Option
Exercise
Price
($)(2)
Expiration
Date 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) 354,986 — 51.7552 2/17/2016 — — 511,163 19,833,132 56,772 — 66.726 12/12/2016 424,731 — 30.01 1/21/2018 161,607 323,220 22.98 1/22/2018 Total 998,096 323,220 — — 511,163 19,833,132 23,737 — 66.726 12/12/2016 — — 362,660 14,071,236 182,027 — 30.01 1/21/2018 Total 205,764 — — — 362,660 14,071,236 60,675 — 30.01 1/21/2018 — — 409,946 15,905,926 49,294 298,594 22.98 1/22/2018 Total 109,969 298,594 — — 409,946 15,905,926 144,551 — 66.726 12/12/2016 — — 409,946 15,905,926 182,027 — 30.01 1/21/2018 148,473 296,952 22.98 1/22/2018 Total 475,051 296,952 — — 409,946 15,905,926 121,351 — 30.01 1/21/2018 — — 347,420 13,479,912 124,668 249,341 22.98 1/22/2018 Total 246,019 249,341 — — 347,420 13,479,912 (1) The stock option awards in this table are vested and are exercisable, or will become exercisable, as set forth in the chart below.Option Awards Stock Awards Name Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)(1)(2)Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)(1)Option
Exercise
Price
($)(2)Option
Expiration
Date
(mm/dd/yyyy)Number
of Shares
or Units
of Stock
That
Have Not
Vested
(#)Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
(#)(3)Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
($)(3)James P. Gorman 354,986 — 51.7552 2/17/2016 — — 370,834 11,796,255 56,772 — 66.726 12/12/2016 424,731 — 30.01 1/21/2018 323,214 161,613 22.98 1/22/2018 Total 1,159,703 161,613 — — 370,834 11,796,255 Jonathan Pruzan 6,765 — 66.726 12/12/2016 — — — — Total 6,765 — — — — — Ruth Porat 23,737 — 66.726 12/12/2016 — — 234,693 7,465,589 182,027 — 30.01 1/21/2018 Total 205,764 — — — 234,693 7,465,589 Gregory J. Fleming 60,675 — 30.01 1/21/2018 — — 286,117 9,101,402 198,588 149,300 22.98 1/22/2018 Total 259,263 149,300 — — 286,117 9,101,402 Colm Kelleher 144,551 — 66.726 12/12/2016 — — 286,117 9,101,402 182,027 — 30.01 1/21/2018 296,946 148,479 22.98 1/22/2018 Total 623,524 148,479 — — 286,117 9,101,402 James A. Rosenthal 121,351 — 30.01 1/21/2018 — — 206,440 6,566,883 249,336 124,673 22.98 1/22/2018 Total 370,687 124,673 — — 206,440 6,566,883 Option
Expiration Date
(mm/dd/yyyy)Exercisability Schedule 2/17/2016 12/12/2016 1/21/2018 1/22/2018 26/2015. One-third25/2016award will become exercisableCompany’s common stock on 1/25/2016(2)Stock options were granted with an exercise price equal to the fair market value of the Company’s common stock on the date of grant and, with respect to the stock options that are scheduled to expire in 2016, were subsequently equitably adjusted to reflect the spin-off of Discover Financial Services in 2007.EXECUTIVE COMPENSATION49(3)Based on Company performance through December 31, 2014 and in accordance with SEC rules, the number of performance units reflected in the table represents20142015 and the RSUs and performance stock units (PSUs)LTIP awards held by the NEOs that vested during 2014. The RSUs are also disclosed in the “Stock Awards” column2015. Option Awards Stock Awards Name Number of
Shares Acquired
on Exercise
(#) Value Realized on
Exercise ($) Number of
Shares Acquired
on Vesting
(#)(1) Value Realized on
Vesting ($) James P. Gorman — — 127,883 4,422,675 (2) 221,210 7,082,879 (3) Jonathan Pruzan — — 100,402 3,472,275 (2) Ruth Porat — — 63,575 2,198,675 (2) 162,220 5,194,090 (3) Gregory J. Fleming — — 84,048 2,906,675 (2) 176,968 5,666,303 (3) Colm Kelleher — — 70,613 2,442,077 (2) 176,968 5,666,303 (3) 33,097 1,325,892 (4) James A. Rosenthal — — 53,339 1,844,675 (2) 162,220 5,194,090 (3) (1) Consists of RSUs granted on January 21, 2015 for 2014 performance, which are considered vested at grant for purposes of this proxy statement due to the NEOs’ retirement eligibility, and LTIP awards granted on January 31, 2013, which are considered vested on December 31, 2015 (the last day of the three-year performance period) for purposes of this proxy statement, based on the Company’s performance over the performance period (2013 LTIP awards). For further details on the RSUs, see note 3 to the “2015 Grants of Plan-Based Awards Table.” (2) The aggregate grant date fair value of these RSUs is based on $34.5835, the volume-weighted average price of the Company’s common stock on the grant date. (3) The value realized is based on $32.0188, the volume-weighted average price of the Company’s common stock on December 31, 2015, which is the last day of the 2013 LTIP awards’ performance period, for 134.77% of the target number of units underlying the 2013 LTIP awards. The 2013 LTIP awards converted to shares of common stock on February 25, 2016. (4) The value realized is based on $40.0608, the volume-weighted average price of the Company’s common stock on July 21, 2015, the date on which the award vested pursuant to its terms. Option Awards Stock Awards Name
on Exercise Value Realized on
Vesting ($) — — 155,207 5,092,000 (3) 113,510 4,422,713 (4) — — 102,933 3,377,000 (3) 93,616 3,647,579 (4) 100,000 993,000 127,825 4,193,667 (3) 99,468 3,875,592 (4) — — 128,152 4,204,397 (3) 99,047 3,859,188 (4) 5,820 189,380 (5) — — 87,997 2,887,000 (3) 84,840 3,305,638 (4) (1)The value realized on exercise of a stock option represents the difference between the option exercise price and the closing price of the Company’s common stock on the exercise date.(2)Consists of RSUs granted on January 21, 2014 for 2013 performance and PSUs granted on January 20, 2012 in connection with 2011 compensation (2011 PSUs). For further details on the RSUs, including the terms of the deferral, see note 3 to the “2014 Grants of Plan-Based Awards Table.” The PSUs granted on January 21, 2011 in connection with 2010 compensation (2010 PSUs) vested on December 31, 2013, the date on which the performance period ended, and converted to shares of common stock on January 28, 2014. For further details on the 2010 PSUs, see note 3 to the “2013 Outstanding Equity Awards at Fiscal Year-End Table” in our proxy statement filed on March 28, 2014.(3) The value realized represents the aggregate grant date fair value, in accordance with the applicable accounting guidance for equity-based awards, of the RSUs. The aggregate grant date fair value of these RSUs is based on $32.8077, the volume-weighted average price of the Company’s common stock on the grant date.(4) The value realized is based on $38.9632, the volume-weighted average price of the Company’s common stock on December 31, 2014, which is the last day of the 2011 PSU performance period and the date on which 106.25% of the target number of 2011 PSUs vested based on the Company’s performance from January 1, 2012 through December 31, 2014. The 2011 PSUs converted to shares of common stock on March 2, 2015.50(5) The value realized is based on $32.5391, the volume-weighted average price of the Company’s common stock on July 21, 2014, which is the date on which the award vested pursuant to its terms.20142014.Name Plan Name James P. Gorman 4 65 83,720 — Ruth Porat Morgan Stanley Employees Retirement Plan 20 65 469,010 — 25 60 1,466,843 — Gregory J. Fleming(3) — — — — Colm Kelleher Morgan Stanley U.K. Group Pension Plan(4) 7 60 206,890 — 25 60 1,118,547 — James A. Rosenthal(3) — — — — — (1) After December 31, 2010, no further benefit accruals occur under the ERP. After September 30, 2014, no further benefit accruals occur under the SEREP. Therefore, employees may have different years of credited service under the ERP and SEREP. No NEO is awarded with credited service under the ERP or SEREP in excess of his/her actual service.(2)2015. The present value at December 31, 2014 is based on the RP-2014 mortality tables projected generationally with Scale MP-2014 and discount rates of 4.07% for the ERP, 3.83% for the Excess Plan component and 3.80% for the Supplemental Employee Retirement Plan (SERP) component of the SEREP. Present values are determined using an interest-only discount before retirement. Post-retirement discounts are based on interest and mortality. The assumed benefit commencement date is the earliest age at which the executive can receive unreduced benefits or current age, if greater.(3) Mr. Fleming and Mr. Rosenthal are not eligible for any of the Company-sponsored defined benefit plans.(4)During 2014, Mr. Kelleher participated in the Morgan Stanley U.K. Group Pension Plan (U.K. Pension Plan), a defined contribution plan that provided defined benefit pension accruals until October 1, 1996. As of October 1, 1996, Mr. Kelleher’s accrued defined benefit under the U.K. Pension Plan was converted to an account balance, the value of which is £125,586 ($206,890) as of December 31, 2014. If the value of the account balance relating to the pre-October 1996 portion of Mr. Kelleher’s U.K. Pension Plan benefit, adjusted for investment experience until the payment date, is greater than the value of the guaranteed minimum pension under the U.K. Pension Plan, no defined benefit pension is payable. If the value of the guaranteed minimum pension, determined in accordance with U.K. laws, is greater than the value of the adjusted account balance, the guaranteed minimum pension is payable, in addition to any defined contribution amount payable for the period after September 30, 1996. Mr. Kelleher had seven years of credited service in the U.K. Pension Plan at the time his accrued benefit was converted to an account balance. The amount shown in the table for Mr. Kelleher does not include defined contribution benefits that were accrued after September 30, 1996. The amount of British pounds sterling was converted to U.S. dollars using the 2014 average of daily spot rates of £1 to $1.6474.51The following is a description of the material terms with respect to eachand conditions of thethese plans referenced in the table above.are described below.Name Plan Name Number of
