DEF 14A 1 ms3206591-def14a.htm DEFINITIVE PROXY STATEMENT

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

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Table of Contents

 

 

 

Notice of 2017 Annual Meeting
and Proxy Statement

 

 

 



Table of Contents


James P. Gorman
 

 

April 7, 2017

Dear fellow shareholders,

I cordially invite you to attend Morgan Stanley’s 2017 annual meeting of shareholders that will be held on Monday, May 22, 2017, 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.

2016 demonstrated that we have the right business mix, risk profile, and size and scale to drive Morgan Stanley’s future success through market cycles. Our financial performance improved over the previous year, as we grew our pre-tax profit, excluding DVA*, by nearly $1 billion despite nearly flat revenues. Our return on equity, excluding DVA*, demonstrated progress towards our 2017 target, but we need to continue to execute on our strategic initiatives this year to get there. While there is more work to be done to achieve our goals, we approach 2017 with more confidence than at any time over the past 10 years.

We took further steps in 2016 to develop the next generation of leadership, cross-pollinating key executives throughout our major businesses to create a greater focus on collaboration and delivering the entire Firm for the benefit of our clients.

In addition to the ongoing dialogue we maintain with shareholders, we sought to engage with a number of you over the past year to hear your perspectives on governance, compensation and environmental and social issues. Based on the insights you shared, we have enhanced our disclosures to better communicate our best-in-class practices, including with respect to Board oversight, director orientation and education, our director equity ownership requirement, our commitment to delivering compensation that is well aligned with performance, and our management succession and development planning. The Board continues to focus on succession, adding nine new directors in the past five years with complementary skills and attributes to focus on overseeing a sustainable, long-term strategy. At your request, we have also added disclosure reflecting our sustainability efforts and giving back to the communities in which we serve.

As we do each year, the Board of Directors and executive management have evaluated our strategy and refined our goals and priorities to ensure we are working for the long-term benefit of our shareholders.

Morgan Stanley 2017 Proxy Statement     1



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Our Wealth Management business is poised for further growth, and we are focused on increasing our pre-tax earnings. In 2016 our full-year profit margin* was 22%, despite headwinds from muted retail investor engagement and sustained low interest rates. Assuming constructive markets, we have targeted a profit margin of 23% to 25% by 2017.
Our world-class Investment Banking franchise continued to rank in the top two of the global league tables in advising on mergers and acquisitions and underwriting initial public offerings last year.
We unified our Sales & Trading franchise under one leadership team in the fall of 2015, and now are managing Sales & Trading holistically, aiming to optimize resources, talent, capital and technology. Our Equity Sales & Trading business finished the year No. 1 globally in net revenues for the third year in a row. Our goal is to maintain leadership across regions while profitably growing wallet share. The meaningful restructuring of our Fixed Income Sales & Trading business made at the end of 2015 was consistent with our objective to have a credible and critically sized business with capital and resources appropriate to the market opportunities. The results so far have been encouraging, and in 2016 we exceeded our goal of average quarterly net revenues of at least $1 billion.
In Investment Management, we undertook an organizational realignment to unify the business, rationalize costs and take better advantage of the Firm’s distribution and origination platforms. While we experienced lower revenue from investments in 2016, our management fees were stable and we demonstrated strong momentum in fundraising across a number of funds, launched new products, and strengthened the management team.
On the expense side, we remain vigilant and are on course to deliver our targeted $1 billion of cost reductions in 2017 through Project Streamline. On relatively flat annual net revenues in 2016, we reduced non-compensation expenses significantly and also continued to exercise discipline on compensation expenses.

We increased both our common dividend and share repurchase program last year. Our total capital return in 2016 was $4.8 billion, an increase of 50% from the prior year. We believe we are sufficiently capitalized for our business mix, size and risk profile.

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 details on our efforts to develop the next generation of leadership. I have great confidence in this team, and we are well positioned for the years ahead.

Thank you for your support of Morgan Stanley.

Very truly yours,

James P. Gorman
Chairman and Chief Executive Officer

* Represents a non-GAAP measure. See page 57 for the “Notes to the Compensation Discussion and Analysis.”


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TABLE OF CONTENTS

OVERVIEW OF VOTING ITEMS 6
CORPORATE GOVERNANCE 14
Item 1 Election of Directors 14
Director Selection and Nomination Process 14
Director Experience, Qualifications, Attributes and Skills 15
Director Nominees 15
Corporate Governance Highlights 23
      Board Structure and Independence 23
Board Oversight 23
Annual Evaluation of Board, Committees and Independent Lead Director 24
Director Orientation and Continuing Education 25
  Senior Management Succession and Development Planning 25
Shareholder Rights and Accountability 25
Shareholder Engagement 25
Environmental, Social and Governance Highlights 26
Giving Back to the Community 26
Corporate Political Activities Policy Statement 27
Communication by Shareholders and Other Interested Parties with the Board of Directors 27
Additional Corporate Governance Information Available on Corporate Governance Webpage 27
Director Independence 28
Director Attendance at Annual Meeting 30
Board Meetings and Committees 30
Board Leadership Structure and Role in Risk Oversight 33
Compensation Governance and Risk Management 37
Director Compensation 37
Related Person Transactions Policy 40
Certain Transactions 40
AUDIT MATTERS 41
Item 2 Ratification of Appointment of Morgan Stanley’s Independent Auditor 41
Audit Committee Report 42
Independent Auditor’s Fees 43
EXECUTIVE COMPENSATION 44
Item 3 Company Proposal to Approve the Compensation of Executives as Disclosed in the Proxy Statement
(Non-Binding Advisory Vote)
44
Compensation Discussion and Analysis (CD&A) 45
Compensation, Management Development and Succession Committee Report 59
Executive Compensation Tables 60
2016 Summary Compensation Table 60
2016 Grants of Plan-Based Awards Table 62
2016 Outstanding Equity Awards at Fiscal Year-End Table 63
2016 Option Exercises and Stock Vested Table 64
2016 Pension Benefits Table 65
2016 Nonqualified Deferred Compensation Table 66
Potential Payments upon Termination or Change-in-Control 69
OWNERSHIP OF OUR STOCK 71
Executive Equity Ownership Commitment 71
Director Equity Ownership Requirement 71
Stock Ownership of Executive Officers and Directors 72
Principal Shareholders 73
Section 16(a) Beneficial Ownership Reporting Compliance 73

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OTHER COMPANY PROPOSALS 74
Item 4 Company Proposal to Vote on the Frequency of Holding a Non-Binding Advisory Vote on the Compensation of Executives as Disclosed in the Proxy Statement (Non-Binding Advisory Vote) 74
Item 5 Company Proposal to Approve the Amended and Restated Equity Incentive Compensation Plan 74
Item 6 Company Proposal to Approve the Amended and Restated Directors’ Equity Capital Accumulation Plan 83
Items 7-8 SHAREHOLDER PROPOSALS 87-90
INFORMATION ABOUT THE ANNUAL MEETING 91
Questions and Answers 91
Other Business 94
ANNEX A: Equity Incentive Compensation Plan (As Proposed to Be Amended and Restated) A-1
ANNEX B: Directors’ Equity Capital Accumulation Plan (As Proposed to Be Amended and Restated) B-1

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1585 Broadway
New York, NY 10036

NOTICE OF 2017 ANNUAL MEETING
OF SHAREHOLDERS

TIME AND DATE
2:00 p.m. (EDT) on May 22, 2017

LOCATION
Morgan Stanley
2000 Westchester Avenue, Purchase, New York

ITEMS OF BUSINESS

Elect the Board of Directors

Ratify the appointment of Deloitte & Touche LLP as independent auditor

Approve the compensation of executives as disclosed in the proxy statement (non-binding advisory vote)

Vote on the frequency of holding a non-binding advisory vote on the compensation of executives as disclosed in the proxy statement (non-binding advisory vote)

Approve the amended and restated Equity Incentive Compensation Plan

Approve the amended and restated Directors’ Equity Capital Accumulation Plan

Consider two shareholder proposals, if properly presented at the meeting

Transact such other business as may properly come before the meeting or any postponement or adjournment thereof

RECORD DATE
The close of business on March 27, 2017 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 27, 2017, 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 7, 2017

VOTING
It is important that all of your shares are voted. You may submit your proxy to have your shares voted over the Internet or by telephone or by returning your proxy card or voting instruction form, if you receive one in the mail.

BY MOBILE DEVICE
You can vote by scanning the QR Barcode on your proxy materials.

BY TELEPHONE
You can vote by calling the number on your proxy materials.

BY INTERNET
You can vote online at www.proxyvote.com.

BY MAIL
You can vote by mail by completing, dating and signing your proxy card or voting instruction form and returning it in the postage-paid envelope.

WEBCAST
If you are unable to attend the meeting in person, you may listen to the meeting at www.morganstanley.com/ about-us-ir. Please go to our website prior to the annual meeting for details.

NOTICE
We are distributing to certain shareholders a Notice of Internet Availability of Proxy Materials (Notice) on or about April 7, 2017. The Notice informs those shareholders how to access this proxy statement and our Annual Report on Form 10-K for the year ended December 31, 2016 through the Internet and how to submit a proxy online.

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on May 22, 2017: Our Letter to Shareholders, Proxy Statement and Annual Report on Form 10-K for the year ended December 31, 2016 are available free of charge on our website at www.morganstanley.com/2017ams.



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OVERVIEW OF VOTING ITEMS

This overview of voting items presents certain information that you should consider before voting on the items presented at this year’s annual meeting; however, you should read the entire proxy statement carefully before voting. In this proxy statement, we refer to Morgan Stanley as the “Company,” the “Firm,” “we,” “our” or “us” and the Board of Directors as the “Board.”

Item 1

Election of Directors

 Our Board unanimously recommends that you vote “FOR” the election of all director nominees.

Director Nominees

Morgan Stanley
Committees
Name Occupation Age Director
since
Non-
management
Other current
public boards
A CMDS NG OT R
Erskine B. Bowles
Independent Lead
Director
President Emeritus of the
University of North Carolina
71 2005 YES - Facebook, Inc.
- Norfolk Southern
  Corporation
M M
Alistair Darling Former Chancellor of the
Exchequer for the U.K.
63 2016 YES - None M
Thomas H. Glocer Former CEO of Thomson
Reuters Corporation
57 2013 YES - Merck & Co., Inc. M C
James P. Gorman Chairman of the Board and CEO
of Morgan Stanley
58 2010 NO - None
Robert H. Herz President of
Robert H. Herz LLC
Former Chairman of Financial
Accounting Standards Board
63 2012 YES - Federal National
  Mortgage Association
  (Fannie Mae)
- Workiva Inc.
C M  
Nobuyuki Hirano President and Group CEO
of Mitsubishi UFJ Financial
Group, Inc.
65 2015 YES - Mitsubishi UFJ
  Financial Group, Inc.
    M
Klaus Kleinfeld Chairman and CEO of
Arconic Inc.
59 2012 YES - Arconic Inc.
- Hewlett Packard
  Enterprise Company
  M
Jami Miscik Co-CEO and Vice Chair of
Kissinger Associates, Inc.
58 2014 YES - None M M
Dennis M. Nally Former Chairman of
PricewaterhouseCoopers
International Ltd.
64 2016 YES - None M
Hutham S. Olayan Principal and director of
The Olayan Group
63 2006 YES - International Business
  Machines Corporation
C
James W. Owens Former Chairman and CEO of
Caterpillar Inc.
71 2011 YES - Alcoa Corporation
- International Business
  Machines Corporation
M C
Ryosuke
Tamakoshi
Senior Advisor of The Bank of
Tokyo-Mitsubishi UFJ, Ltd.
69 2011 YES - None M
Perry M. Traquina Former CEO and Managing
Partner, Wellington
Management Company LLP
60 2015 YES - eBay Inc.
- The Allstate
  Corporation
M C
Rayford Wilkins, Jr. Former CEO of Diversified
Businesses of AT&T Inc.
65 2013 YES - Valero Energy
  Corporation
M M

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



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OVERVIEW OF VOTING ITEMS

The Morgan Stanley Board of Directors*

Board Tenure Balance         Board Independence

Average Tenure: 4.9 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)
  See page 14 for more information about our Board.

(1) Reflects certain directors’ experience in more than one sector.


* Current director nominees.

Corporate Governance Highlights

          
Board Structure
and Independence
Nine new directors since 2012 who bring a diversity of skills, attributes and perspectives to the Board
Upon election at the annual meeting, the average Board tenure will be approximately 4.9 years
Expansive Independent Lead Director role
 

Board Oversight

Oversees the Company’s strategy, annual business plans, Enterprise Risk Management (ERM) framework 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
Reviews strategic process regularly and conducts an annual offsite meeting with the CEO and senior management to review long-term strategy
 

Shareholder
Rights and
Accountability

Adopted proxy access
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
 

Sustainability
and Social
Responsibility

Established the Morgan Stanley Institute for Sustainable Investing and committed to facilitating the financing of sustainable and social impact projects
Company-wide focus on managing our environmental footprint
Commitment to giving back to the community
 

Morgan Stanley 2017 Proxy Statement     7



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OVERVIEW OF VOTING ITEMS

Item 2
     
 

Ratification of Appointment of Morgan Stanley’s Independent Auditor

 
           
 

Our Board unanimously recommends that you vote “FOR” the ratification of Deloitte & Touche’s appointment as our independent auditor.

 
      
 

See page 42 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 Vote)

Our Board unanimously recommends that you vote “FOR” this proposal.

 

See page 45 for the “Compensation Discussion and Analysis” (CD&A) and additional information relating to the metrics referenced below and see Section 5 of the CD&A for the notes referenced below.

 

2016 CEO Performance and Compensation Decision

At the start of 2016, 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, 2016 CEO compensation was set at $22.5 million, a 7% increase from $21 million for 2015, 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 2016 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.

In 2016, Morgan Stanley made progress on the 2017 strategic objectives approved by the Board.

Objective       2016 Status(3)
     

Streamline: $1 Billion Expense Reduction   On Track $1 billion in Expense
Reduction by 2017
 

Complete Fixed Income Restructuring and
Maintain Revenue Footprint
Retained Revenue Footprint, with 25%
Headcount Reduction and Reduced
Resources
 

Wealth Management Pre-Tax Margin(4): 23 – 25% Achieved 22% Margin, Despite
Transactional Revenue Headwinds
 

Increase Capital Return to Shareholders Received Non-Objection to
Increase Dividend (+33%) and
Buyback (+40%)(5)
 

ROE Target: 9 – 11%(6)(7) Ongoing


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OVERVIEW OF VOTING ITEMS

In 2016, Morgan Stanley delivered improved financial performance.

2016 Financial Result Summary
Firm Revenues, ex DVA ($Bn)(9)


Morgan Stanley’s 1, 3 and 5-year total shareholder returns (TSR) rank top 3 among peers and outperformed the S&P 500 Financials Index.

Morgan Stanley and S&P 500 Financials Index Total Shareholder Returns (TSR)(12)
 

1-Year (2016) TSR

     

3-Year (2014-2016) TSR

     

5-Year (2012-2016) TSR 

         

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OVERVIEW OF VOTING ITEMS


2016 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 2016 CEO Compensation Elements      

$ Million

% of Deferred

% of Total

     

Performance-Vested Long-Term Equity Incentive Compensation

Realizable value determined after three years (2017-2019), based equally on two performance metrics: target average ROE of 10% and shareholder returns TSR 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 Firmwide deferral schedule
 





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


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OVERVIEW OF VOTING ITEMS

Shareholder Engagement

At our 2016 annual meeting of shareholders, approximately 90% of the votes cast were in favor of our annual “Say on Pay” proposal. In anticipation of the 2017 “Say on Pay” vote, we continued our engagement program, seeking feedback from shareholders and proxy advisory firms on a variety of topics, including executive compensation, corporate governance and environmental and social goals. With respect to executive compensation, shareholders who provided feedback during our engagement program generally reported that executive compensation at Morgan Stanley was viewed as well-aligned with performance.


Item 4

Company Proposal to Vote on the Frequency of Holding a Non-Binding Advisory Vote on the Compensation of Executives as Disclosed in the Proxy Statement (Non-Binding Advisory Vote)

Our Board unanimously recommends that you vote for the option of once every “1 YEAR” as the frequency with which shareholders are provided a non-binding advisory vote on executive compensation.



Proposal

An annual “Say on Pay” vote


Rationale

In 2011, the Firm’s shareholders indicated their preference for holding the “Say on Pay” vote on an annual basis, with 91% of votes cast in support

While the Firm’s executive compensation program is designed to promote a long-term connection between pay and performance, an annual vote allows shareholders to provide their view on our compensation philosophy, policies and practices each year

An annual “Say on Pay” vote is consistent with the Firm’s practice of seeking the views of, and engaging in discussions with, shareholders on governance and compensation matters



See page 74 for the proposal to vote on the frequency of holding a non-binding advisory vote on the compensation of executives as disclosed in the proxy statement (non-binding advisory vote).



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OVERVIEW OF VOTING ITEMS

Item 5

Company Proposal to Approve the Amended and Restated Equity Incentive Compensation Plan (EICP)

Our Board unanimously recommends that you vote “FOR” this proposal.



Proposal

Add 50 million shares to the EICP

Extend the term of the EICP for an additional 5 years

Re-approve, for purposes of Section 162(m) of the Internal Revenue Code, the performance criteria set forth in the plan


Rationale

Morgan Stanley believes that a portion of compensation should be awarded in shares to align employee and shareholder interests

The Company last amended the EICP in 2016 to add 20 million shares, which was approved by approximately 94% of the votes cast

The Company is requesting an additional 50 million shares in 2017, which we expect would allow us to make grants under the EICP for approximately three years

The Company strives to maximize employee and shareholder alignment, while minimizing dilution. The share repurchase program offsets the dilutive impact of these additional shares

Since Morgan Stanley re-initiated the share repurchase program in 2013, the Company has increased share repurchases each year - 12 million, 28 million, 59 million, and 117 million shares from 2013 to 2016, respectively

Re-approval of the plan performance criteria will better enable performance-vested awards to be tax-deductible to Morgan Stanley under Section 162(m) of the Internal Revenue Code, which Morgan Stanley believes to be in the best interests of the Company and our shareholders


Impact
Overhang(1) Burn Rate(2)
 
(1) Overhang represents the number of shares underlying outstanding employee equity awards and available for future employee equity awards as a percentage of weighted average common shares outstanding for the period.
(2) Burn rate represents the number of employee shares granted per year pursuant to equity awards as a percentage of weighted average common shares outstanding for the period.

See page 74 for the proposal to approve the amended and restated Equity Incentive Compensation Plan.



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OVERVIEW OF VOTING ITEMS

Item 6

Company Proposal to Approve the Amended and Restated Directors’ Equity Capital Accumulation Plan (DECAP)

Our Board unanimously recommends that you vote “FOR” this proposal.



Proposal

Add 1 million shares to DECAP


Rationale

Approval will preserve the Firm’s ability to grant stock units to non-employee directors

Morgan Stanley believes stock unit grants promote the Firm’s long-term interests by attracting, motivating and retaining qualified non-employee directors and more closely align their interests with those of shareholders

Non-employee directors receive a vast majority of their compensation in the form of stock units, half of which are not payable until retirement

In 2016, DECAP was amended to include an aggregate limit of $750,000 on annual non-employee director compensation and we introduced a non-employee director equity ownership requirement of 5x the annual cash retainer



See page 83 for the proposal to approve the amended and restated Directors’ Equity Capital Accumulation Plan.



Items 7-8
     
 

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 87 for two proposals submitted by shareholders and our Board’s statements in opposition to each.

 
       

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CORPORATE GOVERNANCE

Item 1
     
 

Election of Directors

 
           
 

Our Board unanimously recommends that you vote “FOR” the election of all director nominees.

 
       

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 (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. Nobuyuki Hirano and Ryosuke Tamakoshi as its representative directors pursuant to the Investor 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;

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 Board is committed to the ongoing review of Board composition and director succession planning. Nine new directors, who bring a diversity of skills, backgrounds, experience, attributes and perspectives to the Board, have joined the Board since 2012. The Nominating and Governance Committee continuously reviews the experience, qualifications, attributes, skills and tenure of the members of the Board and maintains a list of potential director candidates that is reviewed and refreshed throughout the course of the year.

The Nominating and Governance Committee may also consider director candidates proposed by shareholders, and in this regard, the Board has adopted the Policy Regarding Director Candidates Recommended by 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.

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CORPORATE GOVERNANCE

DIRECTOR EXPERIENCE, QUALIFICATIONS, ATTRIBUTES AND SKILLS

When the Board nominates directors for election at an annual meeting, it evaluates the experience, qualifications, attributes and skills that an individual director candidate contributes to the tapestry of the Board as a whole to assist the Board in discharging its duties and overseeing the Company’s strategy. As part of the ongoing process to evaluate these attributes, the Board performs an annual self-evaluation and the Corporate Governance Policies provide that the Board expects a director to advise the Chairman and Corporate Secretary if he or she plans to join the board of directors or similar governing body of another public or private company or advisory board, or experiences other changed circumstances that could diminish his or her effectiveness as a director or otherwise be detrimental to the Company, and to advise and to offer to tender his or her resignation for consideration by the Board if his or her principal occupation or employer changes. In addition, the Corporate Governance Policies provide that a director candidate should not be nominated for election if the candidate would be 72 years old at the time of election.

The Company believes that an effective board consists of a diverse group of individuals who bring a variety of complementary skills and a range of tenures. 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 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:

Directors’ Qualifications, Attributes and Skills

Business Development
Finance/Financial Services
Operations
Leadership
Public Accounting and Financial Reporting
Technology
Management Experience
International/Global Perspective
Public Company Experience
Strategic Planning
Legal and Regulatory Compliance
Public Policy/Sustainability
Corporate Governance
Compensation
Risk Management
Banking
Management Development and Succession

DIRECTOR NOMINEES

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 2017 annual meeting of shareholders. The Board believes that, in totality, the mix of qualifications and the diversity of skills, attributes and perspectives among the nominees enhances our Board’s effectiveness in light of the Company’s businesses, regulatory environment and long-term strategy.

In accordance with the Board’s retirement policy, Donald T. Nicolaisen is not standing for re-election at the annual meeting of shareholders. The Board thanks Mr. Nicolaisen for his dedicated service to Morgan Stanley.

As part of the Board’s ongoing review of Board composition and succession planning, the Nominating and Governance Committee’s third-party search firm recommended Dennis M. Nally as a potential director candidate to the Nominating and Governance Committee. Upon the recommendation of the Nominating and Governance Committee, the Board unanimously elected Mr. Nally to the Board, effective October 1, 2016. The Board determined that Mr. Nally’s service as former Chairman of PricewaterhouseCoopers International Ltd. brings to the Board extensive regulatory, public accounting and financial reporting experience as well as technology and management experience.

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.

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Erskine B. Bowles
Independent Lead Director

           

Alistair Darling
Independent Director

Age: 71     Director Since: 2005

Age: 63     Director Since: 2016

 

Morgan Stanley Committees:

Morgan Stanley Committees:

CMDS
Nominating and Governance
Risk
 

Professional Experience:

Professional Experience:

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, since 2012 and serves as non-executive vice chairman. Senior advisor from 2001 to 2015 and Managing Director from 1999 to 2001 of Carousel Capital, a private investment firm. Partner at the private investment firm of Forstmann Little & Co. from 1999 to 2001 and a founder of Kitty Hawk Capital, a venture capital firm.
Began career in corporate finance at Morgan Stanley in 1969 and subsequently helped found and served as Chairman and CEO of Bowles Hollowell Connor & Co., an investment banking firm.
Served as White House Chief of Staff from 1996 to 1998 and Deputy White House Chief of Staff from 1994 to 1995. Head of the Small Business Administration from 1993 to 1994 and served as United Nations Under Secretary General, Deputy Special Envoy for Tsunami Recovery in 2005.

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:
Facebook, Inc. and Norfolk Southern Corporation

Other Public Company Directorships in the Past Five Years:
Belk, Inc. and Cousins Properties Incorporated

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.
 

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Thomas H. Glocer
Independent Director

           

James P. Gorman
Chairman

Age: 57     Director Since: 2013

Age: 58     Director Since: 2010

 

Morgan Stanley Committees:

Audit 
Operations and Technology (Chair)
 

Professional Experience:

Professional Experience:

Founder of Angelic Ventures, LP (Angelic), a family office investing in early-stage technology and data companies, and Managing Partner of Angelic since 2012.
Served as CEO of Thomson Reuters Corporation, a news and information provider for businesses and professionals, from April 2008 through December 2011, and as CEO of Reuters Group PLC from July 2001 to April 2008. Joined Reuters Group PLC in 1993 and served in a variety of executive roles before being named CEO.
Mergers and acquisitions lawyer at the law firm of Davis Polk & Wardwell LLP from 1984 to 1993.

Qualifications, Attributes and Skills: Mr. Glocer’s leadership positions, including as CEO of Thomson Reuters Corporation, brings to the Board extensive management experience as well as operational and technology experience and international perspective.

Other Current Public Company Directorships:
Merck & Co., Inc.

Chairman of the Board and CEO of Morgan Stanley since January 2012. President and CEO from January 2010 through December 2011.
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 from February 2006 to April 2008.
Joined Merrill Lynch & Co., Inc. (Merrill Lynch) in 1999 and served in various positions, including Chief Marketing Officer, Head of Corporate Acquisitions Strategy and Research in 2005 and President of the Global Private Client business from 2002 to 2005.
Prior to joining Merrill Lynch, was a senior partner at McKinsey & Co., serving in the firm’s financial services practice. Earlier in his career, was an attorney in Australia.

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
Independent Director

           

Nobuyuki Hirano
Non-management Director

Age: 63     Director Since: 2012

Age: 65     Director Since: 2015

 

Morgan Stanley Committees:

Morgan Stanley Committees:

Audit (Chair) 
Nominating and Governance
Risk
 

Professional Experience:

Professional Experience:

President of Robert H. Herz LLC, providing consulting services on financial reporting and other matters, since September 2010.
Chairman of the Financial Accounting Standards Board from July 2002 to September 2010 and a part-time member of the International Accounting Standards Board from January 2001 to June 2002.
Served as a member of the Standing Advisory Group of the Public Company Accounting Oversight Board since 2012 and on the Accounting Standards Oversight Council of Canada from 2011 to March 2017.
Partner in PricewaterhouseCoopers LLP (PwC), an accounting firm, from 1985 to 2002.

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:
Federal National Mortgage Association (Fannie Mae) and Workiva Inc.

President and Group 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:
MUFG

 

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Klaus Kleinfeld
Independent Director

           

Jami Miscik
Independent Director

Age: 59     Director Since: 2012

Age: 58     Director Since: 2014

 

Morgan Stanley Committees:

Morgan Stanley Committees:

CMDS 
Operations and Technology
Risk
 

Professional Experience:

Professional Experience:

Chairman and CEO of Arconic Inc. (Arconic), global leader in multi-materials innovation, precision engineering and advanced manufacturing for major markets, including airframe structures, aero engines, automotive, commercial transportation and building and construction. Arconic is the new name of Alcoa Inc., which separated its businesses into two independent, publicly-traded companies, Arconic and Alcoa Corporation, on November 1, 2016.
Chairman and CEO of Alcoa Inc. from 2010 to 2016, President and CEO of Alcoa Inc. from 2008 to 2010 and President and Chief Operating Officer of Alcoa Inc. 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, and as Executive Vice President and Chief Operating Officer 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.

Other Current Public Company Directorships:
Arconic (formerly Alcoa Inc.) and Hewlett Packard Enterprise Company

Other Public Company Directorships in the Past Five Years:
Bayer AG (Supervisory Board) and Hewlett-Packard Company

Co-CEO and Vice Chair of Kissinger Associates, Inc. (Kissinger), a New York-based strategic international consulting firm that assesses and navigates emerging market geopolitical and macroeconomic risks for its clients, since May 2015.
President and Vice Chair of Kissinger from 2009 to 2015.
Global head of sovereign risk at Lehman Brothers from 2005 to 2008.
Central Intelligence Agency from 1983 to 2005, serving as Deputy Director for Intelligence from 2002 to 2005.
Co-Chair of the President’s Intelligence Advisory Board and served as Senior Advisor for Geopolitical Risk at Barclays Capital.

Qualifications, Attributes and Skills: Ms. Miscik brings to the Board extensive leadership in navigating geopolitical, macroeconomic and technology risks through her private and public roles, including as Co-CEO and Vice Chair of Kissinger and her service with the Central Intelligence Agency.

Other Public Company Directorships in the Past Five Years:
EMC Corporation

 


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Dennis M. Nally
Independent Director

           

Hutham S. Olayan
Independent Director

Age: 64     Director Since: 2016

Age: 63     Director Since: 2006

 

Morgan Stanley Committees:

Morgan Stanley Committees:

Audit 
CMDS (Chair)
 

Professional Experience:

Professional Experience:

Chairman of PricewaterhouseCoopers International Ltd., the coordinating and governance entity of the PwC network from 2009 to July 2016.
Chairman and Senior Partner of the U.S. firm of PricewaterhouseCoopers LLP from May 2002 to June 2009.
Joined PwC in 1974 and became a partner in 1985, serving in numerous leadership positions within PwC, including National Director of Strategic Planning, Audit and Business Advisory Services Leader, and Managing Partner.

Qualifications, Attributes and Skills: Mr. Nally brings to the Board over 40 years of regulatory, public accounting and financial reporting experience, including through his role as Chairman of PricewaterhouseCoopers International Ltd., as well as extensive technology and management experience.
Principal and director since 1981 of The Olayan Group, a private multinational enterprise that is a diversified global investor and operator of commercial and industrial businesses in Saudi Arabia.
President and CEO of The Olayan Group’s U.S. operations for almost 30 years, overseeing all investment activities in the Americas.
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:
International Business Machines Corporation

 

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James W. Owens
Independent Director

           

Ryosuke Tamakoshi
Non-management Director

Age: 71     Director Since: 2011

Age: 69     Director Since: 2011

 

Morgan Stanley Committees:

Morgan Stanley Committees:

CMDS 
Nominating and Governance (Chair) 
Operations and Technology
 

Professional Experience:

Professional Experience:

Chairman and CEO of Caterpillar Inc. (Caterpillar), a manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines, from 2004 to 2010.
Vice Chairman of Caterpillar from 2003 to 2004 and 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 chief economist of Caterpillar Overseas S.A. in Geneva, Switzerland from 1975 to 1980. Joined Caterpillar in 1972 as a corporate economist.
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:
Alcoa Corporation and International Business Machines Corporation

Other Public Company Directorships in the Past Five Years:
Alcoa Inc. (now known as Arconic)

Senior Advisor of BTMU since June 2010.
Chairman of MUFG from October 2005 to June 2010 and Deputy Chairman of BTMU from January 2006 to March 2008. Before the merger of the former Mitsubishi Tokyo Financial Group and UFJ Holdings, President and CEO of UFJ Holdings, Inc. and Chairman of UFJ Bank, Ltd.
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 45 years of banking experience and international, risk management and strategic expertise.
 

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Perry M. Traquina
Independent Director

           

Rayford Wilkins, Jr.
Independent Director

Age: 60     Director Since: 2015

Age: 65     Director Since: 2013

 

Morgan Stanley Committees:

Morgan Stanley Committees:

Audit
Risk (Chair)
Nominating and Governance
Operations and Technology
 

Professional Experience:

Professional Experience:

Chairman, CEO and Managing Partner of Wellington Management Company LLP (Wellington), a global, multi-asset investment management firm, serving from 2004 through June 2014 as CEO and Managing Partner and from 2004 through December 2014 as Chairman.
Partner, Senior Vice President and Director of Global Research at Wellington from 1998 to 2002 and President from 2002 to 2004.
Joined Wellington in 1980 and served in a number of executive roles before being named Chairman, CEO and Managing Partner.

Qualifications, Attributes and Skills: Mr. Traquina brings to the Board extensive senior executive and risk management experience, as well as market knowledge from his over 30 years at the global investment management firm Wellington.

Other Current Public Company Directorships:
The Allstate Corporation and eBay Inc.

CEO of Diversified Businesses of AT&T Inc. (AT&T), the telecommunications company, responsible for international investments, AT&T Interactive, AT&T Advertising Solutions and Customer Information Services from October 2008 to March 2012.
During his career, he served in numerous other management roles at AT&T, including as Group President and CEO of SBC Enterprise Business Services, Group President of SBC Marketing and Sales, and President and CEO of Pacific Bell Telephone Company and Nevada Bell Telephone Company.
Began his career at Southwestern Bell Telephone in 1974.

Qualifications, Attributes and Skills: Mr. Wilkins brings to the Board extensive management, technology and operational experience, as well as international perspective, through the various management positions he held at AT&T.

Other Current Public Company Directorships:
Valero Energy Corporation

Other Public Company Directorships in the Past Five Years:
América Móvil, S.A.B. de C.V.

 

Our Board unanimously recommends that you vote “FOR” the election of all director nominees. Proxies solicited by the Board will be voted “FOR” each nominee unless otherwise instructed.

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CORPORATE GOVERNANCE HIGHLIGHTS

Morgan Stanley is committed to best-in-class governance practices which are embodied in our Corporate Governance Policies available at www.morganstanley.com/about-us-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. 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 if they would be 72 years old at the time of election.
Our Board conducts an ongoing review of Board composition and succession planning, resulting in nine new directors since 2012 who bring a diversity of skills, attributes and perspectives to the Board.
Upon election at the annual meeting, the average tenure of the members of the Board will be approximately 4.9 years.
Our Board has a majority of independent directors. Our Chairman is the only member of management who serves as a director.
Our Independent Lead Director is selected from and by the independent directors and has expansive duties set forth in our Corporate Governance Policies. The Independent Lead Director chairs regularly scheduled executive sessions without the Chairman present. See “Board Leadership Structure and Role in Risk Oversight.”
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 the periodic rotation of committee appointments in order to facilitate the rotation of committee chairs while preserving experienced leadership, the Board has approved the following committee appointments since the beginning of 2015:
Messrs. Nally and Traquina were appointed as members of the Audit Committee;
Messrs. Kleinfeld and Owens were appointed as members and Ms. Olayan was appointed Chair of the CMDS Committee;

Messrs. Bowles and Herz were appointed as members of the Nominating and Governance Committee;

Ms. Miscik was appointed a member of the Operations and Technology Committee; and

Mr. Darling and Ms. Miscik were appointed as members and Mr. Traquina was appointed as a member and Chair of the Risk 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 2017 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.

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The Board oversees the Company’s global 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.
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 have visited several of our global offices.
The Independent Lead Director and committee chairs meet with management between regularly scheduled meetings for discussion of key items and to develop Board and committee agendas and provide feedback regarding information reported to the Board and on other topics to be reviewed.
The Company’s Chief Financial Officer (CFO), Chief Legal Officer (CLO) and Chief Risk Officer (CRO), as well as the heads of the Company’s operating units and other officers, regularly attend Board meetings and maintain an ongoing dialogue with Board members between Board meetings.

The CMDS Committee, in conjunction with the entire Board, annually reviews succession plans for the CEO and senior executives.

The director equity ownership requirement helps to align director and shareholder interests and was enhanced in 2016 with the adoption of a requirement to hold shares and equity awards with a value equal to five times the annual Board cash retainer. 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.

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 includes one-on-one Board member interviews led by the Independent Lead Director or committee chair, as appropriate, written guidelines that are updated annually to reflect significant new developments 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, agenda topics, presentation materials and execution.
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.

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Director Orientation and Continuing Education

Director education about Morgan Stanley, our strategy, control framework, regulatory environment and our industry begins when a director is elected to our Board and continues throughout his/her tenure on the Board.
We also provide an orientation program for new directors, which includes an overview of director duties and our corporate governance policies as well as presentations by senior management, including the President, the CFO, CLO and CRO on the Company’s strategy and regulatory framework, its primary business lines and control framework, as well as a one-on-one session with the Chairman and CEO.
As directors are appointed to new committees or assume a leadership role, such as committee chair, they receive additional orientation sessions specific to such responsibilities.
We also conduct educational briefings on business, governance, regulatory and control matters, and reimburse directors for reasonable costs incurred attending educational sessions on subjects that would assist them in discharging their duties.

Senior Management Succession and Development Planning

The CMDS Committee oversees CEO and senior management succession and development planning, which covers unexpected as well as planned events and is formally reviewed, in conjunction with the entire Board, at least annually.
Our CEO and our Chief Human Resources Officer review recommendations and evaluations of potential internal CEO and senior management successors, and review their qualifications, skills, accomplishments and developmental areas.
Potential internal CEO and senior management successors regularly attend Board meetings and engage with Board members periodically between Board meetings, including during preparatory meetings, client-related events and visits to our offices around the world. These interactions provide the Board with the knowledge of the Company’s executive talent that is critical to the Company’s succession planning.

Shareholder Rights and Accountability

All directors are elected annually.
In uncontested director elections, directors are elected by a majority of votes cast.
Proxy access permits 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.
Our Board has an Independent Lead Director with expansive duties. See “Board Leadership Structure and Role in Risk Oversight—Independent Lead Director.”
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 2018 annual meeting of shareholders, recommendations must be submitted in accordance with the policy by December 8, 2017.

Shareholder Engagement

Our Board and management value the views of our shareholders and engage with them year-round on a broad range of topics, including our strategy, financial performance, executive compensation, governance practices and our environmental and social initiatives.
We also speak with proxy advisors to discuss, and receive feedback on, our executive compensation programs.
In recent years, the Board has taken action responsive to such shareholder feedback, including the adoption of amendments to our bylaws to implement proxy access.

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Environmental, Social and Governance Highlights

Morgan Stanley is committed to harnessing the power of capital markets to create long-term value and incorporating environmental, social and governance (ESG) considerations into how we do business. These initiatives are overseen by the Nominating and Governance Committee and reported regularly to the Board and include:

       
  Institute for
Sustainable
Investing
 
Launched in 2013, dedicated to accelerating adoption of sustainable investing
Guided by a prominent Advisory Board chaired by our CEO
Partners with business units across the Company to create scalable sustainable financing solutions, new sustainable investing tools and industry-leading insights
 
Institutional
Securities
Our Research team developed a framework for ESG integration into valuation models and is integrating this framework into traditional stock coverage
Leader in green bond innovations and launched Morgan Stanley green bond in 2015
 
 
Wealth
Management
Launched Investing with Impact Platform (IIP) in 2012, first ever sustainable investing platform that aims to generate market-rate returns while demonstrating positive environmental and/or social impact
IIP now has over $6.6 billion in client assets towards our goal of $10 billion in 2018
Committed to financial advisor education and training
  
Investment
Management
We have launched several sustainable/impact investing products
Established Corporate Governance Team responsible for global proxy voting, engagement and ESG initiatives
Signatory to the UN’s Principles for Responsible Investment
 
Reducing our
Footprint
Since 2006, we have reduced global average office emissions per square foot by more than 35%
We pursue energy efficient building standards for our offices across the globe
We are committed to clean and renewable energy at our offices. We have a solar array and fuel cell system at our Westchester campus and a fuel cell system at our New York City headquarters
 
Environmental and
Social Risk
Management
Our policies require review and escalation of potential ESG risks where appropriate
We conducted a stakeholder roundtable with leading experts to understand the risks associated with climate change
We are committed to monitoring and minimizing our exposure to human rights risks in our supply chain and business operations
   

Giving Back to the Community

Morgan Stanley is committed to philanthropic programs and giving back to the communities in which we serve. The impact of our philanthropic initiatives include:

Volunteering   Giving   Community Development
     
Employees logged 555,000 volunteer hours to charities across the globe in 2016
Our 2016 Strategy Challenge provided more than 12,000 hours of pro bono services to 14 nonprofits in the U.S. and the United Kingdom
Morgan Stanley and employee philanthropic giving continues to rise. In 2016, employees, together with the Company, the Morgan Stanley Foundation and the Morgan Stanley International Foundation, donated over $106 million
In the U.S., Morgan Stanley Healthy Cities has delivered 1.5 million nutritious meals, over 4,000 medical screenings and safe play spaces for more than 7,000 kids since 2014
Since 2010, we have committed more than $13.3 billion in community development investments, funding more than 73,500 affordable housing units and creating or retaining nearly 80,000 jobs
Since 2010, we have made 140 small business loans totaling over $179 million across the U.S., including $49 million in 2016

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Corporate Political Activities Policy Statement

Over the last several 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 activities by 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

In addition to the Corporate Governance Policies and other policies described above, our governance webpage includes the following:

Bylaws and Certificate of Incorporation Operating Committee Equity Ownership Commitment
Code of Ethics and Business Conduct Charters for Board Committees
Policy Regarding Shareholder Rights Plan Information Regarding the Integrity Hotline
Environmental and Social Policies

Hard copies of the materials described above are available without charge to any shareholder who requests them by writing to Morgan Stanley, Suite D, 1585 Broadway, New York, New York 10036.

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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 (Director Independence Standards). The Director Independence Standards, which are part of our Corporate Governance Policies available at www.morganstanley.com/about-us-governance, provide that for a director to be considered independent, a director must meet the following categorical standards:

1. Employment and commercial relationships affecting independence

A. Current Relationships     

A director will not be independent if:
(i) the director is a current partner or current employee of Morgan Stanley’s internal or external auditor;
(ii) an immediate family member of the director is a current partner of Morgan Stanley’s internal or external auditor;
(iii) an immediate family member of the director (a) is a current employee of Morgan Stanley’s internal or external auditor and (b) personally works on Morgan Stanley’s audit;
(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 12-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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2. Relationships not deemed material for purposes of director independence

In addition to the provisions above, each of which must be fully satisfied with respect to each independent director, the Board must affirmatively determine that the director has no material relationship with Morgan Stanley. To assist the Board in this determination, it has adopted the following categorical standards of relationships that are not considered material for purposes of determining a director’s independence. Any determination of independence for a director that does not meet these categorical standards will be based upon all relevant facts and circumstances and the Board shall disclose the basis for such determination in the Company’s proxy statement.

A. Equity Ownership     

A relationship arising solely from a director’s ownership of an equity or limited partnership interest in a party that engages in a transaction with Morgan Stanley, so long as such director’s ownership interest does not exceed 5% of the total equity or partnership interests in that other party.

B. Other Directorships  

A relationship arising solely from a director’s position as
(i) director or advisory director (or similar position) of another company or for-profit corporation or organization or
(ii) director or trustee (or similar position) of a tax-exempt organization.

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 tax-exempt organization, and the contributions by Morgan Stanley (directly or through the Morgan Stanley Foundation or any similar organization established by Morgan Stanley) to the organization are less than the greater of $1,000,000 or 2% of the organization’s consolidated gross revenues during the organization’s preceding fiscal year (matching of employee charitable contributions is not included in Morgan Stanley’s contributions for this purpose).
E. Products and Services   A relationship arising solely from a director utilizing products or services of Morgan Stanley in the ordinary course of business and on substantially the same terms as those prevailing at the time for comparable products or services provided to unaffiliated third parties.
F. Professional,
Social and Religious
Organizations
and Educational
Institutions
  A relationship arising solely from a director’s membership in the same professional, social, fraternal or religious association or organization, or attendance at the same educational institution, as an executive officer or director.
G. Family Members   Any relationship or transaction between an immediate family member of a director and Morgan Stanley shall not be deemed a material relationship or transaction that would cause the director not to be independent if the standards in this Section 2 would permit the relationship or transaction to occur between the director and Morgan Stanley.