Years
Credited
Service(1)Retirement
Age for Full
BenefitsPresent Value of
Accumulated
Benefit ($)(2)Payments
During Last
Fiscal Year ($)James P. Gorman Morgan Stanley Employees Retirement Plan 4 65 79,983 — Jonathan Pruzan Morgan Stanley Employees Retirement Plan 15 65 185,312 — Ruth Porat(3) Morgan Stanley Employees Retirement Plan 20 57 525,249 20,039 Morgan Stanley Supplemental Executive 25 57 1,458,767 53,641 Retirement and Excess Plan Gregory J. Fleming — — — — — Colm Kelleher Morgan Stanley U.K. Group Pension Plan(4) 7 60 197,712 — Morgan Stanley Supplemental Executive 25 60 1,227,482 — Retirement and Excess Plan James A. Rosenthal — — — — — (1) After December 31, 2010, no further benefit accruals occur under the ERP. After September 30, 2014, no further benefit accruals occur under the SEREP. Therefore, employees may have different years of credited service under the ERP and SEREP. No NEO is awarded with credited service under the ERP or SEREP in excess of his/her actual service. (2) The present value at December 31, 2015 is based on the RP-2014 mortality tables rolled back to 2006 with projection Scale RP-2014 and then projected generationally with scale MP-2015 and discount rates of 4.49% for the ERP and 4.20% for the SEREP. Present values are determined using an interest-only discount before retirement. Post-retirement discounts are based on interest and mortality. The assumed benefit commencement date is the earliest age at which the executive can receive unreduced benefits or current age, if greater. (3) Ms. Porat commenced her benefit on May 1, 2015. The present value reflects her actual retirement benefit amounts and form of payment election of 100% Joint and Survivor for both the ERP and SEREP. (4) Until March 31, 2012, the Company contributed to the Morgan Stanley U.K. Group Pension Plan (U.K. Pension Plan) on behalf of Mr. Kelleher, and he remains a deferred vested participant in that plan. As of October 1, 1996, Mr. Kelleher’s accrued defined benefit under the U.K. Pension Plan was converted to an account balance, the value of which was £129,350 as of December 31, 2015. The amount of British pounds sterling was converted to U.S. dollars using the 2015 average of daily spot rates of £1 to $1.5285. If the value of the account balance relating to the pre-October 1996 portion of Mr. Kelleher’s U.K. Pension Plan benefit, adjusted for investment experience until the payment date, is greater than the value of the guaranteed minimum pension under the U.K. Pension Plan, no defined benefit pension is payable. If the value of the guaranteed minimum pension, determined in accordance with U.K. laws, is greater than the value of the adjusted account balance, the guaranteed minimum pension is payable, in addition to any defined contribution amount payable for the period after September 30, 1996. Mr. Kelleher had seven years of credited service in the U.K. Pension Plan at the time his accrued benefit was converted to an account balance. The amount shown in the table for Mr. Kelleher does not include defined contribution benefits that were accrued after September 30, 1996. Mr. Gorman and Ms. Porat have accrued benefits in the ERP.allow only “grandfathered” employees who as of that date met certain eligibility criteria to benefit from the plan.criteria. Grandfathering in this plan was provided to all similarly situated eligible employees and may be provided to other employees with the approval of the CMDS Committee. Benefits may be paid in various actuarially equivalent forms of annuity. Other than for small balances, no lump sums are available under this plan. Ms. Porat and Mr. Kelleher participate in the SEREP.Until March 31, 2012, the Company contributed to the U.K. Pension Plan on behalf of Mr. Kelleher, and he remains a deferred vested participant in that plan. As described in note 4 to the “Pension Benefits Table,” theThe U.K. Pension Plan is a defined contribution plan that provided defined benefit pension accruals until October 1, 1996. The guaranteed minimum pension payable under the U.K. Pension Plan is determined in accordance with U.K. laws.522014In addition to the Company equity plans, each NEO participated in one or more of the following cash nonqualified deferred compensation plans as of December 31, 2014: the Key Employee Private Equity Recognition Plan (KEPER), the Notional Leveraged Co-Investment Plan (LCIP), MSCIP, the Pre-Tax Incentive Program (PTIP), and the U.K. Alternative Retirement Plan (ARP). The NEOs participate in the plans on the same terms and conditions as other similarly situated employees. TheseThe material terms and conditions of these plans are described below following the notes to the table. KEPER, LCIP and PTIP are closed to new participants and contributions.below. Name Executive
Contributions
in Last FY
($)(1) Registrant
Contributions
in Last FY
($) Aggregate
Earnings
in Last FY
($)(2) Aggregate
Withdrawals/
Distributions
($)(3) Aggregate
Balance
at Last FYE
($)(4)James P. Gorman Notional Leveraged Co-Investment Plan — — 285,938 — 2,686,739 Morgan Stanley Compensation Incentive Plan 5,379,825 — (165,591 ) 2,038,660 6,551,200 Restricted Stock Units(5) 4,422,675 — (4,142,957 ) 6,500,874 19,541,413 Total 9,802,500 — (4,022,610 ) 8,539,534 28,779,352 Jonathan Pruzan Key Employee Private Equity Recognition Plan — — (3,091 ) 18,480 56,775 Notional Leveraged Co-Investment Plan — — 18,302 — 93,648 Morgan Stanley Compensation Incentive Plan 1,710,225 — (151,177 ) 1,489,798 2,439,670 Restricted Stock Units(5) 3,472,275 — (1,552,994 ) 3,607,402 7,713,973 Total 5,182,500 — (1,688,960 ) 5,115,680 10,304,066 Ruth Porat Key Employee Private Equity Recognition Plan — — (206 ) 1,232 3,785 Notional Leveraged Co-Investment Plan — — 16,052 — 82,134 Morgan Stanley Compensation Incentive Plan 3,003,825 — 87,442 1,407,049 3,909,067 Pre-Tax Incentive Program — — (23,182 ) — 909,819 Restricted Stock Units(5) 2,198,675 — (1,596,695 ) 4,915,433 6,259,417 Total 5,202,500 — (1,516,589 ) 6,323,714 11,164,222 Gregory J. Fleming Morgan Stanley Compensation Incentive Plan 3,795,825 — 4,659 1,648,662 4,848,273 Restricted Stock Units(5) 2,906,675 — (1,370,941 ) 4,450,825 5,885,127 Total 6,702,500 — (1,366,282 ) 6,099,487 10,733,400 Colm Kelleher Notional Leveraged Co-Investment Plan — — 459,999 — 4,182,822 Morgan Stanley Compensation Incentive Plan 2,442,077 — 50,385 3,621,587 6,599,840 Restricted Stock Units(5) 3,579,119 — (1,807,313 ) 3,212,089 8,603,122 Alternative Retirement Plan — — (124 ) — 33,484 (6) Total 6,021,196 — (1,297,053 ) 6,833,676 19,419,268 James A. Rosenthal Notional Leveraged Co-Investment Plan — — 7,632 — 658,424 Morgan Stanley Compensation Incentive Plan 2,607,825 — (10,162 ) 1,354,501 3,332,666 Restricted Stock Units(5) 1,844,675 — (1,005,546 ) 3,612,753 3,904,432 Total 4,452,500 — (1,008,076 ) 4,967,254 7,895,522 (1) RSU contributions represent the RSU awards granted in January 2015 for 2014 performance that are considered vested at grant for purposes of this proxy statement but are subject to cancellation until the applicable scheduled conversion dates. MSCIP contributions represent MSCIP awards granted in January 2015 for 2014 performance that are considered vested at grant for purposes of this proxy statement but are subject to cancellation until the applicable scheduled payment dates. The MSCIP awards reported in this table are also reported as part of the 2014 bonus in the “2015 Summary Compensation Table.” The value of the RSUs in this column (which are also included in the “Stock Awards” column of the “2015 Summary Compensation Table” for 2015, the “2015 Grants of Plan-Based Awards Table,” and the “2015 Option Exercises and Stock Vested Table”) is the aggregate grant date fair value of the RSUs based on $34.5835, the volume-weighted average price of the Company’s common stock on the grant date. Name Executive
Contributions
in Last FY
($)(1)
Contributions
in Last FY Aggregate
Earnings
in Last FY
($)(2) Aggregate
Withdrawals/
Distributions
($)(3) Aggregate
Balance
at Last FYE
($)(4) — — 296,546 — 2,400,801 5,092,000 — 217,791 3,379,906 3,375,627 5,092,000 — 4,894,119 6,391,855 25,769,282 10,184,000 — 5,408,456 9,771,761 31,545,710 — — 586 2,655 5,223 — — 10,906 — 66,082 3,377,000 — (46,992 ) 2,224,546 2,224,849 — — 115,710 — 933,001 3,377,000 — 1,830,916 5,371,557 10,576,208 6,754,000 — 1,911,126 7,598,758 13,805,363 4,193,667 — 2,019 2,696,063 2,696,451 4,193,667 — 1,438,349 4,681,371 8,804,630 8,387,334 — 1,440,368 7,377,434 11,501,081 — — 465,410 — 3,722,823 4,204,397 — (29,832 ) 2,218,428 7,728,965 4,204,397 — 1,980,429 3,587,788 11,184,155 — — 1,670 — 36,220 (6) 8,408,794 — 2,417,677 5,806,216 22,672,163 — — 44,805 — 650,792 2,887,000 — 60,883 2,083,852 2,089,505 2,887,000 — 1,103,023 3,636,220 6,680,856 5,774,000 — 1,208,711 5,720,072 9,421,153 (1)(2)
With respect to the RSUs, represents (i) the change in the average of the high and low prices of the Company’s common stock on December 31, 2015 (or, if applicable, the earlier distribution date) compared to December 31, 2014 (or, if applicable, the later contribution date), as well as (ii) the amount of the vested cash dividend equivalent rights in 2015 (which is paid to the award holder at the time dividends are paid to holders of the Company’s common stock) and dividend equivalents in the form of additional RSUs credited in 2015 with respect to the award (which are paid to the award holder at the time that the underlying award converts to shares, subject to the same cancellation provisions as the underlying award).RSU contributions represent the RSU awards granted in January 2014 for 2013 performance that are considered vested at grant but are subject to cancellation until the scheduled conversion dates of such awards. MSCIP contributions represent MSCIP awards granted in January 2014 for 2013 performance that are considered vested at grant and are subject to cancellation until the scheduled payment dates of such awards. The MSCIP awards reported in this table are also reported as part of the 2013 bonus in the “2014 Summary Compensation Table.” The value of the RSUs in this column (which are also included in the “Stock Awards” column of the “2014 Summary Compensation Table” for 2014, the “2014 Grants of Plan-Based Awards Table,” and the “2014 Option Exercises and Stock Vested Table”) is the aggregate grant date fair value of the RSUs based on $32.8077, the volume-weighted average price of the Company’s common stock on the grant date.(2)With respect to our cash-based nonqualified deferred compensation plans, represents the change in (i) the balance of the NEO’s account reflected on the Company’s books and records at December 31, 2014, without giving effect to any withdrawals or distributions, compared to (ii) the sum of the balance of the NEO’s account reflected on the Company’s books and records at December 31, 2013 and the value of any contributions made53during 2014. Includes any nonqualified deferred compensation earnings that are disclosed in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column of the “2014 Summary Compensation Table” for 2014 and described in note 6 thereto.With respect to the RSUs, represents (i) the change in the average of the high and low prices of the Company’s common stock on December 31, 2014 (or, if applicable, the earlier distribution date) compared to December 31, 2013 (or, if applicable, the later contribution date), as well as (ii) the amount of the vested cash dividend equivalent rights in 2014 (which are paid to the award holder at the time dividends are paid to holders of the Company’s common stock) and dividend equivalents in the form of additional RSUs credited in 2014 with respect to the award (which are paid to the award holder at the time that the underlying award converts to shares, subject to the same cancellation provisions as the underlying award).(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 2014 pursuant to cash dividend equivalent rights.(4) With respect to our cash-based nonqualified deferred compensation plans, represents the balance of the NEO’s account reflected on the Company’s books and records at December 31, 2014. With respect to the RSUs, represents the number of vested units held by the NEO on December 31, 2014 multiplied by the average of the high and low prices of the Company’s common stock on December 31, 2014. All amounts deferred by a NEO in prior years have been reported in the Summary Compensation Tables in our previously filed proxy statements in the year earned (or with respect to equity awards, granted) to the extent he or she was a NEO for that year for purposes of the SEC’s executive compensation disclosure rules.(5) The RSUs disclosed in this table include awards that as of December 31, 2014 had vested, but had not reached their scheduled conversion date and remained subject to cancellation, as well as awards that had reached their scheduled conversion date, but were deferred to preserve the Company’s tax deductibility of the award, in accordance with the terms of the award.(6) Mr. Kelleher’s aggregate balance at year-end of £21,987 ($36,220) was converted from British pounds sterling to U.S. dollars using the 2014 average of daily spot rates of £1 to $1.6474.(3) Represents distributions from our cash-based nonqualified deferred compensation plans and with respect to the RSUs, conversions based on the average of the high and low prices of the Company’s common stock on the conversion date and amounts paid during 2015 pursuant to cash dividend equivalent rights. (4) With respect to our cash-based nonqualified deferred compensation plans, represents the balance of the NEO’s account reflected on the Company’s books and records at December 31, 2015. With respect to the RSUs, represents the number of vested units held by the NEO on December 31, 2015 multiplied by the average of the high and low prices of the Company’s common stock on December 31, 2015. (5) The RSUs disclosed in this table include awards that as of December 31, 2015 had vested, but had not reached their scheduled conversion date and remained subject to cancellation, as well as awards that had reached their scheduled conversion date, but were deferred to preserve the Company’s tax deductibility of the award, in accordance with the terms of the award. (6) Mr. Kelleher’s aggregate balance at year-end of £21,906 was converted from British pounds sterling to U.S. dollars using the 2015 average of daily spot rates of £1 to $1.5285. long-termdeferred incentive compensation to the plan. LCIP is closed to new participants and has not been offered since 2008. For each of fiscal 2006, fiscal 2007 and fiscal 2008, participants were permitted to allocate up to 40% of their long-term incentive compensation to LCIP.a multiple oftwo times each participant’s contribution (for each of fiscal 2006, fiscal 2007 and(however, for fiscal 2008, this multiple was two; however, for fiscal 2008,54Beginning with fiscal 2008 year-end compensation, aA portion of each participant’s year-end long-termdeferred incentive compensation was mandatorily deferred intois granted under MSCIP. Earnings on MSCIP awards are based on the performance of notional investments available under the plan and selected by the participants. Participants may reallocate such balances periodically, as determined by the plan administrator. Until MSCIP awards reach their scheduled distribution date, they are subject to cancellation and clawback by the Company. The cancellation and clawback events applicable to MSCIP awards held by our NEOs are described in the CD&A and in “Potential Payments upon Termination or Change-in-Control.”may beare granted under the Morgan Stanley 2007 Equity Incentive Compensation Plan or any otheranother Company equity plan as determined by the CMDS Committee. Each RSU constitutes a contingent and unsecured promise of the Company to pay the holder one share of Company common stock on the conversion date of the RSU. The RSUs included in this table are considered vested; however, the RSUs are subject to cancellation if a cancellation event occurs at any time prior to the scheduled conversion date. RSUs granted in 2012 and later are subject to clawback, as well as cancellation, prior to the scheduled conversion date. The cancellation and clawback events applicable to RSUs held by our NEOs are described in the CD&A and in “Potential Payments upon Termination or Change-in-Control.”the HMRC. Earnings on ARP contributions are based on the performance of notional investments available under the ARP and selected by the participants. Participants can generally elect the commencement date for distributions at any time after age 55, so long as no distributions begin later than age 75. Distributions are currently paid in the form of a lump sum.55Potential Payments upon Termination or Change-in-ControlPotential Payments upon Termination or Change-in-Control 2014.2015. For purposes of valuing any equity awards, we have assumed a per share value of $38.80,Ms. Porat, this section describes and quantifies the closing price ofbenefits and compensation to which she was entitled in connection with her departure from the Company’s common stockCompany on December 31, 2014.April 30, 2015.General Policies.Our NEOs are not contractually entitled to cash severance payments upon any termination of employment but theyor excise tax protection upon a change-in-control of the Company. NEOs are entitled to receive post-termination health and welfare benefits that are generally available to all salaried employees, such as accrued vacation pay and death, disability and post-retirement welfare benefits. Our NEOsbenefits, and are not contractually entitled toalso eligible for Company-paid retiree medical coverage under the Morgan Stanley Grandfathered Retiree Medical Plan for themselves and eligible dependents following any excise tax protection upon a change-in-controltermination of the Company.employment with three years of service.