The Board has determined that 11 of our 14 director nominees (Messrs. Bowles, Darling, Glocer, Herz and Kleinfeld, Ms. Miscik, Mr. Nally, Ms. Olayan, and Messrs. Owens, Traquina and Wilkins) are independent in accordance with the Director Independence Standards. The Board has also determined that Dr. Tyson, who retired from the Board during 2016, was independent during the time she served on the Board in 2016 and Mr. Nicolaisen, who is not standing for re-election at the annual meeting of shareholders, is independent. Mr. Gorman, our Chairman and CEO, and Messrs. Hirano and Tamakoshi, who were designated pursuant to the Investor Agreement with MUFG, have not been determined independent.

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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. Bowles 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 and Herz, Ms. Miscik, Mr. Nally, Ms. 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.

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, including all current directors who were nominees at the time, attended the 2016 annual meeting of shareholders.

Board Meetings and Committees

Board Meetings

Our Board met 19 times during 2016. 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 2016 while the director was a member. In addition to Board and committee meetings, our directors also discharge their duties through, among other things, less formal group communications, including discussions, briefings and educational sessions, with the Independent Lead Director, Chairman of the Board and CEO, members of senior management and others as appropriate regarding matters of interest.

Committees

The Board’s standing committees, their membership and the number of meetings in 2016 are set forth below. Charters for each of our standing committees are available at our corporate governance webpage at www.morganstanley.com/about-us-governance.

All members of the Audit Committee, the CMDS Committee and the Nominating and Governance Committee satisfy the standards of independence applicable to members of such committees, including NYSE listing standards.
Each member of the CMDS Committee is a “non-employee director” as defined in Section 16 of the Securities Exchange Act of 1934 and 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 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.

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AUDIT(1)

Current Members
Robert H. Herz (Chair)
Thomas H. Glocer
Dennis M. Nally
Donald T. Nicolaisen
Perry M. Traquina

Meetings Held in 2016 16

Primary Responsibilities
Oversees the integrity of the Company’s consolidated financial statements and system of internal controls.
Oversees risk management and risk assessment guidelines in coordination with the Board, Risk Committee and Operations and Technology Committee and reviews the major legal and compliance risk exposures of the Company and the steps management has taken to monitor and control such exposures.
Selects, determines the compensation of, evaluates and, when appropriate, replaces the independent auditor.
Oversees the qualifications, independence and performance of the independent auditor, and pre-approves audit and permitted non-audit services.
Oversees the performance of the head of the Company’s Internal Audit Department (Global Audit Director), who reports functionally to the Audit Committee, and the internal audit function.
After review, recommends to the Board the acceptance and inclusion of the annual audited consolidated financial statements in the Company’s Annual Report on Form 10-K.
See also “Audit Matters.”

COMPENSATION, MANAGEMENT DEVELOPMENT AND SUCCESSION

Current Members
Hutham S. Olayan (Chair)
Erskine B. Bowles
Klaus Kleinfeld
James W. Owens

Meetings Held in 2016 9

Primary Responsibilities
Annually reviews and approves the corporate goals and objectives relevant to the compensation of the CEO and evaluates his performance in light of these goals and objectives.
Determines the compensation of executive officers and other officers and employees as appropriate.
Administers the Company’s equity-based compensation plans and cash-based nonqualified deferred compensation plans.
Oversees plans for management development and succession.
Reviews and discusses the Compensation Discussion and Analysis with management and recommends to the Board its inclusion in the proxy statement.
Oversees the Company’s incentive compensation arrangements to help ensure that such arrangements are consistent with the safety and soundness of the Company and do not encourage excessive risk-taking, and are otherwise consistent with applicable related regulatory rules and guidance.
Reviews and approves the Company’s equity retention and ownership policies for executive officers and other officers and employees, as appropriate.
See also “Compensation Governance and Risk Management.”

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NOMINATING AND GOVERNANCE

Current Members
James W. Owens (Chair)
Erskine B. Bowles
Robert H. Herz
Rayford Wilkins, Jr.

Meetings Held in 2016 4

Primary Responsibilities
Oversees succession planning for the Board and Board leadership appointments.
Reviews the overall size and composition of the Board, taking into consideration the skills, attributes, experience and tenure of each Board member.
Identifies and recommends candidates for election to the Board.
Recommends committee structure and membership, taking into consideration the skills, attributes, experience and tenure of committee members.
Reviews annually the Corporate Governance Policies.
Oversees and approves the process and guidelines for the annual evaluation of performance and effectiveness of the Independent Lead Director, the Board and its committees.
Reviews and approves related person transactions in accordance with the Company’s Related Person Transactions Policy.
Oversees director compensation.
Reviews the Company’s Corporate Political Activities Policy Statement.
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.
Oversees social responsibility and environmental matters.

OPERATIONS AND TECHNOLOGY

Current Members
Thomas H. Glocer (Chair)
Jami Miscik
Ryosuke Tamakoshi
Rayford Wilkins, Jr.

Meetings Held in 2016 5

Primary Responsibilities
Oversees the Company’s operations and technology strategy, including trends that may affect such strategy.
Reviews the major operations and technology risk exposures of the Company, including information security, cybersecurity and fraud risks, and the steps management has taken to monitor and control such exposures.
Reviews the operations and technology budget and significant operations and technology expenditures and investments.
Reviews operations and technology metrics.
Oversees risk management and risk assessment guidelines and policies regarding operations and technology risk.
Oversees the Company’s business continuity planning.

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RISK(2)

 

Current Members
Perry M. Traquina (Chair)
Alistair Darling
Nobuyuki Hirano
Jami Miscik
Donald T. Nicolaisen

Meetings Held in 2016 7

Primary Responsibilities
Oversees the Company’s global ERM framework.
Oversees the Company’s capital, liquidity and funding planning and strategy.
Oversees the major risk exposures of the Company, including market, credit, operational, liquidity, model, funding and reputational risk, against established risk measurement methodologies and the steps management has taken to monitor and control such exposures and reviews significant new product risk, emerging risks and regulatory matters.
Oversees the Company’s risk appetite statement, including risk limits and tolerances and the ongoing alignment of the Risk Appetite Statement with the Company’s strategy and capital plans.
Reviews the contingency funding plan, internal capital adequacy assessment process, Comprehensive Capital Analysis and Review, Dodd-Frank Act Stress Testing submissions and Title I Resolution Plan.
Oversees risk management and risk assessment policies and guidelines.
Oversees the performance of the CRO (who reports to the Risk Committee and the CEO) and the risk management function.
See also “Board Leadership Structure and Role in Risk Oversight—Board Role in Risk Oversight.”

(1) Effective December 1, 2016, Mr. Nally joined the Audit Committee.
(2) Effective February 1, 2017, Mr. Traquina joined and was appointed Chair of the Risk Committee. Effective May 17, 2016, Mr. Darling joined the Risk Committee when Dr. Tyson concluded service on the Board and the Risk Committee.

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 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 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.

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Independent Lead Director

The Corporate Governance Policies provide for an independent and active Independent Lead Director who is appointed and reviewed annually by the independent directors with clearly defined leadership authority and responsibilities. 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;

Soliciting non-management directors for advice on agenda items for meetings of the Board;

Communicating with the Chairman between meetings and acting as a “sounding board” and advisor;

Advising the Chairman of the Board on the Board’s informational needs;

Approving the types and forms of information sent to the Board;

Collaborating with the Chairman in developing the agendas for meetings of the Board and 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;

Making himself available, if requested, to meet with the Company’s primary regulators;

Making himself available, if requested by major shareholders, for consultation and direct communication;

Leading the annual evaluation of the performance and effectiveness of the Board;

Consulting with the Chair of the Nominating and Governance Committee on Board succession planning and Board committee appointments;

Interviewing candidates for the Board; and

Consulting with the Chair of the CMDS Committee on the annual evaluation and performance of the CEO.

Independent Oversight of Management

The Company’s corporate governance practices and policies ensure substantial independent oversight of management. For instance:

The Board has a majority of independent 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.

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Board Role in Risk Oversight

Effective risk management is vital to the success of Morgan Stanley. The Board has oversight for the Company’s global ERM framework, which integrates the roles of the Company’s risk management functions into a holistic enterprise to facilitate the incorporation of risk assessment into decision-making processes across the Company, and is responsible for helping to ensure that the Company’s risks are managed in a sound manner. The Board regularly reviews the Company’s risks and the responsibilities of management and the Board committees to assist the Board in its risk oversight.

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 Global Audit Director
Operations risk
Technology risk
Cybersecurity risk
Information security risk
Fraud risk
ERM framework
Risk appetite statement
Market risk
Credit risk
Operational risk
Liquidity and funding risk
Model risk
Capital
Reputational 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

The Risk Committee assists the Board in the oversight of:

The Company’s global ERM framework;

The Company’s capital, liquidity and funding planning and strategy;

The major risk exposures of the Company, including market, credit, operational, liquidity, model, funding and reputational risk, against established risk measurement methodologies and the steps management has taken to monitor and control such exposures;

The Company’s risk appetite statement, including risk limits and risk tolerance, which are reviewed and approved annually and the ongoing alignment of the Risk Appetite Statement with the Company’s strategy and capital plans;

The Company’s significant risk management and risk assessment guidelines and policies; and

The performance of the CRO, who reports to the CEO and the Risk Committee.

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In fulfilling its duties, the Risk Committee receives reports:

Regarding the Company’s Comprehensive Capital Analysis and Review, Dodd-Frank Act Stress Testing and the Company’s Title I Resolution Plan and Recovery Plan;

From the CRO, CFO and Corporate Treasurer regarding capital, liquidity and funding strategy and planning and the major risk exposures of the Company, including market, credit, operational, liquidity, model, funding and reputational;

From the Global Audit Director on reviews of risk management, liquidity and capital functions;

Regarding significant strategic transactions and investments, 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 and reviews cross-enterprise risks.

The Audit Committee assists 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.

The Operations and Technology Committee has responsibility for oversight of operations and technology risk, including information security, cybersecurity (also reviewed with the Board) and fraud.

The CMDS Committee oversees the Company’s incentive compensation arrangements to help ensure that such arrangements are consistent with the safety and soundness of the Company and do not encourage excessive risk-taking, and are otherwise consistent with applicable related regulatory rules and guidance.

The committees report to the entire Board on a regular basis and have overlapping directors, invite Chairs of other committees to attend meetings, as appropriate given topics of discussion, and hold joint meetings as necessary to discharge their duties.

The Board has also authorized the Firm Risk Committee, a management committee appointed and chaired by the CEO that includes the most senior officers of the Company, including the CRO, CLO and CFO, to oversee the Company’s global ERM framework. The Firm Risk Committee’s responsibilities include oversight of the Company’s risk management principles, procedures and limits and the monitoring of capital levels and material market, credit, operational, model, liquidity, funding, legal, compliance and reputational 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, 2016 (2016 Form 10-K).

Assessment of Leadership Structure and Risk Oversight

The Board has determined that its leadership structure is appropriate for the Company. Mr. Gorman’s role as CEO, his existing relationship with the Board, his understanding of Morgan Stanley’s businesses and strategy, and his professional experience and leadership skills uniquely position him to serve as Chairman and CEO, while the Company’s Independent Lead Director position enhances the overall independent functioning of the Board. The Board believes that the combination of the Chairman and CEO, the Independent Lead Director and the Chairs of the Audit, CMDS, Operations and Technology, Nominating and Governance and Risk Committees provide the appropriate leadership to help ensure effective risk oversight by the Board.

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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, and separately with the CMDS Committee Chair. Pay Governance does not provide any other services to the Company or its executive officers. The Company has affirmatively determined that no conflict of interest has arisen in connection with the work of Pay Governance as compensation consultant for the CMDS Committee.

Regularly reviews (i) Company performance with respect to execution of 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.

Oversees the Company’s incentive compensation arrangements to help ensure that such arrangements are consistent with the safety and soundness of the Company and do not encourage excessive risk-taking, and are otherwise consistent with applicable related regulatory rules and guidance. The CRO reviews the Company’s incentive compensation arrangements from a risk perspective and reports his findings to the CMDS Committee at least annually. The CRO concluded that the Company’s current compensation programs for 2016 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, 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.


Director Compensation

The Nominating and Governance Committee periodically reviews and recommends updates to our director compensation program, taking into account changes in director responsibilities and market practice. In 2016, the Nominating and Governance Committee engaged Frederic W. Cook & Co., Inc. (FW Cook), a compensation consultant, to provide an analysis of our director compensation program. The Nominating and Governance Committee evaluated the independence of FW Cook and affirmatively determined that FW Cook is independent and that FW Cook’s engagement by the Nominating and Governance Committee would not raise any conflict of interest.

In August 2016, based on FW Cook’s review and upon the recommendation of the Nominating and Governance Committee, the Board amended the Directors’ Equity Capital Accumulation Plan (DECAP) to include an aggregate limit of $750,000 on annual non-employee director compensation, amended our Corporate Governance Policies to introduce a director equity ownership requirement of five times the annual cash Board retainer, and approved changes to the Independent Lead Director, Audit Committee Chair and Risk Committee Chair fees as described in note 2 to the following table. These changes enhance the alignment of our non-employee directors’ interests with those of our shareholders. For further information on DECAP, see notes 2 and 3 to the following table.

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The following table contains information with respect to the annual compensation (including deferred compensation) of our non-employee directors earned during 2016 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 133,333 250,000 383,333
Alistair M. Darling 81,667 333,333 415,000
Thomas H. Glocer 105,000 250,000 355,000
Robert H. Herz 112,083 250,000 362,083
Klaus Kleinfeld 85,000 250,000 335,000
Jami Miscik 95,000 250,000 345,000
Dennis M. Nally* 19,583 145,833 165,416
Donald T. Nicolaisen 109,167 250,000 359,167
Hutham S. Olayan 95,000 250,000 345,000
James W. Owens 105,000 250,000 355,000
Perry M. Traquina 85,000 250,000 335,000
Laura D. Tyson* 28,333 22,328(5) 50,661
Rayford Wilkins, Jr. 95,000 250,000 345,000

*

Effective May 17, 2016, Dr. Tyson retired from the Board. Messrs. Darling and Nally were elected to the Board effective January 1, 2016 and October 1, 2016, respectively.

(1)

Messrs. Gorman, Hirano and Tamakoshi received no compensation during 2016 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 2016. Cash retainers for service on the Board and Board committees during the 2016 service period are paid semi-annually in arrears for the period beginning at the 2016 annual meeting of shareholders (May 17, 2016) and concluding at the 2017 annual meeting of shareholders (May 22, 2017). Amounts in the table represent cash retainers earned for a portion of the 2015 service period (January 1, 2016 to May 17, 2016) and cash retainers earned for a portion of the 2016 service period (May 18, 2016 to December 31, 2016).

The annual Board retainer for the 2016 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 2016 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* 50,000
Committee Chairs
     Audit and Risk Committees* 30,000
     All Other Committees 20,000
Committee Members 10,000

*

Effective August 1, 2016, the Independent Lead Director fee was increased from $30,000, the Audit Committee Chair fee was increased from $25,000, and the Risk Committee Chair fee was increased from $20,000.

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 DECAP in the form of Elective Units. Elective Units are not subject to vesting or cancellation.

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Messrs. Bowles, Glocer and Traquina and Mses. Olayan and Miscik deferred all or a portion of their cash retainers into Elective Units or received shares of common stock in lieu of cash under DECAP. Elective Units, or shares of common stock, as applicable, in lieu of cash retainers earned for the second half of the 2015 service period were granted in arrears on May 17, 2016, and Elective Units in lieu of cash retainers earned for the first half of the 2016 service period were granted in arrears on November 17, 2016. The number of Elective Units granted on May 17, 2016 was based on $26.2455, and the number of Elective Units and shares of common stock granted on November 17, 2016 was based on $39.7101, which, in each case, represents the volume-weighted average price of the common stock on the grant date.

(3) Other than with respect to Mr. Nally, 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 granted on May 17, 2016 for the 2016 service period. With respect to Mr. Darling, the amount also includes the prorated initial stock unit award granted on February 1, 2016 in connection with his election to the Board. With respect to Mr. Nally, the amount only represents the prorated initial stock unit award granted on November 1, 2016 in connection with his election to the Board. The aggregate grant date fair value of the stock unit awards is based on the volume-weighted average prices of the common stock on the applicable grant date as follows: $26.2455 for annual stock units awards; $25.6921 for Mr. Darling’s initial stock unit award; and $33.3074 for Mr. Nally’s initial stock unit award. For further information on the valuation of these stock units, see notes 2 and 18 to the consolidated financial statements included in the 2016 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, 2016.

Name Stock Units (#)
Erskine B. Bowles 148,315
Alistair M. Darling 12,939
Thomas H. Glocer 42,716
Robert H. Herz 38,522
Klaus Kleinfeld 32,043
Jami Miscik 16,570
Dennis M. Nally 4,378
Donald T. Nicolaisen 90,868
Hutham S. Olayan 137,423
James W. Owens 58,797
Perry M. Traquina 20,303
Laura D. Tyson*
Rayford Wilkins, Jr. 21,041
* Upon conclusion of Dr. Tyson’s service on the Board, her outstanding DECAP stock units converted to shares of common stock.
(5) At the conclusion of Dr. Tyson’s service on the Board, the Company donated $10,000 to each of Smith College and the Robert M. Solow Endowment Fund at the Massachusetts Institute of Technology in honor of Dr. Tyson and presented Dr. Tyson with a gift of nominal value.

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CORPORATE GOVERNANCE

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, 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 2016, we engaged in transactions in the ordinary course of business with each of MUFG, 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.

A child of Jeffrey Brodsky, an executive officer, is a non-executive employee of the Company and received compensation in 2016 of approximately $144,000 and standard benefits applicable to similarly situated employees.

In addition to the transactions described above, as part of the global strategic alliance between MUFG and the Company, on May 1, 2010 the Company and MUFG formed a joint venture in Japan of their respective investment banking and securities businesses by forming two joint venture companies. MUFG contributed the investment banking, wholesale and retail securities businesses conducted in Japan by Mitsubishi UFJ Securities Co., Ltd. into one of the joint venture entities named Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (MUMSS). The Company contributed the investment banking operations conducted in Japan by its subsidiary, Morgan Stanley MUFG Securities Co., Ltd. (MSMS), formerly known as Morgan Stanley Japan Securities Co., Ltd., into MUMSS (MSMS, together with MUMSS, the Joint Venture). MSMS has continued its sales and trading and capital markets business conducted in Japan. The Company owns a 40% economic interest in the Joint Venture and MUFG owns a 60% economic interest in the Joint Venture. The Company holds a 40% voting interest and MUFG holds a 60% voting interest in MUMSS, while the Company holds a 51% voting interest and MUFG holds a 49% voting interest in MSMS. Other initiatives that are part of the Company’s global strategic alliance with MUFG include a loan marketing joint venture in the Americas, business referral arrangements in Asia, Europe, the Middle East and Africa, referral agreements for commodities transactions and a secondment arrangement of personnel between MUFG and the Company for the purpose of sharing best practices and expertise.

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AUDIT MATTERS

Item 2
     
 

Ratification of Appointment of Morgan Stanley’s Independent Auditor

 
           
 

Our Board unanimously recommends that you vote “FOR” the ratification of Deloitte & Touche’s appointment as our independent auditor.

 
       

The Audit Committee has the sole authority and responsibility to appoint, compensate, retain, oversee and evaluate the independent registered public accounting firm retained to audit the Company’s consolidated financial statements (independent auditor). The Audit Committee reviews and assesses annually the qualifications and performance of the independent auditor. The Audit Committee also evaluates whether it is appropriate to rotate the independent auditor and ensures the mandatory, regular rotation of the lead audit partner of the independent auditor and, in connection with such rotation, the Audit Committee is directly involved in the selection of the lead audit partner, who may provide services to the Company for a maximum of five consecutive years. As part of the Audit Committee’s annual review of Deloitte & Touche LLP (Deloitte & Touche), the Audit Committee reviewed and considered, among other factors:

the results of management’s assessment that includes the results of a global management survey of overall performance;

Deloitte & Touche’s independence from the Company, noting that Deloitte & Touche does not provide any non-audit services to the Company other than those deemed permissible, as described under “Independent Auditor Fees”;

the professional qualifications of Deloitte & Touche and that of the lead audit partner and other key engagement partners;

Deloitte & Touche’s tenure as independent auditor, including the controls and processes in place (such as the mandatory rotation of audit partners) that help ensure Deloitte & Touche’s continued independence from the Company;

Deloitte & Touche succession planning for senior Deloitte & Touche personnel on the engagement;

Deloitte & Touche’s historic and current quality of service, including quality of communication and interactions with the Audit Committee;

Deloitte & Touche’s global capabilities and expertise in handling the breadth of the Company’s global operations and businesses;

the appropriateness of Deloitte & Touche fees;

external data on audit quality and performance, including recent Public Company Accounting Oversight Board (PCAOB) reports on Deloitte & Touche and peer firms;

the potential impact and advisability of selecting a different independent auditor; and

whether retaining Deloitte & Touche is in the best interest of Morgan Stanley and its stockholders.

Based on this review, the Audit Committee has appointed Deloitte & Touche as independent auditor for the year ending December 31, 2017 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, 2017 and will perform other permissible, pre-approved services.