“2014“2015 Pension Benefits Table,” and our nonqualified deferred compensation plans, as described under the “2014“2015 Nonqualified Deferred Compensation Table.” The NEOs are retirement-eligible under the terms of the PSUs and LTIP awards; however, such awards are not included in the “2014 Nonqualified Deferred Compensation Table” because these awards deliver value only if the Company achieves objective performance goals. Our NEOs are not entitled to special or enhanced termination benefits under our pension and nonqualified deferred compensation plans as compared to other employees. of such award in the event the NEO engages in a cancellation event or if a clawback event occurs. In general, a cancellation event with respect to deferred incentive compensation awards includes: engaging in competitive activity during a specified period following a voluntary termination of employment; engaging in cause (i.e., any act or omission that constitutes 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 orand within a specified period following termination of employment; the making of unauthorized disclosures or disparaging or defamatory comments regardingabout the Company; resignation offrom employment without providing the Company proper advance notice; or the failure to cooperate with or assist the Company in connection with investigations, regulatory matters, lawsuits or arbitrations following termination of employment. incentive 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 the conversion of PSUs and 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.incentivedeferred compensation awards if the NEO does not provide 180 days’ advance notice prior to a resignation from employment or the NEO improperly solicits the Company’s employees, clients or customers during, and for 180 days following termination of, employment.Change-in-Control.Change-in-Control20142015 of the outstanding unvested incentivedeferred compensation awards held by the NEOs to which each NEO would have been56entitled inand 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.Termination Reason Name Unvested RSUs and
Related Dividend
Equivalents, Unvested
Stock Options and
Unvested MSCIP Awards
($)(1)Unvested
LTIP Awards
and Related
Dividend Equivalents
($)(2) Retiree Medical
Coverage(3)Involuntary (not due to a cancellation event) / Disability / Retirement / In connection with a Change-in-Control / Death / Governmental Service Termination James P. Gorman — $ 10,570,066 $ 603,943 Jonathan Pruzan — — $ 950,841 Gregory J. Fleming(4) — $ 8,162,140 $ 773,354 Colm Kelleher — $ 8,162,140 $ 737,625 James A. Rosenthal — $ 5,889,604 $ 632,235 (1) As of December 31, 2015, our NEOs were retirement-eligible for purposes of their outstanding RSU, MSCIP and stock option awards, which are therefore considered vested for purposes of this proxy statement. Amounts are payable on the scheduled distribution dates, subject to cancellation and clawback provisions, except that RSUs and MSCIP awards are payable upon a termination in connection with a change-in-control and all awards are payable upon death or a governmental service termination. Options will become exercisable and remain exercisable through the expiration date. Retirement treatment may be conditioned upon advance notice of termination. Amounts payable with respect to a termination in connection with a change-in-control are conditioned upon the termination occurring within 18 months of the change-in-control as a result of (i) the Company terminating the NEO’s employment under circumstances not involving any cancellation event, (ii) the NEO resigning from employment due to a materially adverse alteration in job responsibilities or (iii) a change in the NEO’s principal place of employment of more than 75 miles from the current location. A “change-in-control” generally means a significant change in the share ownership of the Company or composition of the Board. Governmental service termination treatment is conditioned upon satisfactory proof of a conflict of interest that necessitates divestiture of the awards and executing an agreement to repay amounts vested in connection with such termination if the NEO engages in any cancellation event. (2) As of December 31, 2015, our NEOs were retirement-eligible for purposes of the LTIP awards; however, such awards are not considered vested for purposes of this proxy statement until the end of the performance period because these awards only deliver value if the Company achieves objective performance goals over such performance period. Amounts shown in the table reflect performance through December 31, 2015 (the quarter ending simultaneously with the effective date of the termination), which, with the exception of a termination in connection with a change-in-control, is a substitute for performance through the three-year performance period, which would not be known until the end of such period. To facilitate timely payment of LTIP awards upon death or a governmental service termination as of December 31, 2015, amounts payable with respect to these awards would instead reflect Company performance through September 30, 2015 (the quarter ending with or before the date of the termination for which the Company’s earnings information has been released) as follows: $11,412,190 for Mr. Gorman; $8,810,647 for Messrs. Fleming and Kelleher; and $6,357,440 for Mr. Rosenthal. For purposes of valuing LTIP awards, we have assumed a per share value of $31.81, the closing price of the Company’s common stock on December 31, 2015. (3) Each NEO, having met the service requirement, is eligible to elect retiree medical coverage under the Company’s Grandfathered Retiree Medical Plan for themselves and their eligible dependents following a termination of employment for any reason. The present value is calculated assuming each NEO began retiree medical coverage on December 31, 2015 and elected their current dependent coverage type. The present value is based on the RP-2014 mortality tables rolled back to 2006 with projection Scale RP-2014 and then projected generationally with Scale MP-2015, a discount rate of 4.13%, and a medical inflation rate of 7.12% for 2016-2017 and ultimately settling at 4.50% by 2038. (4) Pursuant to Mr. Fleming’s January 22, 2016 agreement with the Company relating to his termination of employment, Mr. Fleming is entitled to, in addition to the amounts disclosed in the table, continued access to office space and administrative support through his termination date (anticipated to be July 6, 2016), with a cost to the Company of approximately $140,000, and continued access to his primary care physician under the Company’s Executive Health Program through December 31, 2016. December 31, 2014, subject to no cancellation event or clawback event occurring throughApril 30, 2015, Ms. Porat satisfied the distribution date of such award.Termination ReasonNameValue ofUnvestedRSUs andRelatedDividendEquivalents($)(1)Value ofUnvested StockOptions($)(1)Value ofUnvested MSCIPAwards($)(1)Value of UnvestedPSUs/LTIP Awardsand RelatedDividend Equivalents($)(1)(2)Involuntary (other than due to cause or other cancellation event) / Disability / Retirement / In connection with a Change-in-Control / Death / Governmental Service TerminationJames P. Gorman— — — 16,124,315Ruth Porat— — — 11,352,373Gregory J. Fleming— — — 12,938,795Colm Kelleher— — — 12,938,795James A. Rosenthal— — — 10,762,218(1) As of December 31, 2014, our NEOs were retirement-eligibleage and service requirements for retirement eligibility for purposes of theirher outstanding RSU, and MSCIP awards (which are set forth in the “2014 Nonqualified Deferred Compensation Table”) and their outstanding stock option awards, (whichand therefore such awards are set forth in the “2014 Outstanding Equity Awards at Fiscal Year-End Table”), which are therefore considered vested for purposes of this proxy statement. NEOs are also retirement-eligible for purposesSuch awards remain subject to all provisions of the PSUsawards, including any cancellation and clawback provisions, until the applicable distribution date. With respect to her outstanding LTIP awards; however,awards, such awards are not considered vested for purposeswill convert to shares of this proxy statement untilcommon stock on their scheduled conversion dates based on the endperformance of the Company through the applicable three-year performance period, because these awards only deliver value if the Company achieves objective performance goals over such performance period. Amounts are payable on the scheduled distribution dates, subject to cancellation and clawback provisions, except that RSUs and MSCIPprovisions. Therefore, the actual value of Ms. Porat’s LTIP awards are payable upon a termination in connection with a change-in-control and all awards are payable upon death or a governmental service termination. Options will become exercisable and remain exercisable through the expiration date. Retirement treatment is conditioned upon advance notice of termination. For RSUs, MSCIP awards and options, amounts payable with respect to a termination in connection with a change-in-control are conditioned upon the termination occurring within 18 months of the change-in-control as a result of (i) the Company terminating the NEO’s employment under circumstances not involving any cancellation event, (ii) the NEO resigning from employment due to a materially adverse alteration in position or in the nature or status of responsibilities from those in effect immediately prior to the change-in-control or (iii) the Company requiring the NEO’s principal place of employment to be located more than 75 miles from the current location. A “change-in-control” generally means a significant change in the share ownership of the Company or composition of the Board. Governmental service termination treatment is conditioned upon satisfactory proof of a conflict of interest that necessitates divestiture of the awards and executing an agreement to repay amounts vested in connection with such termination if the NEO engages in any cancellation event.