Deloitte & Touche representatives will attend the annual meeting. They will be available to respond to appropriate shareholder questions and will have the opportunity to make a statement if they desire to do so. 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.

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AUDIT MATTERS

AUDIT COMMITTEE REPORT

The Audit Committee’s charter (available at www.morganstanley.com/about-us-governance) provides that the Audit Committee is responsible for the oversight of the integrity of the Company’s consolidated financial statements, the Company’s system of internal control over financial reporting, certain aspects of the Company’s risk management as described in the charter, the qualifications and independence of the independent auditor, the performance of the Company’s internal auditor and independent auditor, and the Company’s compliance with legal and regulatory requirements. We have the sole authority and responsibility to appoint, compensate, retain, oversee, evaluate and, when appropriate, replace the Company’s independent auditor. As described under “Corporate Governance—Corporate Governance Highlights—Board Meetings and Committees,” 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 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, discussed and approved the plan and scope of the work and coverage of the internal auditor for 2016 and reviewed and discussed summaries of the significant reports to management by the internal auditor;

Reviewed the functional reporting of the Global Audit Director to the Audit Committee, and reviewed the performance and compensation as well as independence of the Global Audit Director;

Reviewed and discussed the plan and scope of the work of the independent auditor for 2016;

Reviewed and discussed reports from management on the Company’s policies regarding applicable legal and regulatory requirements, and reviewed, discussed and approved the Company’s annual compliance plan;

Met with and received reports from senior representatives of the Finance Department, Legal and Compliance Division and the Internal Audit Department; and

Met with Deloitte & Touche, the internal auditor and Company management, including the CFO, CLO, Chief Compliance Officer and Global Audit Director in executive sessions.

We reviewed and discussed with management, the internal auditor and Deloitte & Touche: the audited consolidated financial statements for 2016, 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 pursuant to auditing standards adopted by the PCAOB. Deloitte & Touche also provided to the Audit Committee the written disclosures and the letter required by applicable requirements of the PCAOB regarding the independent auditor’s communications with the Audit Committee concerning independence and represented that it is independent from the Company.

We also discussed with Deloitte & Touche their independence from the Company, and considered if services they provided to the Company beyond those rendered in connection with their audit of the Company’s consolidated financial 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

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AUDIT MATTERS

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 2016 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, 2017 and are presenting the selection to the shareholders for ratification.

Respectfully submitted,

Robert H. Herz, Chair
Thomas H. Glocer
Dennis M. Nally
Donald T. Nicolaisen
Perry M. Traquina

INDEPENDENT AUDITOR’S FEES

The Audit Committee is responsible for overseeing the audit fee negotiations associated with the engagement of Deloitte & Touche. The Audit Committee pre-approves categories of audit and permitted non-audit services that Deloitte & Touche may perform for the Company and sets budgeted fee levels for such services. The Company reviews proposed engagements, in conjunction with Deloitte & Touche, to confirm the proposed engagements fit within a category of pre-approved services and such engagements are documented and reported to the Audit Committee on a quarterly basis. Any proposed service category, engagement or budgeted fee adjustment that has not been pre-approved by the Audit Committee may be approved by the Audit Committee chair between regularly scheduled quarterly meetings and reported to the Audit Committee at its next quarterly meeting. Any fees for services in excess of the pre-approved budgeted fees must be specifically approved.

The following table summarizes the aggregate fees (including related expenses; $ in millions) for professional services provided by Deloitte & Touche related to 2016 and 2015.

2016 ($)       2015 ($)
Audit Fees(1) 46.5 47.6
Audit-Related Fees(2) 5.9 7.4
Tax Fees(3) 1.1   1.4
All Other Fees
Total 53.5 56.4

(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 these unconsolidated Funds. Fees paid to Deloitte & Touche by these Funds for these services were $11.3 million in 2016 and $10.4 million in 2015.

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EXECUTIVE COMPENSATION

Item 3
     
 

Company Proposal to Approve the Compensation of Executives as Disclosed in the Proxy Statement (Non-Binding Advisory Vote)

 
           
 

Our Board unanimously recommends that you vote “FOR” this proposal.

 
       

As required by Section 14A of the Securities Exchange Act of 1934, this proposal seeks a shareholder advisory vote to approve the compensation of our NEOs as disclosed pursuant to Item 402 of Regulation S-K through the following resolution:

“RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the Company’s named executive officers, as disclosed in the Company’s proxy statement for the 2017 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).”

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 2016 annual meeting of stockholders, approximately 90% of the votes cast were in favor of 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 2015 compensation of our NEOs, did not materially change the overall approach for 2016 compensation from the prior year. The 2016 pay decision for the CEO was $22.5 million, a 7% increase from $21 million for 2015, 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 2016 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.

As discussed in the CD&A, the Board believes that our current executive compensation program appropriately links the compensation of our NEOs to our performance and properly aligns the interests of our NEOs with those of our shareholders.

We urge our shareholders to read the “Overview of Voting Items,” CD&A and “Executive Compensation Tables,” which provide a detailed description of our executive compensation program.

Our Board unanimously recommends that you vote “FOR” this proposal. Proxies solicited by the Board will be voted “FOR” this proposal unless otherwise instructed.

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EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS (CD&A)

In this CD&A, we review the objectives and elements of Morgan Stanley’s executive compensation program, its alignment with Morgan Stanley’s performance and the 2016 compensation decisions for our named executive officers (NEOs):

James Gorman CEO
Colm Kelleher President
Jonathan Pruzan CFO
James Rosenthal Chief Operating Officer (COO) during 2016
Daniel Simkowitz Head of Investment Management

Effective December 31, 2016, Mr. Rosenthal ceased to be an executive officer.

The CD&A is comprised of the following sections:

Page:
1. Overview 45
2. Compensation Objectives and Strategy 50
3. Framework for Making Compensation Decisions 50
4. Compensation Decisions and Program 54
5. Notes to the Compensation Discussion and Analysis 57

1. Overview

The CMDS Committee considers multiple factors in determining executive compensation to ensure that Morgan Stanley’s compensation program is shareholder-aligned, motivating, and competitive, and reflects current best practices in corporate governance, risk management, and regulatory principles. The CMDS Committee takes into consideration progress with respect to the Company’s long-term strategic plan, as informed by financial and non-financial goals.

The CMDS Committee, with the advice of its independent compensation consultant, Pay Governance, places performance at the forefront of the executive compensation program. This is demonstrated 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. Our commitment to this approach is demonstrated in our CEO pay framework.

As in prior years, the CMDS Committee used a well-defined process to determine CEO compensation for 2016.

Set Performance Priorities

Establish Target Compensation Range

Assess Performance

Determine Compensation

               
The Board sets annual performance priorities at the beginning of each year to guide its assessment of Company and executive performance
The priorities include both financial and non-financial performance metrics for the Company and its business segments
CMDS Committee establishes the target CEO compensation range at the beginning of each year
The range is informed by prior year CEO compensation at peer financial firms
The CMDS Committee assesses Company and executive performance at year-end, including:
Progress in the Company’s annual performance priorities
Progress in achieving the Company’s strategic goals; and
The CEO’s overall leadership
The CMDS Committee determines CEO compensation at year-end based on its assessment of performance and discussion with the Board

At 2016 year end, CEO total compensation was set at $22.5 million for 2016, a 7% increase from $21 million for 2015 and flat to his 2014 compensation, 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 2016 Performance Highlights

In its assessment of 2016 performance, the CMDS Committee considered Morgan Stanley’s progress in relation to its long-term strategic objectives, financial performance, and shareholder returns.

Strategic Objectives(1)(2)

In 2016, the Company continued to successfully execute on its long-term strategic objectives for 2017, which the Board oversees. Each year shareholders receive an overview of the Company’s long-term strategic priorities (including specific objectives) and a summary of progress on the prior year’s strategic plan.

 
2017 Objective     2016 Status(3)  
       

Streamline: $1 Billion Expense Reduction

On Track for $1 billion in Expense Reduction by 2017

 

Complete Fixed Income Restructuring and
Maintain Revenue Footprint

Retained Revenue Footprint, with 25% Headcount Reduction and Reduced Resources

 

Wealth Management Pre-Tax Margin(4): 23 – 25%

Achieved 22% Margin, Despite Transactional Revenue Headwinds

 

Increase Capital Return to Shareholders

Received Non-Objection to Increase Dividend (+33%) and Buyback (+40%)(5)

 

ROE, ex DVA: 9 – 11% (ROE Target)(6)(7)

Ongoing

 

Financial Performance(1)(2)

The Company delivered improved financial performance in 2016, driven by disciplined expense management. Pre-tax profit (PBT)(8) for 2016 grew by 12% on revenues that were essentially flat from 2015 excluding DVA(6)(9), and both ROE, ex DVA(7) and ROE, ex DVA and discrete tax benefits (Operating ROE)(10) were approximately 8.0%, on a path towards achieving the ROE Target of 9-11% by 2017(7).

2016 Financial Results Summary

Firm Revenues, ex DVA ($Bn)(9)

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Shareholder Returns

The Company’s strategic progress and improved financial performance in 2016 contributed to Morgan Stanley’s improved share price. Total shareholder return (TSR) was 36% over 2016, 42% over the three-year period from 2014 to 2016, and 200% over the five-year period from 2012-2016(12). Morgan Stanley’s TSR over 2016 ranked first among global peers(13) and outperformed the S&P 500 Financials Index return of 23% against a backdrop of improved market conditions in the latter half of 2016.

Morgan Stanley and S&P 500 Financials Index Total Shareholder Returns (TSR)(12)


Section 3.2 contains further details about Company performance; see also Section 5 “Notes to the Compensation Discussion and Analysis.”

1.2 Framework for Compensation Decisions and Performance Evaluation

At the start of 2016, the CMDS Committee, in consultation with its independent compensation consultant, established a target range for 2016 CEO pay of $28 million or more for superior performance to $10 million or less for performance substantially below expectations. This target range is reviewed and set annually and serves as a guideline for the CMDS Committee. To inform its decision-making with respect to the appropriate target range, the CMDS Committee considers compensation information for peers as described in Section 3.1 under “Benchmarking Target CEO Pay.”

The 2016 pay decision for the CEO was made by the CMDS Committee, in consultation with the entire Board, based on the CMDS Committee’s assessment of Mr. Gorman’s strong individual performance through Morgan Stanley’s continued progress on the long-term strategic objectives approved by the Board, Morgan Stanley’s improvement in financial performance driven by disciplined expense control, and Morgan Stanley’s shareholder returns.

In its evaluation of the Company’s and Mr. Gorman’s performance, the CMDS Committee also considered that the Company received a conditional non-objection to the 2016 Capital Plan (requiring resubmission)(5) and, while ROE, ex DVA(7) and Operating ROE(10) for 2016 were approximately 8%, continued focus is needed to achieve the ROE Target of 9 – 11%(7)by 2017.

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As a result, the CMDS Committee determined that Company and individual performance warranted a 2016 pay decision for Mr. Gorman of $22.5 million, a 7% increase from Mr. Gorman’s 2015 pay of $21 million. The CMDS Committee believes that this decision appropriately aligns Mr. Gorman’s 2016 pay with 2016 performance.

MS CEO Compensation Range       Evaluating MS CEO Performance      MS CEO Compensation Decision

The alignment of Mr. Gorman’s pay with Company performance can also be demonstrated over the longer-term by the fact that over the 2014-2016 period, Mr. Gorman’s realizable pay has increased by approximately 19% and the Company’s three-year TSR for the same period is 42%(14).

Section 3.2 contains more details about individual NEO performance.

1.3 Compensation Elements

Pay in a given year is delivered in a combination of 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 pay is deferred, awarded in equity, subject to future stock price performance and cancellation and clawback and, in the case of LTIP awards, subject to future achievement of specified financial goals over a three-year period.

Mr. Gorman’s 2016 pay was delivered in a combination of these compensation elements, as outlined below. The CMDS Committee believes this approach to executive compensation is consistent with shareholder alignment, executive motivation, best practices, and regulatory principles. Sections 4.2 and 4.3 contain more detail about the elements of our compensation program.

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EXECUTIVE COMPENSATION

MS 2016 CEO Compensation Elements

 



   Key Features of Compensation Program

Significant deferrals of compensation over three years
Performance-vested long-term equity incentive compensation based equally on target average ROE of 10% and TSR relative to the S&P 500 Financials Index over three years; shares earned can range from 0 – 1.5x target
Equity-based compensation to align employee and shareholder interests
Clawbacks apply to all awards and cover material adverse outcomes, even absent misconduct
Share ownership and retention requirements (CEO ownership requirement: 10x base salary, retention requirement: 75% of Equity Award Shares)
Prohibitions on pledging, hedging, selling short, or trading derivatives
No automatic vesting on change-in-control, double trigger in place
No excise tax protection upon a change-in-control
 

 

 

   

* $22.5 million is the amount the CMDS Committee awarded to the CEO in early 2017 for 2016 performance. This amount differs from the SEC required disclosure in the “2016 Summary Compensation Table.”

With the exception of Mr. Rosenthal, who did not receive an LTIP award in light of his ceasing to be a member of our Operating Committee as of December 31, 2016, the NEOs received their 2016 compensation in the same elements as described in the chart above. Section 4.1 contains the 2016 compensation decisions for each NEO, which follow a similar performance evaluation process.

1.4 Shareholder Engagement and “Say on Pay” Vote

Morgan Stanley is committed to open and ongoing communication with our shareholders, and takes the opportunity to engage with shareholders directly on compensation and other matters to understand their perspectives and provide information about Morgan Stanley’s programs, performance assessment, and decision-making process.

A substantial majority (approximately 90%) of the votes cast at the May 2016 annual meeting of shareholders were in favor of our annual “Say on Pay” proposal. In 2016, we continued our engagement program, seeking feedback from shareholders and proxy advisory firms on a variety of topics, including executive compensation, corporate governance, and environmental and social goals. The feedback that we received during the engagement program was conveyed to the CMDS Committee and the Board. Shareholders who provided feedback during our engagement program generally reported that executive compensation at Morgan Stanley was viewed as well-aligned with performance. The CMDS Committee factored shareholder feedback, including the “Say on Pay” vote results, into its consideration of executive compensation structure and determination of 2016 NEO pay levels.

After carefully considering shareholder feedback, the CMDS Committee maintained its performance-based approach to executive compensation, and executive pay increased for 2016 after evaluation against strategic and financial objectives as well as shareholder returns.

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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 incentives and performance-vested long-term incentives
Condition vesting and payment of long-term incentives on future performance against specified financial targets that align with long-term business strategy
Balance the objectives of delivering returns for shareholders and providing appropriate rewards to motivate superior individual performance
 
 

Align Executive
Compensation
with Shareholders’
Interests

Deliver a significant portion of incentive compensation in deferred awards that are subject to cancellation and clawback over a multi-year period
Tie a significant portion of executive compensation directly to the Company’s stock price and encourage ownership by requiring executives to retain shares
Ongoing shareholder engagement to understand shareholder views
 
 

Attract and Retain
Top Talent

Offer 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 provisions that retain employees and protect the Company’s interests
 
 

Mitigate Excessive
Risk-Taking

Structure and design compensation arrangements that do not incentivize unnecessary or excessive risk-taking that could have a material adverse effect on the Company
Annually evaluate compensation programs from a risk perspective; review findings with CMDS Committee and independent compensation consultant
 
   

3. Framework for Making Compensation Decisions

3.1 Factors Considered in Compensation Decisions

The 2016 compensation of the NEOs was determined by the CMDS Committee after consideration of Company business results and strategic performance and individual performance, as well as competitor compensation data and, with respect to the CEO, benchmarking data, and other considerations set forth below.

Company and Individual Performance Review. To inform its decision-making process for NEO compensation for 2016, the CMDS Committee evaluated Company and individual performance. For 2016, 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 2016, the CMDS Committee reviewed performance priorities in the following areas:
Financial performance, including ROE, ex DVA(7) and Operating ROE(10)
Shareholder return
Capital and liquidity strength
Firm expense efficiency ratio(11) and compensation to pre-compensation PBT ratio(15)
Business performance and development for each primary business unit
Firm risk management and controls
Operations and technology and data infrastructure initiatives, including with respect to cybersecurity
Standing with regulators
Talent development, including diversity
Board assessment of risk culture, leadership, strategy, and reputation

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Compensation Market Data. The Company uses a comparison group consisting of Bank of America Corp., Barclays Plc, Citigroup Inc., Credit Suisse Group, Deutsche Bank AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., UBS AG, and Wells Fargo & Company (Comparison Group) to understand market practices and trends, evaluate the competitiveness of our compensation programs, and inform compensation decisions. Our Comparison Group consists of companies that either directly compete with us for business and/or talent or are global organizations with scope, size, or other characteristics similar to those of the Company. During 2016, 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 2016 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 2015 compensation levels for the 16 financial companies in the S&P 100 (AIG, Allstate, American Express, BlackRock, Bank of New York Mellon, Capital One Financial, MasterCard, MetLife, Paypal, US Bancorp, VISA, and the five U.S. companies within the Comparison Group), which are intended to reflect institutions of similar size, scope, and complexity. The CMDS Committee then utilized the range of results as a benchmark from which to set the target range for 2016 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 entire 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 2016, 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 Board’s (Federal Reserve) guidance that is designed to help ensure that incentive compensation paid by banking organizations does not encourage imprudent risk-taking that threatens the organizations’ safety and soundness. The Company is also subject to the compensation-related provisions of the Dodd-Frank Act, as well as the remuneration code of the U.K. Financial Conduct Authority and the U.K. Prudential Regulation Authority Rulebook (Remuneration Part) (together, the U.K. Remuneration Code), which prescribes the compensation structure for certain employees who are identified as material risk takers (referred to as Code Staff employees).
Relative Pay Considerations. We place importance on the pay relationships among members of our Operating Committee because we view our Operating Committee members as highly talented executives capable of rotating among the leadership positions of our businesses and key functions. Our goal is always to be in a position to appoint our most senior executives from within our Company and to incent our people to aspire to senior executive roles. At year-end, the CMDS Committee reviewed the relative differences between the compensation for the CEO and other NEOs and between the NEOs and other members of the Operating Committee.
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.

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3.2 Evaluating Company and Individual Performance for Alignment with Executive Compensation

In determining the annual performance compensation of the CEO and other NEOs, the CMDS Committee weighed the Company’s progress toward long-term strategic objectives, overall financial performance, and, as applicable, business unit performance. Morgan Stanley’s financial performance continued to improve in 2016, and the Company entered 2017 well positioned strategically and with strong capital and liquidity levels. The strategic progress and improved financial performance were reflected in Morgan Stanley’s share price. Morgan Stanley’s TSR(12) was 36% for 2016, outperforming the S&P 500 Financials Index returns of 23%. PBT for 2016 grew by 12% on flat revenues from 2015, ex DVA(8)(9). The Firm also received a conditional non-objection from the Federal Reserve to its 2016 Capital Plan (requiring a resubmission)(5) and, while ROE, ex DVA(7) and Operating ROE(10) for 2016 were approximately 8%, continued focus is needed to achieve the ROE Target of 9 – 11%(7) by 2017. The CMDS Committee considered these results, as well as the performance indicated below, in determining compensation for our NEOs.

Strategic Objectives. During 2016, the Company achieved several milestones in connection with its overall strategy to continue to enhance shareholder returns:
Significantly reduced non-compensation expense by $739 million, with the vast majority of these savings associated with our $1 billion expense reduction initiative, and maintained compensation expense discipline – Institutional Securities compensation to net revenue ratio was 36%, achieving the target to be at or below 37%.
Meaningful improvement in the Firm expense efficiency ratio, from 77.2% in 2015 ex DVA(11) to 74.5% in 2016.
PBT(8) growth of $971 million (12% increase) on flat revenues from 2015 ex DVA(9).
Achievement of #1 ranking in Institutional Equities revenue wallet share for third consecutive year, gaining share in all three years (2014, 2015, and 2016)(16).
Retained revenue footprint in Fixed Income with 25% headcount reduction and reduced resources.
Achievement of #2 ranking globally in Announced and Completed Mergers and Acquisitions, Initial Public Offerings, and Global Equity(17).
Achieved Wealth Management pre-tax margin of 22%(4) and record PBT(8) of $3.4 billion, despite transactional revenue headwinds.
Continued execution of U.S. Bank strategy in Wealth Management and Institutional Securities to support growth in net interest income and lending(18).
TSR was 36% over 2016, 42% over the three-year period from 2014 to 2016, and 200% over the five year period from 2012-2016(12).
Increased the quarterly common stock dividend to $0.20 per share from $0.15 per share (+33% from 2015) and share repurchases of up to $3.5 billion (+40% from 2015)(5).
Company Financial Performance.(1)(2) Management reviewed the Company’s forecasted 2016 financial performance with the CMDS Committee in December 2016, and the CMDS Committee assessed full-year actual financial results before finalizing compensation decisions in January 2017.
Company-wide. Morgan Stanley reported improved financial performance in 2016 over 2015 excluding the impact of DVA. The Company reported net revenues of $34.6 billion and net income applicable to Morgan Stanley of $6.0 billion, or $2.92 per diluted common share for 2016. This compared with net revenues of $35.2 billion and net income applicable to Morgan Stanley of $6.1 billion, or $2.90 per diluted common share for 2015. Excluding the impact of DVA, 2015 revenues were $34.5 billion and net income applicable to Morgan Stanley was $5.7 billion, or $2.70 per diluted common share(6)(19).
Institutional Securities. Institutional Securities reported PBT of $5.1 billion in 2016, compared with a PBT of $4.7 million in the prior year or $4.1 billion excluding DVA(8)(20). Results were driven by strong performance across our Sales and Trading franchise, partially offset by lower revenues in Investment Banking. Non-interest expenses of $12.3 billion in 2016 declined 7% from the prior year reflecting disciplined compensation management, lower litigation costs and expense management.

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Wealth Management. Wealth Management reported PBT of $3.4 billion compared with $3.3 billion in the prior year, and a pre-tax margin of 22% flat to 2015(8)(4). Results reflect continued execution of our U.S. Bank(18) deposit deployment strategy and positive fee based asset flows, with continued focus on expense discipline.
Investment Management. Investment Management reported PBT of $287 million in 2016 compared with $492 million in the prior year(8). These results reflect lower investment gains and carried interest revenue and losses on the disposal of legacy third-party sponsored funds, while asset management, distribution and administration fees were stable.
Individual Performance. In addition to the performance factors discussed above, the Committee considered the following individual contributions of the CEO and each other NEO:
Mr. Gorman’s continued outstanding leadership of the Company, including: articulating and executing a Companywide long-term strategy to enhance profitability and returns to shareholders; contributing to improved financial performance in 2016 driven by disciplined expense control; maintaining strong liquidity and capital positions; maintaining sound risk management and controls; providing leadership in industry and Company efforts with respect to culture objectives; focusing on strengthening employee morale and diversity; liaising with clients on a global basis to bring them the full Company value proposition; and continuing to strengthen the Company’s reputation among global and U.S. regulators, research analysts, rating agencies, shareholders, clients and the media.
Mr. Kelleher’s leadership of Institutional Securities and Wealth Management upon becoming President of the Company; strong results for the Institutional Securities business, including continued strength in Equities and Investment Banking and improved performance in Fixed Income; strong results for the Wealth Management business, including continued solid financial performance in accordance with the Company’s long-term strategy and execution of the U.S. Bank strategy; increased collaboration between the Institutional Securities and Wealth Management segments; and numerous interactions with employees, clients and regulators across many jurisdictions.
Mr. Pruzan’s leadership of Finance, including his efforts with respect to materially redesigning the capital management process to strengthen controls and governance around risk identification, scenario design, assumptions and models; the Firm’s cost reduction efforts; execution of an efficient liquidity and funding program that accounts for evolving regulatory developments; strengthening the budget and planning process consistent with the Company’s strategic objectives; developing and recruiting talent; and working closely with global and U.S. regulators, research analysts, rating agencies, shareholders, and clients.
Mr. Rosenthal’s continued leadership of several support functions including Operations and Technology and Data, including increased focus on cybersecurity and innovative technologies to improve efficiency; advancing Wealth Management’s digital strategy to provide tools to enhance the client experience and provide capabilities to attract a new customer base; and chairing of the Company’s U.S. bank subsidiaries with a focus on profitable growth and heightened governance expectations.
Mr. Simkowitz’s leadership of Investment Management, becoming an executive officer, and positioning the business for growth, including his efforts with respect to an organizational realignment aimed at unifying the business from both a managerial and product standpoint and rationalizing the cost base; disposal of legacy third-party sponsored funds; maintaining stable management fee revenue; deeply engaging with clients and strengthening coverage models globally; and launching new products and fundraising across a number of funds, including private infrastructure and real estate.

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4. Compensation Decisions and Program

4.1 Compensation Decisions

The table below shows the CMDS Committee’s compensation decisions for 2016 for the NEOs, and is different from the SEC required disclosure in the “2016 Summary Compensation Table.”

   Mr. Gorman    Mr. Kelleher    Mr. Pruzan    Mr. Rosenthal    Mr. Simkowitz
Base Salary(a) $ 1,500,000 $ 1,666,041 $ 1,000,000 $ 1,000,000 $ 1,000,000
Cash Bonus $ 4,697,500 $ 4,064,292 $ 2,197,500 $ 2,397,500 $ 2,397,500
Deferred Cash-based Award(b) $ 5,001,250 $ 6,884,834 $ 3,151,250 $ 3,551,250 $ 3,551,250
Deferred Equity Award (RSUs)(c) $ 5,001,250 $ 2,396,574 $ 1,451,250 $ 3,551,250 $ 1,651,250
2017-2019 Performance-vested LTIP Award(d) $ 6,300,000 $ 4,488,260 $ 1,700,000 $ $ 1,900,000
Total: $   22,500,000 $   19,500,000 $   9,500,000 $   10,500,000 $    10,500,000

(a) For Mr. Kelleher, consists of his 2016 annual base salary of $1.2 million plus pro-rated fixed compensation for the period January 1, 2016 to February 5, 2016 during which he was identified as a Code Staff employee under the U.K. Remuneration Code and, therefore, received fixed allowances based on his specific U.K. director and officer roles and responsibilities. Mr. Kelleher resigned from his U.K. director and officer roles effective February 5, 2016 in connection with his appointment as President of the Company. Prior to Mr. Kelleher’s relocation to the U.S. on March 29, 2016, Mr. Kelleher’s 2016 annual base salary was paid in British pounds sterling in the amount of £203,722 (for purposes of the table, such amount was converted to U.S. dollars using an average of daily spot rates of £1 to $1.4331) and the amount shown includes base salary of $1,205,800 and fixed allowances of £339,612 (for purposes of the table, such amount was converted to U.S. dollars using the 2016 average of daily spot rates of £1 to $1.3552).
(b) Deferred cash-based awards under the Morgan Stanley Incentive Compensation Plan (MSCIP) are scheduled to vest and distribute (and cancellation provisions lift) on January 28, 2019.
(c) Mr. Gorman received 117,292 RSUs, Mr. Kelleher received 56,206 RSUs, Mr. Pruzan received 34,035 RSUs, Mr. Rosenthal received 83,286 RSUs, and Mr. Simkowitz received 38,726 RSUs (in each case, calculated using the volume-weighted average price of Company common stock of $42.6390 on January 18, 2017, the grant date). The RSUs are scheduled to vest and convert to shares of Company common stock (and cancellation provisions lift) on January 27, 2020.
(d) The target number of performance stock units underlying the LTIP award granted to Mr. Gorman is 147,752 stock units, to Mr. Kelleher is 105,261 stock units, to Mr. Pruzan is 39,869 stock units, and to Mr. Simkowitz is 44,560 stock units (in each case, calculated using the volume-weighted average price of Company common stock of $42.6390 on January 18, 2017, the grant date). Mr. Rosenthal did not receive an LTIP award pursuant to his separation and release agreement with the Company, described below, in light of his ceasing to be a member of our Operating Committee as of December 31, 2016.

The CMDS Committee approved a separation and release agreement with Mr. Rosenthal dated January 17, 2017 that provides that his 2016 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.”

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4.2 Annual Compensation Program Elements

The following chart provides a brief summary of the principal elements of the Company’s 2016 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 level of experience and responsibility and is intended to be competitive with salaries for comparable positions at competitors. Base salaries are reviewed periodically and are subject to change for, among other reasons, a change in responsibilities or the competitive environment.
Cash Bonus Paying a portion of compensation in cash bonus is aligned with competitive pay approaches. The portion of cash bonus is intended to be consistent with practice among the Comparison Group. Higher compensated employees continue to be subject to higher deferral levels.
Deferred Equity Award
– RSUs
Equity awards link realized value to shareholder returns, and the terms of the awards support retention objectives and mitigate excessive risk-taking over a three-year deferral period. 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 – MSCIP
The terms of deferred cash-based awards support retention objectives and mitigate excessive risk-taking. The awards provide a cash incentive with a rate of return based upon notional reference investments over a two-year deferral period. Awards are subject to clawback if an employee’s act or omission (including with respect to direct supervisory responsibilities) causes a restatement of the Company’s consolidated financial results, constitutes a violation of the Company’s global risk management principles, policies and standards, or causes a loss of revenue associated with a position on which the employee was paid and the employee operated outside of internal control policies.

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 was identified as a Code Staff employee under the U.K. Remuneration Code for the period January 1, 2016 to February 5, 2016 and, therefore, also received fixed compensation in the form of allowances based on his specific U.K. director and officer roles and responsibilities, pro-rated for the relevant period. Mr. Kelleher’s prorated allowances were paid in cash in December 2016.

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4.3 Long-Term Incentive Program

The 2017-2019 LTIP awards tie a meaningful portion of each NEO’s compensation to the Company’s long-term financial performance and reinforce the NEO’s accountability for the achievement of the Company’s financial and strategic goals by directly linking the ultimate realizable award value to prospective performance against core financial measures over a three-year period.

General Terms. The 2017-2019 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, 2017 and ending December 31, 2019. 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 “2016 Grants of Plan-Based Awards Table,” each of our NEOs received an LTIP award in 2016 on similar terms as described above. Additionally, as described in note 3 to the “2016 Option Exercises and Stock Vested Table,” LTIP awards granted in 2014 vested at 100.76% of target, based on performance over the three-year performance period ended December 31, 2016.

4.4 Additional Compensation and Benefits 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 CFO, CLO, CRO, Chief Human Resources Officer (CHRO), and Chief Compliance Officer) and reported to the CMDS Committee. In addition, the Global Incentive Compensation Discretion Policy, 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. Further, in 2016, the Company instituted a review by control functions (led by the CLO and the CHRO) for certain senior risk takers as a component of the Firm’s performance evaluation process. Senior risk takers are senior executives who are responsible for revenue generation and expense management, and generally include heads of businesses, product lines or business functions; region/country heads; and other Managing Directors in Sales & Trading. Results of the senior risk taker review were reviewed by the CLO and CHRO, shared with senior business unit leaders, and considered in compensation decisions.

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No Severance or Change-in-Control Tax Gross-Up Protection. NEOs are not contractually entitled to cash severance payments upon termination of employment or to any golden parachute excise tax protection upon a change-in-control of Morgan Stanley.
Health and Insurance Benefits. All NEOs are eligible to participate in Company-sponsored health and insurance benefit programs available in the relevant jurisdiction to similarly-situated employees. In the U.S., higher compensated employees pay more to participate in the Company’s medical plan. NEOs are also eligible to participate in Morgan Stanley’s Executive Health Program, under which each NEO is eligible to receive Company-funded access to a private primary care physician offering on-call services and an annual executive health care assessment. Upon retirement, NEOs are eligible for Company-paid retiree medical coverage for themselves and eligible dependents following any termination of employment.
Pension and Retirement. Company-provided retirement benefits in the U.S. include a tax-qualified 401(k) plan (401(k) Plan) and a frozen tax-qualified pension plan (the Employees Retirement Plan (ERP)). Certain NEOs may also be eligible to participate in the Company’s frozen Supplemental Executive Retirement and Excess Plan (SEREP). The SEREP, which was originally intended to compensate for the limitations imposed under the ERP and Internal Revenue Code, was amended in 2014 to cease further benefit accruals. No NEO is awarded with credited service in excess of his/her actual service under the ERP or the SEREP. Pension and retirement benefits provided to NEOs are discussed in further detail under the “2016 Pension Benefits Table.”
Personal Benefits. The Company provides personal benefits to certain of the NEOs for competitive and security reasons. The Company’s Board-approved policy authorizes the CEO to use the Company’s aircraft. As of January 1, 2010, Mr. Gorman entered into a time-share agreement with the Company permitting him to reimburse the Company for the incremental cost of his personal use of the Company aircraft. On February 25, 2016, the CMDS Committee approved that Mr. Kelleher, in connection with his relocation from the U.K. to the U.S., would receive standard relocation benefits and continuation of a housing allowance. Personal benefits provided to NEOs are discussed in further detail under the “2016 Summary Compensation Table.”
Share Usage. Morgan Stanley pays a significant portion of incentive compensation as deferred equity awards, which aligns the interests of the Company’s employees with those of its shareholders. The Company strives to maximize employee and shareholder alignment through the use of deferred equity awards, while minimizing dilution. The Company has evaluated whether to return to shareholders to request approval of additional shares at the 2017 annual meeting of shareholders and has determined to request an additional 50 million shares, which we expect would allow us to make grants under the EICP for approximately three years. The share repurchase program offsets the dilutive impact of these additional shares. Since Morgan Stanley re-initiated the share repurchase program in 2013, the Company has increased share repurchases each year - 12 million, 28 million, 59 million, and 117 million shares from 2013 to 2016, respectively.

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) A detailed analysis of the Firm’s financial and operational performance for 2016 is contained in the Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the Firm’s Annual Report on Form 10-K for the year ended December 31, 2016 (2016 Form 10-K).
(2) Information provided in this CD&A may include certain non-GAAP financial measures. The definition of such financial measures and/or the reconciliation of such measures to the comparable GAAP figures is included in either the 2016 Form 10-K or herein.
(3) 2016 Status represents progress during the current calendar year against the 2017 strategic objectives established at the beginning of 2016.
(4) Pre-tax margin represents income (loss) from continuing operations before income taxes divided by net revenues. Pre-tax margin is a non-GAAP financial measure that the Firm considers a useful measure for us, investors and analysts to assess operating performance.
(5) In June 2016, the Firm received a conditional non-objection from the Federal Reserve to its 2016 Capital Plan. Pursuant to the conditional non-objection, the Firm is able to execute the capital actions set forth in the 2016 Capital Plan, which include increasing our common dividend to $0.20 per share beginning in the third quarter of 2016 and executing share repurchases of $3.5 billion during the period July 1, 2016 through June 30, 2017. On December 29, 2016, the Firm submitted an additional capital plan addressing weaknesses identified in the capital planning process. In March 2017, the Firm received a non-objection from the Federal Reserve to its 2016 resubmitted Capital Plan. The Firm received a non-objection from the Federal Reserve to its 2015 Capital Plan, which included share repurchases of $3,125 million for the period April 1, 2015 through June 30, 2016 (for comparative purposes the percentage change of buyback is based on 80% of the total 2015 approval representing four of the five approved quarters).

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(6) Debt valuation adjustment (DVA) represents the change in fair value resulting from the fluctuations in the Firm’s credit spreads and other credit factors related to liabilities carried at fair value, primarily certain long-term and short-term borrowings. The Firm believes that most investors and analysts assess its operating performance exclusive of DVA. Effective January 1, 2016, pursuant to new accounting guidance that the Firm adopted, gains and losses from DVA are presented in other comprehensive income (i.e., a component of common equity) as opposed to net revenues and net income. Prior to January 1, 2016, gains and losses from DVA are presented in trading revenues (i.e., a component of Net Revenues).
(7) Return on average common equity, ex DVA represents consolidated net income applicable to Morgan Stanley less preferred dividends as a percentage of average common equity, adjusted for the impact of DVA (defined herein as ROE, ex DVA). ROE, ex DVA is a non-GAAP financial measure that the Firm considers useful for us, investors and analysts to assess operating performance. Effective January 1, 2016, as a result of the adoption of the accounting guidance related to DVA, referenced in note (6) above, we have redefined the calculation of ROE, ex DVA to adjust for DVA only in the denominator. Prior to January 1, 2016, for the calculation of ROE, ex DVA, DVA is adjusted in both the numerator and denominator. The Company’s targeted return on average common equity (defined herein as ROE Target) is derived based on ROE, ex DVA.
(8) Pre-tax profit represents income (loss) from continuing operations before income taxes (defined herein as PBT). PBT is a non-GAAP financial measure that we consider to be a useful measure for us, investors and analysts to access operating performance. The growth in PBT is calculated as the percentage increase of 2016 PBT ($8,848) over 2015 PBT, ex DVA ($7,877 million, which excludes the positive impact of $618 million from DVA).
(9) 2015 Net Revenues were $34,537 million, excluding the positive impact of $618 million from DVA. Net Revenue, ex DVA is a non-GAAP financial measure the Company considers useful for investors and analysts to allow better comparability of period to period operating performance.
(10) Return on average common equity, ex DVA and net discrete tax benefits represents ROE, ex DVA as adjusted to exclude the impacts of net discrete tax benefits recognized by the Company in both the numerator and denominator (defined herein as Operating ROE). Operating ROE is a non-GAAP financial measure that the Firm considers useful for us, investors and analysts to assess operating performance. The impact of net discrete tax benefits on ROE, ex DVA was 0.8% in 2015. Net discrete tax benefits in 2016 of $68 million had no significant impact on the ROE, ex DVA calculation (approximately 10 bps).
(11) Firm Expense Efficiency ratio represents total non-interest expenses as a percentage of Net Revenues (or in 2015, Net Revenues, ex DVA). For 2015, the Expense Efficiency ratio was calculated as non-interest expenses of $26,660 million, divided by Net Revenues of $34,537, which excludes the positive impact of $618 million from DVA. The Expense Efficiency ratio, ex DVA is a non-GAAP financial measure the Company considers a useful measure for us, investors and analysts to assess operating performance.
(12) Total shareholder return represents the change in share price over a period of time plus the dividends paid during such period, expressed as a percentage of the share price at the beginning of such period (defined herein as TSR).
(13) Global peers include: Goldman Sachs, JP Morgan Chase, Bank of America, Citigroup, Barclays, UBS Group, Deutsche Bank, and Credit Suisse. Source for Peer Companies: Bloomberg.
(14) Over the 2014 to 2016 period, Mr. Gorman’s realizable pay increased approximately 19% compared to his pay as reported in the Summary Compensation Table for the relevant years, and the Company’s three-year total TSR for the same period is 42%. Realizable pay for this period was $78.5 million, while Summary Compensation Table compensation for this period was $65.8 million. Realizable pay reflects the current value of the sum of base salary, cash bonus, stock awards and option awards disclosed in the 2014, 2015, and 2016 proxy statements. For purposes of this calculation, equity awards were valued using the closing price of Morgan Stanley common stock on December 31, 2016, performance-vested awards were valued based on performance at target.
(15) Compensation to pre-compensation PBT ratio represents compensation and benefits expense as a percentage of PBT, excluding compensation and benefits expense.
(16) 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 and analysts to allow better comparability of period to period operating performance.
(17) The Company’s capital markets rankings are reported by Thomson Reuters for the period of January 1, 2016 to December 31, 2016.
(18) U.S. Bank refers to the Company’s U.S. Bank operating subsidiaries Morgan Stanley Bank, N.A. and Morgan Stanley Private Bank, National Association, and excludes transactions with affiliated entities.
(19) 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 34 and 36 of the 2016 Form 10-K.
(20) Institutional Securities PBT, ex DVA excludes positive revenues from DVA of $618 million in 2015. PBT, ex DVA is a non-GAAP financial measure that the Company considers a useful measure for us, investors and analysts to assess operating performance.

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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, 2016 filed with the SEC.

Respectfully submitted,

Hutham S. Olayan, Chair
Erskine B. Bowles
Klaus Kleinfeld
James W. Owens

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EXECUTIVE COMPENSATION TABLES

The following tables summarize the compensation of our NEOs in the format specified by the SEC.

2016 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 granted during the year, rather than awards granted after year-end that were awarded for performance in that year. 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 granted in the years reported in the table, compensation awarded for performance in prior years and forward-looking performance-vested compensation. A summary of the CMDS Committee’s decisions on the compensation awarded to our NEOs for 2016 performance can be found in the CD&A.

Name and
Principal Position
Year Salary
($)
(1)
Bonus
($)
(1)(2)
Stock
Awards
($)
(3)(4)
Option
Awards
($)
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
(5)
All Other
Compensation
($)
(6)
Total
($)
James P. Gorman
Chairman and Chief
Executive Officer
          2016           1,500,000           9,698,750           9,958,913                     8,971           39,201           21,205,835
  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
Colm Kelleher
Executive Vice President
and President
2016 1,666,041(7) 10,949,126 6,155,595 191,059 416,667   19,378,488
2015   6,305,228 2,498,372 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
Jonathan Pruzan
Executive Vice President
and Chief Financial Officer
2016 1,000,000 5,348,750 2,885,171 24,092 10,600 9,268,613
2015 802,740 5,167,106   3,472,275 13,864 10,600 9,466,585
James A. Rosenthal*
Executive Vice President
and Chief Operating Officer
2016 1,000,000 5,948,750 3,574,383 33,030 10,556,163
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
Daniel A. Simkowitz*
Head of Investment
Management
2016 1,000,000 5,948,750 3,497,606 34,093 13,284 10,493,733
  

* Effective December 31, 2016, Mr. Rosenthal ceased to be Executive Vice President and Chief Operating Officer. Mr. Simkowitz, Head of Investment Management, became an executive officer effective July 26, 2016.
(1) Includes any elective deferrals to the Company’s employee benefit plans.
(2) For 2016, includes 2016 annual cash bonus paid in February 2017 and awards granted in January 2017 under MSCIP for performance in 2016:

    Name 2016 Cash Bonus
($)
2016 MSCIP Award
($)
Total
($)
James P. Gorman       4,697,500       5,001,250       9,698,750
Colm Kelleher 4,064,292 6,884,834   10,949,126
Jonathan Pruzan 2,197,500   3,151,250 5,348,750
James A. Rosenthal 2,397,500 3,551,250 5,948,750
Daniel A. Simkowitz 2,397,500 3,551,250 5,948,750

The 2016 MSCIP awards are scheduled to vest and be distributed on January 28, 2019. MSCIP awards are subject to cancellation and clawback. For further details on 2016 MSCIP awards, see the CD&A.

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(3) For 2016, consists of RSUs granted on January 20, 2016 for performance in 2015 and forward-looking 2016 LTIP awards granted on January 20, 2016, 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 2015 RSUs and 2016 LTIP awards, see “2016 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 2016. 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 2016 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 2016 LTIP awards on the grant date, assuming that the highest level of performance conditions will be achieved, is $8,775,000 for Mr. Gorman; $4,932,598 for Mr. Kelleher; $2,459,178 for Mr. Pruzan; $3,000,000 for Mr. Rosenthal; and $2,939,754 for Mr. Simkowitz.