(2)Amounts shown in the table reflect performance through December 31, 2014 (the quarter ending simultaneously with the effective date of the termination), which, with the exception of a termination in connection with a change-in-control, is a substitute for performance through the three-year performance period, which would not be known until the end of suchthe performance period. To facilitate timely payment of LTIP awards upon death orUsing Company performance through December 31, 2015 as a governmental service terminationsubstitute for performance through the performance period, the value as of December 31, 2014, amounts payable2015 of Ms. Porat’s LTIP awards for which the performance period had not ended was $6,696,322.these awards would instead reflectall SEREP participants, the Company performance through September 30, 2014 (the quarter ending with or beforepaid $33,008 to satisfyMs. Porat’s portion of FICA taxes due upon the datecommencement of payment of her SEREP benefit.terminationCompany’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.whichOperating 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:● ● earnings information has been released)stock price and provides a continuing incentive for them to work towardsuperior long-term stock price performance. None of our executive officers currently have prearranged trading plans under SEC Rule 10b5-1. Executive officers also are prohibited from pledging or selling short, or engaging in hedging strategiesor trading derivatives involving, Morgan Stanley securities.follows: $16,282,191 for Mr. Gorman; $11,457,624 for Ms. Porat; $13,065,973 for Messrs. Fleming and Kelleher; and $10,854,312 for Mr. Rosenthal.57Item 2—Ratificationpart of Appointmenttheir director compensation. 50% of each equity award granted to our independent directors does not become payable until the director retires from the Board (and may be deferred beyond retirement at the director’s election), which fosters a long-term ownership view. Directors may not enter into hedging transactions in respect of Morgan Stanley’s Independent AuditorOUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF DELOITTE & TOUCHE’S APPOINTMENT AS OUR INDEPENDENT AUDITOR.The Audit Committee has the sole authority and responsibility to appoint, compensate, retain, oversee and evaluate the independent auditor retained to audit the Company’s consolidated financial statements. The Audit Committee reviews and assesses annually the qualifications and performance of the independent auditor and considers, as appropriate, the rotation of the independent auditor. The Audit Committee also ensures the mandatory, regular rotation of the lead audit partner and,Stanley common stock or pledge Morgan Stanley common stock in connection with such rotation, the Audit Committee is involved in the selectiona margin or other loan transaction.the lead audit partner.ContentsThe Audit Committee has appointed Deloitte & Touche LLP (Deloitte & Touche) as independent auditor for the year ending December 31, 2015 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 Form 10-K for the year ending December 31, 2015 and will perform other permissible, pre-approved services. The Audit Committee pre-approves all audit and permitted non-audit services that Deloitte & Touche performs for the Company and is responsible for the audit fee negotiations associated with the engagement of Deloitte & Touche.Independent Auditor’s Fees.The following table summarizessets forth the aggregate fees (including related expenses; $beneficial ownership of common stock as of February 29, 2016 by our CEO and the other executive officers named in millions) for professional services providedthe “2015 Summary Compensation Table” (our NEOs), directors, and by Deloitte & Touche related to 2014all our directors and 2013.executive officers as of February 29, 2016as a group. As of February 29, 2016, none of the common stock beneficially owned by our directors and current executive officers was pledged.Name Shares(1) Underlying
Stock Units(2) Subject to
Stock Options
Exercisable
Within 60 Days Total(3) NAMED EXECUTIVE OFFICERS James P. Gorman 651,725 756,355 966,330 2,374,410 Jonathan Pruzan 49,855 208,205 6,765 264,825 Ruth Porat(4) 875,481 118,102 205,764 1,199,347 Gregory J. Fleming 526,624 369,678 408,563 1,304,865 Colm Kelleher 330,760 327,826 772,003 1,430,589 James A. Rosenthal 170,766 169,905 495,360 836,031 DIRECTORS AND DIRECTOR NOMINEES Erskine B. Bowles 1,000 132,229 — 133,229 Alistair Darling — 3,243 — 3,243 Thomas H. Glocer 2,535 31,204 — 33,739 Robert H. Herz 12,969 28,382 — 41,351 Nobuyuki Hirano(5) — — — — Klaus Kleinfeld 18,197 25,298 — 43,495 Jami Miscik 1,816 9,375 — 11,191 Donald T. Nicolaisen — 83,102 — 83,102 Hutham S. Olayan 8,000 122,589 — 130,589 James W. Owens 14,354 48,304 — 62,658 Ryosuke Tamakoshi(5) — — — — Perry M. Traquina — 7,818 — 7,818 Laura D. Tyson 30,537 46,704 — 77,241 Rayford Wilkins, Jr. 7,768 14,488 — 22,256 ALL DIRECTORS AND EXECUTIVE OFFICERS AS OF
FEBRUARY 29, 2016 AS A GROUP (21 PERSONS)1,538,616 2,376,345 2,847,398 6,762,359 (1) (2) (3) (4) (5) 2014 ($) 2013 ($) 49.0 46.2 6.9 7.9 1.7 1.4 — — 57.6 55.5 (1)PRINCIPAL SHAREHOLDERS Audit Fees services include:auditonly persons we know of that beneficially own more than 5% of our consolidated financial statements included in the Company’s Annual Report on Form 10-K and reviews of the interim condensed consolidated financial statements included in our quarterly reports on Form 10-Q; services attendant to, or required by, statute or regulation; comfort letters, consents and other services related to SEC and other regulatory filings; and audits of subsidiary financial statements.common stock.Shares of Common Stock
Beneficially Owned Name and Address Number Percent(1) MUFG(2) 435,269,905 22.4 7-1, Marunouchi 2-chome Chiyoda-ku, Tokyo 100-8330, Japan State Street(3) 137,364,551 7.1 One Lincoln Street Boston, MA 02111 T. Rowe Price Associates, Inc. (T. Rowe Price)(4) 130,034,322 6.7 100 E. Pratt Street Baltimore, MD 21202 BlackRock, Inc. (BlackRock)(5) 101,896,178 5.3 55 East 52nd Street New York, NY 10055 (1) Percentages based upon the number of shares of common stock outstanding as of the record date, March 21, 2016, and the beneficial ownership of the principal shareholders as reported in SEC filings in notes 2 through 5 below. (2) Based on the amended Schedule 13D dated October 3, 2013 filed by MUFG. The amended Schedule 13D discloses that MUFG had sole dispositive and sole voting power with respect to the beneficially owned shares reported, including 3,252,753 shares held solely in a fiduciary capacity by certain affiliates of MUFG as the trustee of trust accounts or the manager of investment funds, other investment vehicles and managed accounts as of September 27, 2013 for which MUFG disclaims beneficial ownership. (3) Based on the Schedule 13G dated February 12, 2016 filed by State Street and State Street Bank and Trust Company, each acting in various fiduciary and other capacities (as of December 31, 2015). The Schedule 13G discloses that State Street had shared dispositive power as to 137,364,551 shares and shared voting power as to 136,788,017 shares; and that 76,450,828 shares beneficially owned by State Street Bank and Trust Company, a subsidiary of State Street, are held as trustee on behalf of the Trust that holds shares of common stock underlying certain restricted stock units awarded to employees under various of the Company’s equity-based plans. (4) Based on the Schedule 13G dated February 16, 2016 filed by T. Rowe Price (as of December 31, 2015). The Schedule 13G discloses that T. Rowe Price had sole dispositive power as to 129,917,922 shares and sole voting power as to 48,519,511 shares. The Schedule 13G states that T. Rowe Price affirms that the Schedule 13G shall not be construed as an admission that T. Rowe Price is the beneficial owner of the securities referred to, which beneficial ownership is expressly denied. (5) Based on the Schedule 13G dated January 22, 2016 filed by BlackRock (as of December 31, 2015). The Schedule 13G discloses that BlackRock had shared voting and shared dispositive power as to 72,444 shares, sole voting power as to 89,545,861 shares and sole dispositive power as to 101,823,734 shares. (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; audits of employee benefit plans; agreed upon procedures engagements; regulatory matters; and attest services in connection with debt covenants.