    Stock Unit Awards Granted
During 2016 ($)
Name       2015 RSUs       2016 LTIP Awards       Total
James P. Gorman   4,626,250 5,332,663 9,958,913
Colm Kelleher 3,158,001 2,997,594 6,155,595
Jonathan Pruzan 1,390,702   1,494,469   2,885,171
James A. Rosenthal 1,751,250 1,823,133 3,574,383
Daniel A. Simkowitz 1,711,085 1,786,521 3,497,606

For further information on the valuation of the Company’s RSU and LTIP awards, see notes 2 and 18 to the consolidated financial statements included in the 2016 Form 10-K.
(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 2016.

    Name 2016
Change in
Pension
Value
($)(a)
2016 Above-Market
Earnings on
Nonqualified
Deferred
Compensation
($)(b)
James P. Gorman       8,971      
Colm Kelleher   191,059
Jonathan Pruzan 24,092
James A. Rosenthal
Daniel A. Simkowitz 34,093

(a) The “2016 Change in Pension Value” equals the aggregate increase from December 31, 2015 to December 31, 2016 in the actuarially determined present value of the accumulated benefit under the Company-sponsored defined benefit pension plans during the measurement period. Mr. Gorman, Mr. Pruzan and Mr. Simkowitz experienced an increase in the present value of their accumulated benefits from December 31, 2015 to December 31, 2016 primarily due to a decrease in the discount rates described below and the plans’ adoption of a new mortality table. The present value of Mr. Kelleher’s accumulated benefit increased from December 31, 2015 to December 31, 2016 due to a decrease in discount rates and the applicable exchange rate. The present values at December 31, 2016 are based on the RP-2014 white collar mortality tables rolled back to 2006 with projection Scale RP-2014 and then projected generationally with Scale MP-2016 and discount rates of 4.30% for the ERP and 4.02% for the SEREP. The present values at December 31, 2015 are based on 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. For each plan, the assumed benefit commencement date is the earliest age at which the NEO can receive unreduced benefits under that plan or current age, if greater.
(b) Represents the difference between market interest rates determined pursuant to SEC rules and the earnings credited on deferred compensation.
(6) The “All Other Compensation” column for 2016 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.

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(a) Messrs. Gorman, Kelleher, Pruzan, Rosenthal and Simkowitz each received a matching contribution in the 401(k) Plan for 2016 of $10,600. Mr. Simkowitz received a pension transition contribution in the 401(k) Plan for 2016 of $2,684.
(b) Mr. Kelleher’s amounts include: $219,693 related to housing, $79,222 related to costs associated with his relocation to the U.S., a $32,765 tax equalization payment to reimburse Mr. Kelleher for income tax liability arising from certain of the relocation costs, $52,146 related to tax preparation services arising in the year of Mr. Kelleher’s relocation, as well as costs associated with Company-paid medical coverage for the portion of the year during which he was located in the U.K. and airport fees. For each of Messrs. Gorman and Rosenthal, the amount includes $20,000 related to participation in the Company’s Executive Health Program, and for each of Messrs. Gorman, Kelleher and Rosenthal, the amount includes costs associated with the use of a Company car or car service, meals and use of the Company travel booking service.
(7) Prior to Mr. Kelleher’s relocation to the U.S., his 2016 annual base salary of $1.2 million was paid in British pounds sterling in the amount of £203,722 for the period January 1, 2016 – March 28, 2016. The amount of British pounds sterling was converted to U.S. dollars using an average of daily spot rates of £1 to $1.4331. Mr. Kelleher’s fixed allowances for the portion of 2016 during which he was identified as “Code Staff” was £339,612 and was converted to U.S. dollars using the 2016 average of daily spot rates of £1 to $1.3552. For further details on Mr. Kelleher’s 2016 fixed allowances, see the CD&A.

2016 Grants of Plan-Based Awards Table(1)

The following table sets forth information with respect to RSUs granted to the NEOs in January 2016 for 2015 performance (2015 RSUs) and LTIP awards granted in January 2016 for forward-looking performance (2016 LTIP awards).



Estimated Future Payouts
Under Equity Incentive Plan

Awards(2)
All Other
Stock
Awards:
Number of
Shares of
Stock or
Units
(#)(3)
All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
Exercise
or Base
Price of
Option
Awards
($/Sh)

Grant Date
Fair Value
of Stock
and Option
Awards
($)(4)
Name Grant Date
(mm/dd/yyyy)
Approval
Date
(mm/dd/yyyy)
Threshold
(#)
Target
(#)
Maximum
(#)
James P. Gorman     1/20/2016     1/6/2016     0     232,265     348,398                 5,332,663
1/20/2016 1/6/2016 183,678 4,626,250
Colm Kelleher 1/20/2016 1/6/2016 0 130,560 195,841 2,997,594
  1/20/2016   1/6/2016   125,383     3,158,001
Jonathan Pruzan 1/20/2016 1/6/2016 0 65,091 97,637   1,494,469
  1/20/2016 1/6/2016     55,215 1,390,702
James A. Rosenthal 1/20/2016 1/6/2016 0 79,406 119,110   1,823,133
1/20/2016 1/6/2016 69,530 1,751,250
Daniel A. Simkowitz 1/20/2016 1/6/2016 0 77,812 116,718 1,786,521
1/20/2016 1/6/2016 67,936 1,711,085

(1) The 2016 LTIP awards included in this table are also disclosed in the “Stock Awards” column of the “2016 Summary Compensation Table” and the “2016 Outstanding Equity Awards at Fiscal Year-End Table.” The 2015 RSU awards included in this table are also disclosed in the “Stock Awards” column of the “2016 Summary Compensation Table,” the “2016 Option Exercises and Stock Vested Table” and, other than Mr. Kelleher’s Stock Bonus Award (described in note 3 below), the “2016 Nonqualified Deferred Compensation Table.” The 2016 LTIP awards and 2015 RSUs were granted under the Morgan Stanley Equity Incentive Compensation Plan. All 2015 RSUs and 2016 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 and clawback of awards, see “Potential Payments Upon Termination or Change-in-Control.”
(2) The 2016 LTIP awards are scheduled to vest and convert to shares in 2019 only if the Company satisfies predetermined performance goals over the three-year performance period consisting of 2016, 2017 and 2018. One-half of the target 2016 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 2016 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 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.

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** Relative TSR will be determined by subtracting the Index Group TSR from the MS TSR. In no event may the multiplier exceed 1.0 if MS TSR for the performance period is negative. If Relative TSR is between two of the thresholds noted in the table, the number of stock units earned will be determined by straight-line interpolation between the two thresholds.
Each NEO is entitled to receive cash dividend equivalents on the 2016 LTIP awards, subject to the same vesting, cancellation and payment provisions as the underlying award.
(3) With the exception of Mr. Kelleher’s awards, the RSUs are scheduled to convert to shares on January 28, 2019. Mr. Kelleher’s RSUs are scheduled to convert to shares in three equal installments on each of January 18, 2017, January 22, 2018 and January 28, 2019, except that 42,762 of Mr. Kelleher’s RSUs (the Stock Bonus Award) plus reinvested dividend equivalents vested on July 20, 2016 and converted to shares on July 21, 2016, 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 2016 LTIP awards. The aggregate grant date fair value of the RSUs granted on January 20, 2016 is based on $25.1867, the volume-weighted average price of the common stock on the grant date. The aggregate grant date fair value of 2016 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 20, 2016. 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 2016 Form 10-K.

2016 Outstanding Equity Awards at Fiscal Year-End Table

The following table discloses the number of shares covered by unexercised stock options and unvested stock awards held by our NEOs on December 31, 2016.

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 424,731 30.01 1/21/2018 536,349 22,660,748
284,827 22.98 1/22/2018
Colm Kelleher 182,027 30.01 1/21/2018 334,635 14,138,368
Jonathan Pruzan 97,637 4,125,204
James A. Rosenthal 218,869 9,247,218
Daniel A. Simkowitz 116,718 4,931,357

(1) The stock option awards in this table vested and became exercisable as follows:

Option
Expiration Date
(mm/dd/yyyy)
      Exercisability Schedule
1/21/2018 One-third of the award became exercisable on each of 2/2/2012, 2/2/2013 and 2/2/2014
1/22/2018 One-third of the award became exercisable on each of 1/27/2014, 1/26/2015 and 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.
(3) Consists of performance units underlying LTIP awards held by the NEOs. The NEOs may ultimately earn a maximum of 1.5 times the target number of performance units and a minimum of nothing, based on the Company’s performance over the performance period. In accordance with SEC rules, the number of performance units reflected in the table represents the target number of units granted under the 2015 LTIP award and the maximum number of units that may be earned under the 2016 LTIP award. For both the 2015 and 2016 LTIP awards, the number of performance units reflected in the table exceeds the amount that would have been earned based on Company performance through December 31, 2016. Based on Company performance through December 31, 2016, 92.77% and 102.23% of the target number of units granted

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    under the 2015 LTIP award and 2016 LTIP award, respectively, would have been earned by the NEO (see the “2016 Grants of Plan-Based Awards Table” for the target number of performance units granted under the 2016 LTIP award). The 2015 LTIP awards and 2016 LTIP awards are scheduled to vest and convert to shares in 2018 and 2019, respectively, only if the Company satisfies the predetermined performance goals (see note 2 to the “2016 Grants of Plan-Based Awards Table” for 2016 LTIP award performance goals). The market value of the performance units is based on $42.25, the closing price of the Company’s common stock on December 30, 2016.

2016 Option Exercises and Stock Vested Table

The following table contains information about the stock options exercised by NEOs during 2016 and the RSUs and LTIP awards held by the NEOs that vested during 2016.

Option Awards Stock Awards
Name         Number of
Shares Acquired
on Exercise
(#)
        Value Realized on
Exercise ($)
(1)
        Number of
Shares Acquired
on Vesting
(#)(2)
        Value Realized on
Vesting ($)
James P. Gorman 200,000 3,102,000 183,678 4,626,250 (3)
184,273 7,784,279 (4)
Colm Kelleher 445,425 5,558,907 82,620 2,080,948 (3)
148,442 6,270,669 (4)
  43,281 1,240,776 (5)
Jonathan Pruzan 55,215 1,390,702 (3)
James A. Rosenthal 495,360 4,665,735 69,530 1,751,250 (3)
107,493 4,540,829 (4)
Daniel A. Simkowitz 121,351 1,474,415 67,936 1,711,085 (3)

(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 20, 2016 for 2015 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 21, 2014 (2014 LTIP awards), which are considered vested on December 31, 2016 (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. For further details on the RSUs, see note 3 to the “2016 Grants of Plan-Based Awards Table.”
(3) The aggregate grant date fair value of these RSUs is based on $25.1867, the volume-weighted average price of the Company’s common stock on the grant date.
(4) The value realized is based on $42.243, the volume-weighted average price of the Company’s common stock on December 30, 2016, which is the last trading day of the 2014 LTIP awards’ performance period, for 100.76% of the target number of units underlying the 2014 LTIP awards. The 2014 LTIP awards converted to shares of common stock on March 1, 2017.
(5) The value realized is based on $28.6679, the volume-weighted average price of the Company’s common stock on July 20, 2016, the date on which the award vested pursuant to its terms.

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2016 Pension Benefits Table

The table below discloses the present value of accumulated benefits payable to each NEO and the years of service credited to each NEO under the Company’s defined benefit retirement plans as of December 31, 2016. The material terms and conditions of these plans are described below.

Name     Plan Name    

Number of
Years
Credited
Service
(1)

    Retirement
Age for Full
Benefits
    Present Value of
Accumulated
Benefit ($)(2)
    Payments
During Last
Fiscal Year ($)
James P. Gorman Morgan Stanley Employees Retirement Plan 4 65 88,953
Colm Kelleher Morgan Stanley U.K. Group Pension Plan(3) 7 60 197,471
Morgan Stanley Supplemental Executive 25 60 1,418,542
Retirement and Excess Plan
Jonathan Pruzan Morgan Stanley Employees Retirement Plan 15 65 209,404
James A. Rosenthal
Daniel A. Simkowitz Morgan Stanley Employees Retirement Plan 19 65 308,956

(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. 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, 2016 is based on the RP-2014 white collar mortality tables rolled back to 2006 with projection Scale RP-2014 and then projected generationally with scale MP-2016 and discount rates of 4.3% for the ERP and 4.02% 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) 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 £145,714 as of December 31, 2016. The amount of British pounds sterling was converted to U.S. dollars using the 2016 average of daily spot rates of £1 to $1.3552. If the value of the account balance relating to the pre-October 1996 portion of Mr. Kelleher’s U.K. Pension Plan benefit, adjusted for investment experience until the payment date, is greater than the value of the guaranteed minimum pension under the U.K. Pension Plan, no defined benefit pension is payable. If the value of the guaranteed minimum pension, determined in accordance with U.K. laws, is greater than the value of the adjusted account balance, the guaranteed minimum pension is payable, in addition to any defined contribution amount payable for the period after September 30, 1996. Mr. Kelleher had seven years of credited service in the U.K. Pension Plan at the time his accrued benefit was converted to an account balance. The amount shown in the table for Mr. Kelleher does not include defined contribution benefits that were accrued after September 30, 1996.

Employees Retirement Plan (ERP)

Substantially all of the U.S. employees of the Company and its U.S. affiliates hired before July 1, 2007 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.

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EXECUTIVE COMPENSATION

Supplemental Executive Retirement and Excess Plan (SEREP)

The SEREP is an unfunded, nonqualified plan. Effective after September 30, 2014, the SEREP was frozen and no further benefit accruals will occur. Credited service is counted starting from the first day of the month after the hire date, except that for certain excess benefits credited service begins after one year of service. The SEREP provides benefits not otherwise provided under the ERP formula because of limits in the ERP or Internal Revenue Code on eligible pay and benefits. The SEREP also provides certain grandfathered benefits and supplemental retirement income (unreduced at age 60) for eligible employees after offsetting other Company-provided pension benefits, pension benefits provided by former employers and, for January 1, 2011 through June 30, 2014, adjusted to take into account certain defined contribution plan awards. The supplemental benefit, before offsets, equals 20% of final average salary plus 2% of final average salary per year after five years (up to 50% cumulatively) plus 1% of final average salary per year after 25 years (up to 60% cumulatively), where final average salary is base salary for the highest paid 60 consecutive months of the last 120 months of service through September 30, 2014, up to a maximum annual benefit payable of $140,000 at age 60, reduced by 4% per year for payments beginning before age 60. The SEREP was restricted effective January 1, 2004 to “grandfathered” employees who as of that date met certain eligibility criteria. Grandfathering in this plan was provided to all similarly situated eligible employees and may be provided to other employees with the approval of the CMDS Committee. Benefits may be paid in various actuarially equivalent forms of annuity. Other than for small balances, no lump sums are available under this plan.

U.K. Group Pension Plan

The U.K. Pension Plan is a defined contribution plan that provided defined benefit pension accruals until October 1, 1996. The guaranteed minimum pension payable under the U.K. Pension Plan is determined in accordance with U.K. laws.

2016 Nonqualified Deferred Compensation Table

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. NEOs participate in the plans on the same terms and conditions as other similarly situated employees. The material terms and conditions of these plans are described below.

Name           Executive
Contributions
in Last FY
($)(1)
     Registrant
Contributions
in Last FY
($)
     Aggregate
Earnings
in Last FY
($)(2)
     Aggregate
Withdrawals/
Distributions
($)(3)
     Aggregate
Balance
at Last FYE
($)(4)
James P. Gorman Notional Leveraged Co-Investment Plan (143,785 ) 2,542,954
Morgan Stanley Compensation Incentive Plan 4,626,250 828,773 1,330,332 10,675,891
Restricted Stock Units(5) 4,626,250 9,307,856 1,256,789 32,224,845
Colm Kelleher Notional Leveraged Co-Investment Plan (201,540 ) 3,981,282
Morgan Stanley Compensation Incentive Plan 2,080,948 37,782 3,015,556 5,703,014
Restricted Stock Units(5) 2,080,948 3,245,297 1,778,536 12,153,582
U.K. Alternative Retirement Plan (114 ) 29,573 (6)
Jonathan Pruzan Key Employee Private Equity Recognition Plan (963 ) 14,934 40,878
Notional Leveraged Co-Investment Plan (28,958 ) 64,689
Morgan Stanley Compensation Incentive Plan 3,030,154 420,951 813,715 5,077,060
Restricted Stock Units(5) 1,390,702 2,085,957 2,247,646 8,944,824
James A. Rosenthal Notional Leveraged Co-Investment Plan 5,629 664,053
Morgan Stanley Compensation Incentive Plan 3,751,250 43,371 732,275 6,395,013
Restricted Stock Units(5) 1,751,250 2,210,785 569,400 7,299,381
Daniel A. Simkowitz Key Employee Private Equity Recognition Plan (1,284 ) 19,912 54,504
Notional Leveraged Co-Investment Plan (11,203 ) 233,053
Morgan Stanley Compensation Incentive Plan 3,670,921 28,030 959,086 5,882,585
Pre-Tax Incentive Program 30,128 881,751
Restricted Stock Units(5) 1,711,085 2,659,071 2,561,352 11,149,913

(1) RSU contributions represent the RSU awards granted in January 2016 for 2015 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 2016 for 2015 performance that are considered vested at grant for purposes of this proxy statement but are subject to

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cancellation until the applicable scheduled payment dates. The MSCIP awards reported in this table are also reported as part of the 2015 bonus in the “2016 Summary Compensation Table.” The value of the RSUs in this column (which are also included in the “Stock Awards” column of the “2016 Summary Compensation Table” for 2016, the “2016 Grants of Plan-Based Awards Table,” and the “2016 Option Exercises and Stock Vested Table”) is the aggregate grant date fair value of the RSUs based on $25.1867, 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, 2016, 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, 2015 and the value of any contributions made during 2016. Includes any nonqualified deferred compensation earnings that are disclosed in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column of the “2016 Summary Compensation Table” for 2016 and described in note 5 thereto.
With respect to the RSUs, represents (i) the change in the average of the high and low prices of the Company’s common stock on December 31, 2016 (or, if applicable, the earlier distribution date) compared to December 31, 2015 (or, if applicable, the later contribution date), as well as (ii) the amount of the vested cash dividend equivalent rights in 2016 (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 2016 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 2016 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, 2016. With respect to the RSUs, represents the number of vested units held by the NEO on December 31, 2016 multiplied by the average of the high and low prices of the Company’s common stock on December 31, 2016.
(5) The RSUs disclosed in this table include awards that as of December 31, 2016 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 £21,822 was converted from British pounds sterling to U.S. dollars using the 2016 average of daily spot rates of £1 to $1.3552.

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 deferred incentive compensation to the plan. LCIP is closed to new participants and has not been offered since 2008. For each of fiscal 2006, fiscal 2007 and fiscal 2008, participants were permitted to allocate up to 40% of their long-term incentive compensation to LCIP. The Company contributed a notional investment in an amount equal to two times each participant’s contribution (however, for fiscal 2008, participants could elect to forgo the notional investment). Contributions are notionally invested by the Company in reference investments, which may include the Company’s proprietary investment funds, “funds of funds” that include Company proprietary investment funds and third-party investment funds, and other third-party investment funds. All amounts contributed by a participant plus any earnings on participant contributions and the Company notional investment were subject to cancellation under specified circumstances until three years after deferral. Participants generally are entitled to receive distributions in respect of their contributions plus any earnings on their contributions and on the

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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 Compensation Incentive Plan (MSCIP)

A portion of each participant’s year-end deferred incentive compensation is granted under MSCIP. Earnings on MSCIP awards are based on the performance of notional investments available under the plan and selected by the participants. Participants may reallocate such balances periodically, as determined by the plan administrator. Until MSCIP awards reach their scheduled distribution date, they are subject to cancellation and clawback by the Company. The cancellation and clawback events applicable to MSCIP awards held by our NEOs are described in the CD&A and in “Potential Payments upon Termination or Change-in-Control.”

Pre-Tax Incentive Program (PTIP)

Under PTIP, participants were permitted to defer a portion of their cash bonus or commissions for one or more fiscal years. The plan has been closed to new contributions since 2003. Earnings on PTIP contributions are based on the performance of notional investments available under the plan and selected by the participants. Participants could generally elect the commencement date for distributions of their contributions and earnings and the number of annual installments over which to receive distributions (generally, 5, 10, 15 or 20 years). Subject to earlier distribution on death or termination of employment due to disability, no distributions may begin prior to the attainment of age 55, and no distribution may begin prior to termination of employment.

Restricted Stock Units (RSUs)

RSUs are granted under the Morgan Stanley Equity Incentive Compensation Plan or another Company equity plan as determined by the CMDS Committee. Each RSU constitutes a contingent and unsecured promise of the Company to pay the holder one share of Company common stock on the conversion date of the RSU. The RSUs included in this table are considered vested; however, the RSUs are subject to cancellation if a cancellation event occurs at any time prior to the 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.”

U.K. Alternative Retirement Plan (ARP)

The ARP is a U.K. employer financed retirement benefits scheme as defined by Her Majesty’s Revenue and Customs (HMRC). Under the ARP, eligible participants receive monthly notional contributions from the Company based on a percentage of base salary, subject to specified limits. Participants may also elect to contribute a portion of their cash bonus and distributions from certain cash-based nonqualified deferred compensation plans to the ARP. Participants include those employees who either have an accumulated pension value in the U.K. Group Pension Plan that exceeds a limit set by the U.K. government or have elected pension taxation protection available from HMRC. Earnings on ARP contributions are based on the performance of notional investments available under the ARP and selected by the participants. Participants can generally elect the commencement date for distributions at any time after age 55, so long as no distributions begin later than age 75. Distributions are currently paid in the form of a lump sum.

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Potential Payments upon Termination or Change-in-Control

This section describes and quantifies the benefits and compensation to which each NEO would have been entitled under our existing plans and arrangements if his employment had terminated or if the Company had undergone a change-in-control, in each case on December 31, 2016.

General Policies

Our NEOs are not contractually entitled to cash severance payments upon any termination of employment or excise tax protection upon a change-in-control of the Company. NEOs are entitled to receive post-termination benefits that are generally available to all salaried employees, such as accrued vacation pay and death, disability and post-retirement welfare benefits, and are also eligible for Company-paid retiree medical coverage under the Morgan Stanley Grandfathered Retiree Medical Plan for themselves and eligible dependents following any termination of employment with three years of service.

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 “2016 Pension Benefits Table,” and our nonqualified deferred compensation plans, as described under the “2016 Nonqualified Deferred Compensation Table.” Our NEOs are not entitled to special or enhanced termination benefits under our pension and nonqualified deferred compensation plans as compared to other employees.

Even if a NEO is considered vested in a deferred incentive compensation award, the award may be subject to cancellation through the distribution date in the event the NEO engages in a cancellation event or if a clawback event occurs. In general, a cancellation event includes: engaging in competitive activity during a specified period following a voluntary termination of employment; engaging in cause (i.e., 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, and within a specified period following termination of, employment; the making of unauthorized disclosures or disparaging or defamatory comments about the Company; resignation from employment without providing the Company proper advance notice; or the failure to cooperate with or assist the Company in connection with investigations, regulatory matters, lawsuits or arbitrations following termination of employment.

Clawback of deferred compensation awards by the Company can be triggered through the applicable scheduled distribution date if the NEO had significant responsibility for a material adverse outcome for the Company or any of its businesses or functions, even absent misconduct, or if the NEO’s act or omission (including with respect to direct supervisory responsibilities) causes a restatement of the Company’s consolidated financial results, violates the Company’s global risk management principles, policies and standards, or causes a loss of revenue associated with a position on which the NEO was paid and he operated outside of internal control policies. Further, shares resulting from the conversion of LTIP awards are subject to clawback by the Company in the event the Company’s achievement of the specified goals was based on materially inaccurate financial statements or other performance metric criteria. With respect to 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 deferred compensation awards if the NEO does not provide 180 days’ advance notice prior to a resignation or the NEO improperly solicits the Company’s employees, clients or customers during, and for 180 days following termination of, employment.

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Termination of Employment / Change-in-Control

The table below sets forth the value as of December 31, 2016 of the outstanding unvested deferred compensation awards held by the NEOs and the present value of coverage under the Morgan Stanley Grandfathered Retiree Medical Plan as of December 31, 2016.

Termination Reason       Name       Unvested RSUs and
Related Dividend
Equivalents 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 17,783,010 600,673
Colm Kelleher 11,333,688 683,689
Jonathan Pruzan 2,858,045 970,731
James A. Rosenthal(4) 7,512,337 638,764
Daniel A. Simkowitz 3,416,568 780,979

(1) As of December 31, 2016, our NEOs were retirement-eligible for purposes of their outstanding RSU and MSCIP 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. All options are vested and exercisable and will remain exercisable through their expiration dates. Retirement treatment for applicable awards 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, 2016, 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, 2016 (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, 2016, amounts payable with respect to these awards would instead reflect Company performance through September 30, 2016 (the quarter ending with or before the date of the termination for which the Company’s earnings information has been released) as follows: $15,541,747 for Mr. Gorman; $9,963,320 for Mr. Kelleher; $2,405,561 for Mr. Pruzan; $6,627,720 for Mr. Rosenthal; and $2,875,658 for Mr. Simkowitz. For purposes of valuing LTIP awards, we have assumed a per share value of $42.25, the closing price of the Company’s common stock on December 30, 2016.
(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, 2016 and elected their current dependent coverage type. The present value is based on the RP-2014 white collar mortality tables rolled back to 2006 with projection Scale RP-2014 and then projected generationally with Scale MP-2016, a discount rate of 4.01%, and a medical inflation rate of 6.8% for 2017-2018 and ultimately settling at 4.5% by 2038.
(4) Pursuant to Mr. Rosenthal’s January 17, 2017 separation and release agreement with the Company, following his termination of employment (anticipated to be July 31, 2017), Mr. Rosenthal will remain as a Senior Advisor to the Company through December 31, 2017 and during such time will be entitled to continued access to his primary care physician under the Company’s Executive Health Program, and continued access to office space and administrative support with an incremental cost to the Company of approximately $56,439.

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OWNERSHIP OF OUR STOCK

EXECUTIVE EQUITY OWNERSHIP COMMITMENT

Members of the Company’s Operating Committee are subject to an Equity Ownership Commitment. The Equity Ownership Commitment requires each of our CEO, CFO and President (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 10 times his base salary and each other Covered Officer is required to achieve ownership of shares of common stock and equity awards with a value equal to six times his base salary. In addition, Operating Committee members are required to hold common stock and equity awards equal to a percentage of common stock received from equity awards (less allowances for the payment of any option exercise price and taxes) granted to them for service on the Operating Committee (Equity Award Shares) as follows:

Our CEO is required to retain 75% of Equity Award Shares.
Each of our other Operating Committee members is required to retain 50% of Equity Award Shares acquired from equity awards granted beginning in January 2016 and thereafter, and 75% of Equity Award Shares acquired from equity awards granted prior to January 2016; provided that Operating Committee members who are Covered Officers must retain 75% of all Equity Award Shares until the applicable ownership requirement is met.

This commitment ties a portion of our Operating Committee members’ net worth to the Company’s stock price and provides a continuing incentive for them to work toward superior long-term stock price performance. Exceptions to the Equity Ownership Commitment are subject to the approval of the CMDS Committee. None of our executive officers currently have prearranged trading plans under SEC Rule 10b5-1. Executive officers also are prohibited from pledging or selling short, or engaging in hedging strategies or trading derivatives involving, Morgan Stanley securities.

DIRECTOR EQUITY OWNERSHIP REQUIREMENT

Our Corporate Governance Policies require each independent director to retain ownership of a number of shares of Morgan Stanley common stock and equity awards with a value equal to five times the annual cash Board retainer, and to retain 100% of his or her Morgan Stanley stock unit awards (on an after-tax basis) until such ownership requirement is met. Directors may not enter into hedging transactions in respect of Morgan Stanley common stock or pledge Morgan Stanley common stock in connection with a margin or other loan transaction. In addition, as discussed under “Director Compensation,” our independent directors generally receive an equity award upon initial election to the Board and receive an annual equity award thereafter with a grant date fair value of $250,000 (prorated in the case of the initial award) as part of their director compensation. 50% 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). We believe these equity ownership opportunities and requirements enhance the alignment of independent directors’ interests with the long-term interests of our shareholders.

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OWNERSHIP OF OUR STOCK

STOCK OWNERSHIP OF EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth the beneficial ownership of common stock as of March 1, 2017 by our CEO and the other executive officers named in the “2016 Summary Compensation Table” (our NEOs), directors, and by all of our directors and executive officers as of March 1, 2017 as a group. As of March 1, 2017, 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       621,869       800,961       424,731       1,847,561
Colm Kelleher 483,298 247,359 730,657
Jonathan Pruzan 31,105 195,805 226,910
James A. Rosenthal 85,306 210,852 296,158
Daniel A. Simkowitz 31,675 242,727 274,402
 
DIRECTORS AND DIRECTOR NOMINEES
Erskine B. Bowles 1,000 148,953 149,953
Alistair Darling 1,365 11,337 12,702
Thomas H. Glocer 4,535 42,900 47,435
Robert H. Herz 12,969 38,688 51,657
Nobuyuki Hirano(4)
Klaus Kleinfeld 19,909 32,181 52,090
Jami Miscik 5,118 16,641 21,759
Dennis M. Nally 4,397 4,397
Donald T. Nicolaisen 91,259 91,259
Hutham S. Olayan 8,000 138,014 146,014
James W. Owens 14,354 59,050 73,404
Ryosuke Tamakoshi(4)
Perry M. Traquina 20,391 20,391
Rayford Wilkins, Jr. 11,070 21,132 32,202
ALL DIRECTORS AND EXECUTIVE OFFICERS AS OF
MARCH 1, 2017 AS A GROUP (21 PERSONS) 1,502,243 2,458,199 424,731 4,385,173

(1) Each director, NEO and executive officer has sole voting and investment power with respect to his or her shares, except with respect to the following shares owned indirectly through family trusts, the sole beneficiaries of which are family members: Mr. Gorman – 30,693 shares; Mr. Rosenthal – 84,752 shares; and Mr. Bowles – 1,000 shares.
(2) Shares of common stock held in a trust (Trust) corresponding to outstanding RSUs. Directors and executive officers may direct the voting of the shares corresponding to such RSUs. Voting by executive officers is subject to the provisions of the Trust, as described in “Information about the Annual Meeting – How Do I Submit Voting Instructions for Shares Held in Employee Plans?” Excludes LTIP awards because executive officers may not direct the voting of any shares corresponding to such awards prior to settlement of the award.
(3) Each NEO and director beneficially owned less than 1% of the shares of common stock outstanding. All executive officers and directors as a group as of March 1, 2017 beneficially owned less than 1% of the common stock outstanding.
(4) Messrs. Hirano and Tamakoshi were designated by MUFG and elected to the Board pursuant to the Investor Agreement. 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.

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OWNERSHIP OF OUR STOCK

PRINCIPAL SHAREHOLDERS

The following table contains information regarding the only persons we know of that beneficially own more than 5% of our common stock.

Shares of Common Stock
Beneficially Owned
Name and Address Number Percent(1)
MUFG(2)
7-1, Marunouchi 2-chome
Chiyoda-ku, Tokyo 100-8330, Japan
      435,317,080       23.5%
State Street(3)
One Lincoln Street
Boston, MA 02111
162,766,432 8.8%
T. Rowe Price(4)
100 E. Pratt Street
Baltimore, MD 21202
131,618,754 7.1%
BlackRock(5)
55 East 52nd Street
New York, NY 10055
108,578,017 5.9%

(1) Percentages based upon the number of shares of common stock outstanding as of the record date, March 27, 2017, and the beneficial ownership of the principal shareholders as reported in SEC filings in notes 2 through 5 below.
(2) Based on the Schedule 13D/A dated April 7, 2016 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 3,299,928 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 March 31, 2016 for which MUFG disclaims beneficial ownership.
(3) Based on the Schedule 13G dated February 13, 2017 filed by State Street and State Street Bank and Trust Company, each acting in various fiduciary and other capacities (as of December 31, 2016). The Schedule 13G discloses that State Street had shared dispositive power as to 162,766,432 shares and shared voting power as to 162,117,853 shares; and that 96,031,842 shares beneficially owned by State Street Bank and Trust Company, a subsidiary of State Street, are held as trustee by State Street Bank and Trust Company on behalf of the Trust that holds shares of common stock underlying certain restricted stock units awarded to Company employees under various of the Company’s equity-based plans.
(4) Based on the Schedule 13G dated February 7, 2017 filed by T. Rowe Price (as of December 31, 2016). The Schedule 13G discloses that T. Rowe Price had sole dispositive power as to 131,498,904 shares and sole voting power as to 47,744,733 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 30, 2017 filed by BlackRock (as of December 31, 2016). The Schedule 13G discloses that BlackRock had shared voting and shared dispositive power as to 64,714 shares, sole voting power as to 95,181,617 shares and sole dispositive power as to 108,513,303 shares.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and certain of our officers to file reports with the SEC indicating their holdings of, and transactions in, our equity securities. The Company believes that our reporting persons complied with all Section 16(a) filing requirements during 2016.

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OTHER COMPANY PROPOSALS

Item 4
     
 

Company Proposal to Vote on the Frequency of Holding a Non-Binding Advisory Vote on the Compensation of Executives as Disclosed in the Proxy Statement (Non-Binding Advisory Vote)

 
           
 

Our Board unanimously recommends that you vote for the option of once every “1 YEAR” as the frequency with which shareholders are provided a non-binding advisory vote on executive compensation.

 
       

As required by Section 14A of the Securities Exchange Act of 1934, this proposal enables our shareholders to indicate their preference for holding future advisory votes on the compensation of our named executive officers (such as Item 3 included in this proxy statement) every one, two or three years. This non-binding “frequency” vote is required at least once every six years.

After careful consideration, our Board has determined that holding an annual advisory vote on executive compensation is the most appropriate alternative for the Company at this time, and recommends that you vote for a one-year interval for the advisory vote on executive compensation. While the Company’s executive compensation program is designed to promote a long-term connection between pay and performance, our Board recognizes that an annual advisory vote on executive compensation will allow our shareholders to provide us every year with their view on our compensation philosophy, policies and practices as disclosed annually in the proxy statement. We believe that an annual advisory vote on executive compensation is consistent with our practice of seeking the views of, and engaging in discussions with, our shareholders on corporate governance matters and our executive compensation philosophy, policies and practices.

You may cast your vote on your preferred voting frequency by choosing the option of one year, two years or three years or you may abstain from voting. Because this vote is advisory, the result will not be binding on the Board in any way, although the Board will consider the outcome of the vote and disclose its decision as to frequency by filing a Current Report on Form 8-K following the 2017 annual meeting of shareholders.

Our Board unanimously recommends that you vote for the option of once every “1 YEAR” as the frequency with which shareholders are provided an advisory vote on executive compensation. Proxies solicited by the Board will be voted for “1 YEAR” unless otherwise instructed.

Item 5
     
 

Company Proposal to Approve the Amended and Restated Equity Incentive Compensation Plan

 
           
 

Our Board unanimously recommends that you vote “FOR” this proposal.

 
       

Upon the recommendation of the CMDS Committee, on March 30, 2017, the Board adopted amendments to our Equity Incentive Compensation Plan (EICP) to increase the number of shares of common stock available to be granted under the EICP by 50 million shares and to extend the term of the EICP for an additional five years, subject to shareholder approval at the annual meeting of shareholders. Approval of this Item 5 will also constitute shareholder approval, as required by Section 162(m) of the Internal Revenue Code, of the performance criteria set forth in the EICP and summarized in “Qualifying Performance Awards” below.

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The EICP was originally approved by shareholders on April 10, 2007 and was last amended in 2016 with approval of approximately 94% of the votes cast to increase the number of shares of common stock available for grant by 20 million shares. The proposed 50 million additional shares, which represents approximately 2.68% of the common shares of the Company outstanding as of January 31, 2017, is expected to allow us to make grants under the EICP for approximately three years.

Morgan Stanley delivers a significant portion of incentive compensation for eligible employees in deferred equity awards (RSUs) that are impacted by future stock price performance over a multi-year period and, for senior executives, performance-vested stock units that only deliver value if the Company meets specific performance targets after three years (LTIP awards). We believe this approach to executive compensation aligns the interests of the Company’s employees with those of its shareholders and is consistent with executive motivation, best practices, and regulatory principles.

The Board believes that the EICP amendments are in the best interest of shareholders and supports this proposal for the following reasons:

In January 2017, approximately 18.9 million shares underlying equity awards were granted as part of the 2016 year-end compensation process and approximately 676,000 shares (representing the target number of performance stock units) were granted as LTIP awards. After these grants, as of January 31, 2017, approximately 52 million shares were available for future equity awards under the EICP and the Company’s legacy equity plans, with only 36.8 million of such shares available under the EICP.

The Company strives to maximize employee and shareholder alignment through the use of deferred equity awards, while minimizing dilution. The Company has evaluated whether to return to shareholders to request approval of additional shares at the 2017 annual meeting of shareholders and has determined to request an additional 50 million shares, which we expect would allow us to make grants under the EICP for approximately three years. The share repurchase program offsets the dilutive impact of these additional shares. Since Morgan Stanley re-initiated the share repurchase program in 2013, the Company has increased share repurchases each year - 12 million, 28 million, 59 million, and 117 million shares from 2013 to 2016, respectively.

If the proposed amendments are not approved, the EICP will expire and 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 amendments are 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.

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 2016 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.

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The EICP expressly prohibits the grant of stock option restoration rights and the repricing of stock options and stock appreciation rights (including any amendment to such awards that has the effect of reducing the exercise price and any cancellation of such awards in exchange for cash or another award) other than an equitable adjustment in connection with a corporate transaction.

Our Board unanimously recommends that you vote “FOR” this proposal. Proxies solicited by the Board will be voted “FOR” this proposal unless otherwise instructed.

SUMMARY OF THE EICP AS PROPOSED TO BE AMENDED AND RESTATED

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 amendments to increase the number of shares available under the EICP and the extension of the term of the EICP by five years, for which we are seeking approval under this Item 5, the EICP terms remain unchanged. The capitalized terms not otherwise defined in this summary shall have the meaning assigned to them in the EICP.

Purposes and Eligibility

The primary purposes of the EICP are to attract, retain and motivate employees, to compensate them for their contributions to our growth and profits and to encourage them to own shares of our common stock to align their interests with those of shareholders. The EICP authorizes the issuance of awards (Awards) to all officers, other employees (including newly hired employees) and consultants of the Company, non-employee directors of our subsidiaries and employees and consultants of joint ventures, partnerships or similar business organizations in which we or one of our subsidiaries has an equity or similar interest (Eligible Individuals). As of January 2017, there were approximately 56,000 Eligible Individuals who were employees of the Company and its subsidiaries.

Administration

The CMDS Committee will administer the EICP, select the Eligible Individuals who receive Awards (Participants) and determine the form and terms of the Awards, including any vesting, exercisability, payment or other restrictions. Subject to certain limitations, the CMDS Committee may delegate some or all of its authority to one or more administrators (e.g., one or more CMDS Committee members or one or more of our officers).

Shares Available Under the EICP

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 373 million (which takes into account the proposed 50 million share increase), of which approximately 286.2 million were already granted as of January 31, 2017, subject to adjustment pursuant to the EICP’s share counting rules as described below and to reflect certain transactions. Shares delivered under the EICP may be either treasury shares or newly issued shares. In addition to the overall limit, the EICP limits the number of shares of common stock that may be subject to stock option and stock appreciation right (SAR) awards in any single year.

Share Counting Rules

When the CMDS Committee grants an Award, the full number of shares subject to the Award is charged against the number of shares that remain available for delivery pursuant to Awards. After grant, the number of shares subject to any portion of an Award that is canceled or that expires without having been settled in shares, or that is settled through the delivery of consideration other than shares, will be available for new Awards. If shares are tendered or withheld to pay the exercise price of an Award or to satisfy a tax withholding obligation, those tendered or withheld shares will be available for new Awards. Awards granted upon assumption of, or in substitution for, outstanding awards previously granted by, or held by employees of, a company or other entity or business acquired (directly or indirectly) by the Company or with which the Company combines are not counted against the number of shares of common stock available for delivery pursuant to Awards and are not subject to the individual limit on stock options and SARs.

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Awards Generally

Form of Awards. The EICP authorizes the following Awards: (i) restricted stock Awards consisting of one or more shares of common stock granted or sold to a Participant; (ii) stock unit Awards settled in one or more shares of common stock or, as authorized by the CMDS Committee, an amount in cash based on the fair market value of shares of common stock; (iii) stock option Awards consisting of the right to purchase at a specified exercise price a number of shares of common stock determined by the CMDS Committee; (iv) SARs consisting of the grant of a right to receive upon exercise of such right, in cash or common stock (or a combination thereof) as determined by the CMDS Committee, an amount equal to the increase in the fair market value of a share of common stock over the specified exercise price; (v) Qualifying Performance Awards to participants covered by Section 162(m), with the intent that such awards qualify as “performance-based compensation” under Section 162(m); and (vi) other forms of equity-based or equity-related Awards that the CMDS Committee determines to be consistent with the purposes of the EICP (Other Awards). Awards under the EICP may, at the discretion of the CMDS Committee, be made in substitution in whole or in part for cash or other compensation payable to an Eligible Individual.

Dividends and Distributions. If we pay any dividend or make any distribution to holders of our common stock, the CMDS Committee may in its discretion authorize payments (which may be in cash, common stock (including restricted stock) or stock units or a combination thereof) with respect to the shares of common stock corresponding to an Award, or may authorize appropriate adjustments to outstanding Awards, to reflect the dividend or distribution. The CMDS Committee may make any such payments subject to vesting, deferral, restrictions on transfer or other conditions. Dividends are not paid on stock options or SARs.


Restricted Stock and Stock Units

Restricted shares awarded or sold to a Participant are outstanding shares of common stock that the CMDS Committee may subject to restrictions on transfer, vesting requirements or cancellation under specified circumstances. Each stock unit awarded to a Participant corresponds to one share of common stock and the CMDS Committee may subject the award to vesting requirements or cancellation under specified circumstances. Upon satisfaction of the terms and conditions of a stock 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.

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.


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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.

Incentive Stock Option (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 may be granted to any individual designated by the CMDS Committee by not later than 90 days following the start of the relevant performance period (or such other time as may be required or permitted by Section 162(m)) as an individual whose compensation for such fiscal year may be subject to the limit on deductible compensation imposed by Section 162(m).

Eligible Participants. Grants of performance-based long-term incentive awards (other than stock options and stock appreciation rights) that are intended to be qualified performance-based awards under Section 162(m) (Qualifying Awards) will be limited to our officers for whom compensation may not otherwise be tax-deductible under Section 162(m). Currently, the Company expects to grant Awards to some or all members of the Company’s Operating Committee. There are currently 16 such 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 return on risk-weighted assets; capital, capital ratios or return on capital; book value or book value per share; operating income (before or after taxes); operating margins or pre-tax margins; stock price or total shareholder return; market share (including market share of revenue); debt reduction or change in rating; cost reductions; regulatory factors; risk management; expense management; or contributions to community development or sustainability projects or initiatives.