(3) Tax Fees services include: U.S. federal, state and local income and non-income tax planning and advice; U.S. federal, state and local income and non-income tax compliance; non-U.S. income and non-income tax planning and advice; non-U.S. income and non-income tax compliance; and transfer pricing documentation.Fund-Related Fees. Morgan Stanley offers various unconsolidated registered money market, equity, fixed income and alternative funds, and other funds (collectively, Funds). Deloitte & Touche provides audit, audit-related58and tax services to certain of these unconsolidated Funds. The aggregate fees for such services are summarized in the following table ($ in millions). 2014 ($) 2013 ($) 3.6 5.1 0.7 1.5 3.0 2.3 A Deloitte & Touche representative will attend the annual meeting to respond to your questions and will have the opportunity to make a statement. If shareholders do not ratify the appointment, the Audit Committee will reconsider it.Our Board unanimously recommends that you vote “FOR” the ratification of Deloitte & Touche’s appointment as our independent auditor. Proxies solicited by the Board will be voted “FOR” this ratification unless otherwise instructed.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’s independent auditor. The Board has determined that all members of the Audit Committee are “financially literate” within the meaning of current NYSE rules and a majority of the members of the Audit Committee are “audit committee financial experts” within the meaning of current SEC rules.The Audit Committee serves in an oversight capacity and is not part of the Company’s managerial or operational decision-making process. Management is responsible for the financial reporting process, including the system of internal controls, for the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the U.S. (GAAP) and for the report on the Company’s internal control over financial reporting. The Company’s independent auditor, Deloitte & Touche, is responsible for auditing those financial statements and expressing an opinion as to their conformity with GAAP and expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Our responsibility is to oversee the financial reporting process and to review and discuss management’s report on the Company’s internal control over financial reporting. We rely, without independent verification, on the information provided to us and on the representations made by management, the internal auditor and the independent auditor.The Audit Committee, among other things:Reviewed and discussed the Company’s quarterly earnings releases, Quarterly Reports on Form 10-Q and Annual Report on Form 10-K, including the consolidated financial statements;Reviewed the major legal and compliance risk exposures and the guidelines and policies that govern the process for risk assessment and risk management, including coordinating with the Risk Committee and the Operations and Technology Committee;Reviewed and discussed the plan and the scope of the work of the internal auditor for 2014 and summaries of the significant reports to management by the internal auditor;Reviewed and discussed the plan and scope of work of the independent auditor for 2014;Reviewed and discussed reports from management on the Company’s policies regarding applicable legal and regulatory requirements; andMet with Deloitte & Touche, the internal auditor and Company management in executive sessions.59We reviewed and discussed with management, the internal auditor and Deloitte & Touche: the audited consolidated financial statements for 2014, the critical accounting policies that are set forth in the Company’s Annual Report on Form 10-K, management’s annual report on the Company’s internal control over financial reporting and Deloitte & Touche’s opinion on the effectiveness of the Company’s internal control over financial reporting.We discussed with Deloitte & Touche matters that independent registered public accounting firms must discuss with audit committees under standards of the Public Company Accounting Oversight Board (PCAOB), including, among other things, matters related to the conduct of the audit of the Company’s consolidated financial statements and the matters required to be discussed by Auditing Standard No. 16,Communication with Audit Committees, as adopted by the PCAOB. Deloitte & Touche also provided to the Audit Committee the written disclosures and the letter required by applicable requirements of the PCAOB regarding the independent auditor’s communications with the Audit Committee concerning independence and represented that it is independent from the Company. We discussed with Deloitte & Touche their independence from the Company, and considered if services they provided to the Company beyond those rendered in connection with their audit of the Company’s consolidated financial statements, reviews of the Company’s interim condensed consolidated financial statements included in its Quarterly Reports on Form 10-Q, and their opinion on the effectiveness of the Company’s internal control over financial reporting were compatible with maintaining their independence. We also reviewed and pre-approved, among other things, the audit, audit-related and tax services performed by Deloitte & Touche. We received regular updates on the amount of fees and scope of audit, audit-related and tax services provided.Based on our review and the meetings, discussions and reports discussed above, and subject to the limitations on our role and responsibilities referred to above and in the Audit Committee charter, we recommended to the Board that the Company’s audited consolidated financial statements for 2014 be included in the Company’s Annual Report on Form 10-K. We also selected Deloitte & Touche as the Company’s independent auditor for the year ending December 31, 2015 and are presenting the selection to the shareholders for ratification.Respectfully submitted,Robert H. Herz, ChairHoward J. DaviesThomas H. Glocer (effective January 1, 2015)Donald T. NicolaisenItem 3—Company Proposal to Approve the Compensation of Executives as Disclosed in the Proxy Statement (Non-Binding Advisory Resolution)OUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL.As required by Section 14A16(a) of the Securities Exchange Act of 1934 this proposal seeks a shareholder advisory vote to approve the compensationrequires our directors and certain of our NEOs as disclosed pursuantofficers to Item 402 of Regulation S-K through the following resolution:“RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the Company’s named executive officers, as disclosed in the Company’s proxy statement for the 2015 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission (which disclosure includes the Compensation Discussion and Analysis and the accompanying compensation tables and related narrative).”Morgan Stanley’s shareholders are urged to read the CD&A, which discusses our compensation program and the CMDS Committee’s pay decisions for the CEO, James Gorman, and the other NEOs.60Robust Framework for Making Pay Decisions. The CMDS Committee considers multiple factors to ensure that the compensation program is highly motivating, competitive, and shareholder-aligned and reflects best practices in corporate governance, risk management and regulatory principles. The CMDS Committee,file reports with the adviceSEC indicating their holdings of, its independent compensation consultant, Pay Governance, places performance at the forefrontand transactions in, our equity securities. The Company believes that our reporting persons complied with all Section 16(a) filing requirements during 2015.Morgan Stanley’s Performance Continued to Improve in 2014.EQUITY COMPENSATION PLAN In its assessment of 2014 results, the CMDS Committee considered the improvement in the Company’s business results relative to 2013, and continued progress on important strategic priorities, which resulted in industry leading shareholder returns for the second consecutive year. See the CD&A for details about Company performance in 2014.Consistent Approach Aligns CEO Pay and Performance. The CMDS Committee has applied a consistent approach to align pay with performance. For 2014, in consultation with its independent consultant, the Committee considered compensation information for peer companies and established a target range for the CEO pay opportunity for the year of $23 million or more for superior performance to $13 million or less for performance substantially below expectations. The actual CEO pay opportunity for 2014 was evaluated based on the CMDS Committee’s assessment of Morgan Stanley’s performance and Mr. Gorman’s individual performance. For 2014, the CEO pay opportunity is $22.5 million, driven by Morgan Stanley’s strong business results, strategic execution and shareholder returns.Total Pay Opportunity Encourages Long-Term View. Mr. Gorman’s pay opportunity was delivered in a combination of base salary, cash bonus, deferred cash, deferred equity, and an LTIP award, as outlined in the chart below. A significant portion of the pay opportunity is deferred and awarded as equity awards that are subject to future stock price performance, cancellation and clawback and, in the case of the LTIP award, future achievement of specified financial targets. The CMDS Committee believes this approach to executive compensation is consistent with shareholder alignment, executive motivation, best practices and regulatory principles.616.Prohibitions against hedging, short selling or trading derivativesNEOs and other Operating Committee members are prohibited from engaging in hedging strategies, selling short or trading derivatives with Company securities7.Double-trigger change-in-control vestingNo deferred compensation for NEOs automatically vests upon a change-in-control. Both a change-in-control and a qualifying termination of employment within 18 months of the change-in control are required8.No excise tax gross-ups for NEOsNEOs are not contractually entitled to excise tax protection upon a change-in-control of Morgan Stanley. In 2013, Mr. Gorman waived his right to this protection, which dated back to his 2005 employment letter with Morgan StanleyOther NEO Pay Also Aligned with Performance. Similar to the process for determining CEO compensation, the CMDS Committee weighed the Company’s overall business performance, performance for shareholders and accomplishment of strategic initiatives, as well as individual performance, to establish compensation for the remaining NEOs and the structure of their compensation is generally consistent with the CEO’s.Shareholder Views are Considered. Although the vote on this proposal is not binding, the CMDS Committee, which is comprised solely of independent directors and is responsible for making decisions regarding the amount and form of compensation paid to the Company’s senior executives, will carefully consider the shareholder vote on this matter. To help ensure that the range of shareholder views are well understood by the Board – in a way that a simple “for” or “against” vote does not allow – the Company also encourages shareholders to use any of a number of available direct communication mechanisms to effectively raise specific items with regard to our executive compensation practices.The Company’s current policy is to provide shareholders with an opportunity to approve the compensation of the named executive officers, on an advisory basis, each year at the annual meeting of shareholders. It is expected that the next such vote will occur at the 2016 annual meeting of shareholders.Our Board unanimously recommends that you vote“FOR” this proposal. Proxies solicited by the Board will be voted“FOR” this proposal unless otherwise instructedItem 4—Company Proposal to Amend the 2007 Equity Incentive Compensation Plan to Increase Shares Available for GrantOUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL.26, 2015,24, 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 2520 million shares.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 2013. The proposed increase in shares, which represents approximately 1.3% of the common shares of the Company outstanding as of January 31, 2015 is less than the 47by 25 million shares the Company has repurchased since 2013. The Company has an active share repurchase program and is authorized by the Board to repurchase up to an additional $3.1 billion of common shares of the Company (85 million shares based on the March 23, 2015 closing price of $36.31) through the end of the second quarter of 2016.20162017 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.62performanceperformance-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.In January 2015, approximately 30● ● ● ● The Company strives to maximize employee and shareholder alignment through the use of deferred equity awards, while minimizing dilution. Since 2009, the Company has requested approval of additional shares to cover only one year of grant needs. In 2014, after a year in which the Company’s stock price increased substantially, the Company expected to have sufficient shares for grants to be made over the next year and, therefore, did not request shareholder approval for additional shares at the 2014 annual meeting of shareholders. Since the last amendment to the EICP, the Company has re-initiated a share repurchase program in 2013 with regulatory approval. The Company has evaluated, as it does annually, whether to return to shareholders to request approval of additional shares at the 2015 annual meeting of shareholders and has determined to request 25 million shares to cover one year of grant needs, which is less than the 47 million shares the Company has repurchased since 2013. In addition, the Company is authorized to repurchase up to an additional $3.1 billion of shares through the end of the second quarter of 2016 (85 million shares based on the March 23, 2015 closing price of $36.31).If the proposed amendment to increase the number of shares available under the EICP is not approved, the Company will be compelled to increase the cash-based component of employee compensation, which is contrary to regulatory guidance and could reduce the alignment of employee and shareholder interests.If the proposed amendment to increase the number of shares available under the EICP is not approved, the Company will lose a critical tool for recruiting, retaining and motivating employees. The Company would thus be at a competitive disadvantage in attracting and retaining talent.The terms of our equity and other annual and long-term incentive compensation awards and our employee policies are all designed to protect shareholder interests and encourage employees to focus on the long-term success of the Company.Employees typically cannot fully monetize equity awards until three years after grant. For example, RSUs granted for 2014 generally vest and convert to shares after three years.● •● ○ ○ ○ standards, or causes a loss of revenue associated with a position on which the employee was paid and63○ The EICP expressly prohibits the grant of stock option restoration rights and the repricing of stock options and stock appreciation rights (including any amendment to such awards that has the effect of reducing the exercise price and any cancellation of such awards in exchange for cash or another award) other than an equitable adjustment in connection with a corporate transaction.FOR”FOR” this proposal. Proxies solicited by the Board will be voted“FOR”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.Purposes and Eligibility Purposes and Eligibility. The primary purposes of the EICP are to attract, retain and motivate employees, to compensate them for their contributions to our growth and profits and to encourage them to own shares of our common stock to align their interests with those of shareholders. The EICP authorizes the issuance of awards (Awards) to all officers, other employees (including newly hired employees) and consultants of the Company, non-employee directors of our subsidiaries and employees and consultants of joint ventures, partnerships or similar business organizations in which we or one of our subsidiaries has an equity or similar interest (Eligible Individuals). As of January 31, 2015,2016, there were approximately 56,00055,000 Eligible Individuals who were employees of the Company and its subsidiaries.AdministrationTable of Contents.Administration Shares Available Under the EICP Shares Available Under the EICP.Since initial shareholder approval of the EICP in 2007, the total number of shares of common stock that may be delivered pursuant to Awards will be 303323 million (which takes into account the proposed 2520 million share increase), of which approximately 253.5275.5 million were already granted as of January 31, 2015,2016, subject to adjustment pursuant to the EICP’s share counting rules as described below and to reflect certain transactions. Shares delivered under the EICP may be either treasury shares or newly issued shares. In addition to the overall limit, the EICP limits the number of shares of common stock that may be subject to stock option and stock appreciation right (SAR) awards in any single year.Share Counting Rules Share Counting Rules.When the CMDS Committee grants an Award, the full number of shares subject to the Award is charged against the number of shares that remain available for delivery pursuant to Awards. After grant, the number of shares subject to any portion of an Award that is canceled or that expires without having been settled in shares, or that is settled through the delivery of consideration other than shares, will be available for new Awards. If shares are tendered or withheld to pay the exercise price of an Award or to satisfy a tax withholding obligation, those tendered or withheld shares will be available for new Awards. Awards granted upon assumption of, or in substitution for, outstanding awards previously granted by, or held by employees of, a company or other entity or business acquired (directly or indirectly) by the Company or with which the Company combines are not counted against the number of shares of common stock available for delivery pursuant to Awards and are not subject to the individual limit on stock options and SARs.Awards Generally ● ● Restricted Stock and Stock Units 64Awards Generally.Form of Awards. The EICP authorizes the following Awards: (i) restricted stock Awards consisting of one or more shares of common stock granted or sold to a Participant; (ii) stock unit Awards settled in one or more shares of common stock or, as authorized by the CMDS Committee, an amount in cash based on the fair market value of shares of common stock; (iii) stock option Awards consisting of the right to purchase at a specified exercise price a number of shares of common stock determined by the CMDS Committee; (iv) SARs consisting of the grant of a right to receive upon exercise of such right, in cash or common stock (or a combination thereof) as determined by the CMDS Committee, an amount equal to the increase in the fair market value of a share of common stock over the specified exercise price; (v) Qualifying Performance Awards to participants covered by Section 162(m) of the Internal Revenue Code (Section 162(m)), with the intent that such awards qualify as “performance-based compensation” under Section 162(m) and (vi) other forms of equity-based or equity-related Awards that the CMDS Committee determines to be consistent with the purposes of the EICP (Other Awards). Awards under the EICP may, at the discretion of the CMDS Committee, be made in substitution in whole or in part for cash or other compensation payable to an Eligible Individual.Dividends and Distributions. If we pay any dividend or make any distribution to holders of our common stock, the CMDS Committee may in its discretion authorize payments (which may be in cash, common stock (including restricted stock) or stock units or a combination thereof) with respect to the shares of common stock corresponding to an Award, or may authorize appropriate adjustments to outstanding Awards, to reflect the dividend or distribution. The CMDS Committee may make any such payments subject to vesting, deferral, restrictions on transfer or other conditions. Dividends are not paid on stock options or SARs.Restricted Stock and Stock Units.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 stockStock Options and SARs ● ● ● ● ● ● ● Qualifying Performance Awards Stock Options and SARs.General. Stock options may be either nonqualified stock options or incentive stock options (ISOs). Upon satisfaction of the conditions for exercisability, a Participant may exercise a stock option and receive the number of shares of common stock in respect of which the stock option is exercised. Upon satisfaction of the conditions for payment, each SAR will entitle a Participant to an amount, if any, equal to the amount by which the fair market value of a share of common stock on the date of exercise exceeds the SAR exercise price. At the discretion of the CMDS Committee, SARs may be payable in common stock, cash or a combination thereof.Exercise Price. The exercise price of stock options and SARs awarded under the EICP may not be less than 100% of the fair market value of one share of common stock on the award date; however, the exercise price per share of a stock option or SAR that is granted in substitution for an award previously granted by an entity acquired by the Company or with which the Company combines may be less than the fair market value per share on the award date if such substitution complies with applicable laws and regulations.Prohibition on Repricing of Stock Options and SARs. The CMDS Committee may not “reprice” any stock option or SAR or make any other amendment to a stock option or SAR that has the effect of reducing its exercise price or cancel a stock option or SAR in exchange for cash or another Award, unless the repricing occurs in connection with a merger, acquisition, spin-off or other similar corporate transaction. An equitable adjustment to reflect a corporate transaction is not a prohibited repricing.65Prohibition on Restoration Option and SAR Grants. The terms of a stock option or SAR may not provide for a new stock option or SAR to be granted, automatically and without payment of additional consideration in excess of the exercise price of the underlying stock option or SAR, to a Participant upon exercise of the stock option or SAR.Individual Limit on Stock Options and SARs. The maximum number of shares of common stock that may be subject to stock options or SARs granted to or elected by a Participant in any fiscal year will be 2,000,000 shares. This limitation does not apply to shares of common stock subject to stock options or SARs granted to a Participant pursuant to any performance formula or performance measures approved by the Company’s shareholders pursuant to Section 162(m).Maximum Term on Stock Options and SARs. No stock option or SAR may have an expiration date that is later than the tenth anniversary of the Award date.ISO Limit. The full number of shares of common stock available for delivery under the EICP may be delivered pursuant to ISOs, except that in calculating the number of shares that remain available for ISOs, certain share counting provisions will not apply.Qualifying Performance Awards.These awards are intended to be granted to any individual designated by the CMDS Committee by not later than 90 days following the start of the relevant performance period (or such other time as may be required or permitted by Section 162(m)) as an individual whose compensation for such fiscal year may be subject to the limit on deductible compensation imposed by Section 162(m).● ● Performance Measures. The performance measures for Qualifying Awards may vary by participant and by award, and may be based upon the attainment of specific amounts of, or changes in, one or more of the following: earnings (before or after taxes); earnings per share; shareholders’ equity or return on shareholders’ equity; risk-weighted assets or return on risk-weighted assets; capital, capital ratios or return on capital; book value or book value per share; operating income (before or after taxes); operating margins or pre-tax margins; stock price or total shareholder return; market share (including market share of revenue); debt reduction or change in rating; cost reductions; regulatory factors; risk management; expense management; or cost reductions.“DVA”)DVA).Individual Award Limits. ● CMDS Committee to be in excess of $10 million. For purposes of calculating this limit, the value of Qualifying Awards that are denominated in shares will be determined by reference to the volume-weighted average price of a share of the Company on the66Other Awards Other Awards.The CMDS Committee may establish the terms and provisions of other forms of Awards not described above that the CMDS Committee determines to be consistent with the purpose of the EICP and the interests of the Company.Transferability Transferability.Unless otherwise permitted by the CMDS Committee, no Award will be transferable other than by will or by the laws of descent and distribution. During the lifetime of a Participant, an ISO will be exercisable only by the Participant.Amendment and Termination Amendment and Termination.The Board or the CMDS Committee may modify, amend, suspend or terminate the EICP in whole or in part at any time and may modify or amend the terms and conditions of any outstanding Award. However, no modification, amendment, suspension or termination may materially adversely affect a Participant’s rights with respect to any Award previously made without that Participant’s consent, except that the CMDS Committee may at any time, without a Participant’s consent, amend or modify the EICP or any Award under the EICP to comply with law, accounting standards, regulatory guidance or other legal requirements. The CMDS Committee may create subplans as may be necessary or advisable to comply with non-U.S. legal or regulatory provisions. Notwithstanding the foregoing, neither the Board nor the CMDS Committee may accelerate the payment or settlement of any Award that constitutes a deferral of compensation for purposes of Section 409A of the Internal Revenue Code except to the extent the acceleration would not result in a Participant incurring interest or additional tax under Section 409A.Term Term.No Awards may be made after May 15, 2017.Section 162(m)Table of the Internal Revenue CodeContents.Section 162(m) of the Internal Revenue Code EICP Benefits EICP Benefits.Awards under the EICP will be authorized by the CMDS Committee in its sole discretion. Therefore, it is not possible to determine the benefits or amounts that will be received by any particular employees or group of employees in the future or that would have been received in 20142015 had the amendment of the EICP then been in effect.U.S. Federal Income Tax Consequences U.S. Federal Income Tax Consequences.The following is a general summary as of the date of this proxy statement of the U.S. federal income tax consequences associated with the EICP. The federal tax laws are complex and subject to change and the tax consequences for any Participant will depend on his or her individual circumstances.