The CMDS Committee may provide that, in measuring the achievement of the performance measures, an award may include or exclude items such as unrealized investment gains and losses, extraordinary, unusual or non-recurring items, asset write-downs, effects of accounting changes, currency fluctuations, acquisitions, divestitures, reserve-strengthening, litigation, claims, judgments or settlements, the effect of changes in tax law or other such laws or provisions affecting reported results and other non-operating items, as well as the impact of changes in the fair value of certain of the Company’s long-term and short-term borrowings resulting from fluctuations in the Company’s credit spreads and other factors (commonly referred to as DVA).

The foregoing objectives may be applicable to the Company as a whole, one or more of its subsidiaries, divisions, business units or business lines, or any combination of the foregoing, and may be applied on an absolute basis or be relative to other companies, industries or indices (e.g., stock market indices) or be based upon any combination of the foregoing. In addition to the performance measures, the CMDS Committee may also condition payment of any such award upon the attainment of conditions, such as completion of a period of service, notwithstanding that the performance measure or measures specified in the award are satisfied.


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Individual Award Limits. In any one calendar year, no one participant may be granted Qualifying Awards that allow for payments with an aggregate value determined by the CMDS Committee to be in excess of $10 million. For purposes of calculating this limit, the value of Qualifying Awards that are denominated in shares will be determined by reference to the volume-weighted average price of a share of the Company on the first date of grant of such awards. For purposes of the foregoing, the CMDS Committee will determine the calendar year or years in which amounts under these Qualifying Awards are deemed paid, granted or received.


Other Awards

The CMDS Committee may establish the terms and provisions of other forms of Awards not described above that the CMDS Committee determines to be consistent with the purpose of the EICP and the interests of the Company.

Transferability

Unless otherwise permitted by the CMDS Committee, no Award will be transferable other than by will or by the laws of descent and distribution. During the lifetime of a Participant, an ISO will be exercisable only by the Participant.

Amendment and Termination

The Board or the CMDS Committee may modify, amend, suspend or terminate the EICP in whole or in part at any time and may modify or amend the terms and conditions of any outstanding Award. However, no modification, amendment, suspension or termination may materially adversely affect a Participant’s rights with respect to any Award previously made without that Participant’s consent, except that the CMDS Committee may at any time, without a Participant’s consent, amend or modify the EICP or any Award under the EICP to comply with law, accounting standards, regulatory guidance or other legal requirements. The CMDS Committee may create subplans as may be necessary or advisable to comply with non-U.S. legal or regulatory provisions. Notwithstanding the foregoing, neither the Board nor the CMDS Committee may accelerate the payment or settlement of any Award that constitutes a deferral of compensation for purposes of Section 409A of the Internal Revenue Code except to the extent the acceleration would not result in a Participant incurring interest or additional tax under Section 409A.

Term

No Awards may be made after May 15, 2022.

Section 162(m) of the Internal Revenue Code

Section 162(m) limits the federal income tax deduction for compensation paid to the Chief Executive Officer and the three other most highly compensated executive officers (other than the Chief Financial Officer) of a publicly held corporation to $1 million per fiscal year, with exceptions for certain performance-based compensation. Such performance-based compensation may consist of awards determined by the CMDS Committee under a formula or performance criteria approved by the Company’s shareholders. Our shareholders approved the formula governing annual incentive compensation currently used by the CMDS Committee at our annual meeting on 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).

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 2016 had the proposed amendments to the EICP then been in effect.

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U.S. Federal Income Tax Consequences

The following is a general summary as of the date of this proxy statement of the U.S. federal income tax consequences associated with the EICP. The federal tax laws are complex and subject to change and the tax consequences for any Participant will depend on his or her individual circumstances.

Stock Units. A Participant who receives stock units will be taxed at ordinary income tax rates on the then fair market value of the shares of common stock distributed at the time of settlement of the stock units and a corresponding deduction will be allowable to the Company at that time (subject to Section 162(m)). The Participant’s tax basis in the shares will equal the amount taxed as ordinary income, and on subsequent disposition the Participant will realize long-term or short-term capital gain or loss.

Restricted Stock. A Participant who is awarded restricted stock will not be taxed at the time an Award is granted unless the Participant makes the special election with the Internal Revenue Service pursuant to Section 83(b) of the Internal Revenue Code as discussed below. Upon lapse of the risk of forfeiture or restrictions on transferability applicable to the shares comprising the Award, the Participant will be taxed at ordinary income tax rates on the then fair market value of the shares. The Company is required to withhold tax on the amount of income so recognized, and a deduction corresponding to the amount of income recognized will be allowable to the Company (subject to Section 162(m)). The Participant’s tax basis in the shares will be equal to the ordinary income so recognized. Upon subsequent disposition of the shares, the Participant will realize long-term or short-term capital gain or loss.

Pursuant to Section 83(b) of the Internal Revenue Code, the Participant may elect within 30 days of receipt of the Award to be taxed at ordinary income tax rates on the fair market value of the shares comprising such Award at the time of Award (determined without regard to any restrictions which may lapse) less any amount paid for the shares. In that case, the Participant will acquire a tax basis in the shares equal to the ordinary income recognized by the Participant at the time of Award. No tax will be payable upon the lapse or release of the restrictions or at the time the shares first become transferable, and any gain or loss upon subsequent disposition will be a capital gain or loss. In the event of a forfeiture of shares of common stock with respect to which a Participant previously made a Section 83(b) election, the Participant will generally not be entitled to a loss deduction.

Nonqualified Stock Options. The grant of a nonqualified stock option will not result in the recognition of taxable income by the Participant or in a deduction to the Company. Upon exercise, a Participant will recognize ordinary income in an amount equal to the excess of the fair market value of the shares of common stock purchased over the exercise price, and a tax deduction is allowable to the Company equal to the amount of such income (subject to Section 162(m)). Gain or loss upon a subsequent sale of any shares received upon the exercise of a nonqualified stock option generally would be taxed as either long-term or short-term capital gain or loss, depending upon the holding period of the shares sold. Certain additional rules apply if the exercise price for an option is paid in shares previously owned by the Participant.

ISOs. Upon the grant or exercise of an ISO within the meaning of Section 422 of the Internal Revenue Code, no income will be realized by the Participant for federal income tax purposes and the Company will not be entitled to any deduction. However, the excess of the fair market value of the shares of common stock as of the date of exercise over the exercise price will constitute an adjustment to taxable income for purposes of the alternative minimum tax. If the shares are not disposed of within the one-year period beginning on the date of the transfer of such shares to the Participant or within the two-year period beginning on the date of grant of the stock option, any profit realized by the Participant upon the disposition of such shares will be taxed as long-term capital gain and no deduction will be allowed to the Company. If the shares are disposed of within the one-year period from the date of transfer of such shares to the Participant or within the two-year period from the date of grant of the stock option, the excess of the fair market value of the shares on the date of exercise or, if less, the fair market value on the date of disposition, over the exercise price will be taxable as ordinary income to the Participant at the time of disposition, and a corresponding deduction will be allowable to the Company. Certain additional rules apply if the exercise price for a stock option is paid in shares previously owned by the Participant.

SARs. The grant of SARs will not result in the recognition of taxable income by the Participant or in a deduction to the Company. Upon exercise, a Participant will recognize ordinary income in an amount equal to the then fair market value of the shares of common stock or cash distributed to the Participant. The Company is entitled to a tax deduction equal

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to the amount of such income (subject to Section 162(m)). Gain or loss upon a subsequent sale of any shares received upon the exercise of SARs generally would be taxed as long-term or short-term capital gain or loss, depending upon the holding period of the shares sold.

EQUITY COMPENSATION PLAN INFORMATION

The following table provides information about outstanding awards and shares of common stock available for future awards under all of Morgan Stanley’s equity compensation plans as of December 31, 2016. Morgan Stanley has not made any grants of common stock outside of its equity compensation plans.

The following information is intended to update and supplement the table and, we believe, is useful for a better understanding of “Item 5 – Company Proposal to Approve the Amended and Restated Equity Incentive Compensation Plan.”

As of January 31, 2017, (i) the number of shares available for grant under the Company’s plans that can be used for the purpose of granting employee equity awards was approximately 52 million, with only 36.8 million of such shares available under the EICP; (ii) the number of outstanding full value awards (including restricted stock units and performance stock units at target) was approximately 103.3 million; (iii) the number of outstanding stock options was approximately 1.36 million; (iv) the weighted average exercise price of outstanding stock options was $29.5538; and (v) the weighted average remaining life of outstanding stock options was 0.9 years.


  (a) (b) (c)
Plan Category       Number of securities
to be issued
upon exercise of
outstanding options,
warrants and rights
(#)(1)
      Weighted-average
exercise price of
outstanding options,
warrants and rights
($)(2)
      Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding securities
reflected in column (a))
(#)
Equity compensation plans approved
by security holders
109,165,449 28.2027 103,318,109 (3)
Equity compensation plans not approved
by security holders
201,833 (4)
Total 109,367,282 28.2027 103,318,109 (5)

(1) Includes outstanding stock option, restricted stock unit and performance stock unit awards. The number of outstanding performance stock unit awards is based on the target number of units granted to senior executives.
(2) Reflects the weighted-average exercise price with respect to outstanding stock options and does not take into account outstanding restricted stock units and performance stock units, which do not provide for an exercise price.
(3) Includes the following:
(a) 39,182,870 shares available under the Morgan Stanley Employee Stock Purchase Plan (ESPP). Pursuant to this plan, which is qualified under Section 423 of the Internal Revenue Code, eligible employees were permitted to purchase shares of common stock at a discount to market price through regular payroll deduction. The CMDS Committee approved the discontinuation of the ESPP, effective June 1, 2009, such that no further contributions to the plan will be permitted following such date, until such time as the CMDS Committee determines to recommence contributions under the plan.
(b) 48,736,382 shares available under the EICP (without taking into account the proposed amendment to the EICP). Awards may consist of stock options, stock appreciation rights, restricted stock, restricted stock units to be settled by the delivery of shares of common stock (or the value thereof), performance-based units, other awards that are valued by reference to or otherwise based on the fair market value of common stock, and other equity-based or equity-related awards approved by the CMDS Committee.
(c) 14,809,789 shares available under the Employee Equity Accumulation Plan (EEAP), which includes 733,757 shares available for awards of restricted stock and restricted stock units. Awards may consist of stock options, stock appreciation rights, restricted stock, restricted stock units to be settled by the delivery of shares of common stock (or the value thereof), other awards that are valued by reference to or otherwise based on the fair market value of common stock, and other equity-based or equity-related awards approved by the CMDS Committee.
(d) 355,243 shares available under the Tax Deferred Equity Participation Plan (TDEPP). Awards consist of restricted stock units, which are settled by the delivery of shares of common stock.
(e) 233,825 shares available under DECAP. This plan provides for periodic awards of shares of common stock and stock units to non-employee directors and also allows non-employee directors to defer the cash fees they earn for services as a director in the form of stock units.

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(4) As of December 31, 2016, no shares remained available for future issuance under the Morgan Stanley 2009 Replacement Equity Incentive Compensation Plan for Morgan Stanley Smith Barney Employees (REICP), which was terminated effective December 31, 2012. However, awards remained outstanding under the REICP as of December 31, 2016. The REICP was adopted in connection with the Morgan Stanley Wealth Management joint venture and without stockholder approval pursuant to the employment inducement award exception under the NYSE Corporate Governance Listing Standards. The equity awards granted pursuant to the REICP were limited to awards to induce certain Citigroup Inc. employees to join the new Morgan Stanley Wealth Management joint venture by replacing the value of Citigroup awards that were forfeited in connection with the employees’ transfer of employment to Wealth Management. Awards under the REICP were authorized in the form of restricted stock units, stock appreciation rights, stock options and restricted stock and other forms of stock-based awards.
The foregoing description does not purport to be complete and is qualified in its entirety by reference to the REICP plan document which, along with all plans under which awards were available for grant in 2016, is included as an exhibit to the 2016 Form 10-K.
(5) As of December 31, 2016, 63,901,414 shares were available under the Company’s plans that could be used for the purpose of granting employee equity awards (EICP, EEAP and TDEPP). In January 2017, approximately 18.9 million stock units were granted as part of 2016 employee incentive compensation and approximately 676,000 performance stock units (representing the target number of units) were granted as 2017 LTIP awards.

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Item 6
     
 

Company Proposal to Approve the Amended and Restated Directors’ Equity Capital Accumulation Plan

 
           
 

Our Board unanimously recommends that you vote “FOR” this proposal.

 
       

On March 30, 2017, the Board adopted an amendment to the Directors’ Equity Capital Accumulation Plan (DECAP) to increase the number of shares of common stock available to be granted under DECAP by 1,000,000 shares, subject to shareholder approval at the annual meeting of shareholders. This represents approximately 0.05% of the common shares of the Company outstanding as of January 31, 2017. Under NYSE rules, this amendment will not be effective if our shareholders do not approve it. If the amendment to DECAP is approved, the Company expects to have sufficient shares for grants made over the next five years.

The DECAP was initially approved by shareholders on April 19, 1996, and was last amended to increase the number of shares of common stock available for grant in 2012 by 750,000 shares.

The Board believes that the DECAP amendment is in the best interests of shareholders and supports this proposal for the following reasons:

The purpose of DECAP is to promote the long-term growth and financial success of the Company by attracting, motivating and retaining non-employee directors of outstanding ability and to more closely align the interests of the non-employee directors with those of Company shareholders.

DECAP is a plan in which only non-employee directors are eligible to participate, and the plan includes a fixed dollar value for equity awards that may be granted to non-employee directors such that the Board does not have discretion in determining the amount of equity awards that may be granted to our directors under the plan.

Our non-employee directors receive a vast majority of their compensation in the form of annual equity awards under DECAP, all of which are subject to pro-rata vesting over the one-year period following grant and half of which are not payable until the director retires from the Board.

In 2016, our director compensation program was reviewed by FW Cook, an independent compensation consultant, and based upon such review, the Board amended DECAP to include an aggregate limit of $750,000 on annual non-employee director compensation and amended our Corporate Governance Policies to introduce a non-employee director equity ownership requirement of five times the annual cash Board retainer, in line with best corporate governance practices.

The objective of the amendment is to continue to promote the purpose of DECAP by preserving our ability to grant equity awards to non-employee directors under DECAP. This amendment will not change any of the benefits or awards available to non-employee directors under DECAP

Our Board unanimously recommends that you vote “FOR” this proposal. Proxies solicited by the Board will be voted “FOR” this proposal unless otherwise instructed.

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SUMMARY OF THE DECAP AS PROPOSED TO BE AMENDED AND RESTATED

A copy of DECAP as proposed to be amended and restated is attached to this proxy statement as Annex B and the following summary is qualified in its entirety by reference thereto. Other than the amendment to the number of shares available under DECAP for which we are seeking shareholder approval, the terms of DECAP remain unchanged. The capitalized terms not otherwise defined in this summary shall have the meaning assigned to them in DECAP.

Purposes, Eligibility and Limitation on Director Compensation

The purpose of DECAP is to promote the long-term growth and financial success of the Company by attracting, motivating and retaining non-employee directors of outstanding ability and assisting the Company in promoting a greater identity of interest between the Company’s non-employee directors and its stockholders. Only non-employee directors may participate in DECAP. Currently, there are 12 non-employee directors eligible to participate in DECAP. Employee directors are not eligible to participate in DECAP. If all of the director nominees are elected at the 2017 annual meeting of shareholders, there will be 11 non-employee directors eligible to participate in DECAP.

The aggregate dollar value of initial and annual equity awards granted and retainers paid to any non-employee director for any annual service period will not exceed $750,000.

Administration

DECAP is administered by the Board through its Nominating and Governance Committee.

Shares Available Under the DECAP

As of January 31, 2017, and without taking into account the proposed amendment to the plan, approximately 233,825 shares remained available for issuance under DECAP (subject to adjustment in accordance with DECAP). The Board approved an amendment to increase the shares reserved under DECAP to ensure that the Company will be able to continue awarding Stock Units to non-employee directors as provided under DECAP. If the amendment is approved by shareholders, the additional 1,000,000 shares will be available for issuance under DECAP. If the amendment is not approved by shareholders, the Company will not be able to continue awarding Stock Units to non-employee directors under DECAP once the remaining shares have been used.

Terms of Awards

Terms of Initial and Annual Equity Awards

Under DECAP, non-employee 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 next annual meeting of shareholders and are not elected at an annual meeting of shareholders) and an annual equity award thereafter granted on the date of the annual meeting of shareholders. The number of Stock Units granted pursuant to initial and annual equity awards is determined by dividing the dollar amount of the applicable award by the volume-weighted average price of a share of Company common stock on the grant date. Non-employee directors receive dividend equivalents on Stock Units that are paid in the form of additional Stock Units.

Initial Equity Awards. The dollar value of the initial equity award is currently $250,000, prorated for the months of service between the month the director is initially elected to the Board and the next annual meeting of shareholders. The initial equity award is granted in Stock Units on the first day of the calendar month following the month in which the non-employee director becomes a member of the Board. The number of Stock Units comprising the initial equity award is determined based on the volume-weighted average price of a share of Company common stock on the grant date. Initial equity awards are fully vested upon grant.

Annual Equity Awards. The dollar value of the annual equity award, which is granted in Stock Units each year on the date of such year’s annual meeting of shareholders, is currently $250,000. The number of Stock Units comprising the annual equity award is determined based on the volume-weighted average price of a share of Company common stock on the grant date. Annual equity awards are subject to monthly vesting until the one-year anniversary of the grant date, provided that all of the director’s unvested Stock Units will fully vest upon the director’s termination of service from the Board due to death, Disability or a Governmental Service Resignation.

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Distribution and Deferral of Equity Awards

Initial and annual equity awards are granted 50% in the form of Stock Units that do not become payable until the non-employee director retires from the Board (Career Units) and 50% in the form of Stock Units payable on the first anniversary of grant (Current Units). Subject to certain limitations, non-employee directors may elect to extend deferral of Career Units beyond retirement from the Board and to defer receipt of the shares underlying Current Units beyond the anniversary of grant. Non-employee directors may choose the form of distribution (lump sum or annual installments) of their Stock Units.

Terms of Cash Awards

As described more fully in “Director Compensation,” each non-employee director receives an annual cash retainer for Board service as well as additional cash retainers for acting as a lead director, a committee chair or a committee member of each of the Audit, CMDS, Nominating & Governance, Operations and Technology and Risk committees, as applicable. Non-employee directors can elect to receive all or a portion of their cash retainers on a current basis in cash or in shares of Morgan Stanley common stock or on a deferred basis in Stock Units, which are granted under DECAP. These Stock Units are granted on the date the cash retainer would have otherwise been paid, with the number of such Stock Units granted determined based on the amount of the cash retainer that is deferred and the volume-weighted average price of a share of Company common stock on the date of grant. Subject to certain limitations, non-employee directors may choose the distribution date and the form of distribution (lump sum or annual installments) of their Stock Units.

Terms of Option Awards

Prior to February 8, 2005, non-employee directors were awarded nonqualified stock options (Options) annually under DECAP. Each Option was granted with an exercise price equal to the fair market value of Company stock on the grant date. Options were vested upon grant and scheduled to expire 10 years after the grant date. If a director’s service terminates by reason of Disability, Normal Retirement or death, each Option held by such director remains exercisable until the original expiration date. If a director’s service terminates for any other reason (except for Cause), each Option held by such director remains exercisable until the earlier of 90 days after the termination date and the expiration date of the Option. If a director is terminated for Cause, all Options will be forfeited and will no longer be exercisable. As of February 8, 2005, Options were no longer awarded under DECAP.

Limitations on Transfer

Awards granted under DECAP generally may not be sold, transferred, pledged, assigned or otherwise conveyed by non-employee directors. The non-employee directors have no rights as a stockholder of the Company by reason of any Stock Unit or Option until stock underlying such award has been issued to such director.

Amendment and Termination

The Board or the Nominating and Governance Committee may suspend or terminate DECAP at any time, in whole or in part, provided that no such suspension or termination may adversely affect the rights of the non-employee directors with respect to outstanding awards. The Board or the Nominating and Governance Committee may also amend and modify DECAP; provided, however, that no such amendment or modification may materially impair a non-employee director’s rights in any outstanding award without his or her consent.

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 DECAP. 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.

Non-employee directors will realize taxable income, and the Company will be entitled to a tax deduction when the shares underlying the Stock Units are delivered to the non-employee director. The amount of taxable income realized will be equal to the fair market value of the shares on the date the underlying shares are scheduled to be delivered to the non-employee director. Generally a director does not recognize taxable income, and the Company is not entitled to a deduction, upon the grant of an Option. Upon the exercise of an Option, the director recognizes ordinary income equal to the excess of the fair

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OTHER COMPANY PROPOSALS

market value of the shares of common stock acquired over the Option exercise price and the Company is generally entitled to a deduction equal to the compensation taxable to the director as ordinary income. The amount of such excess is generally determined by reference to the fair market value of our common stock on the date of exercise. Although compensation income is normally subject to federal income, Social Security and employment tax withholding, such withholding is generally not required for directors participating in DECAP since they are not employees of the Company or an affiliate.

Amended Plan Benefits

The following table sets forth the dollar value of the Stock Units that will be awarded to the eligible non-employee directors under DECAP in 2017. The amounts set forth in the table below do not reflect cash retainers payable for the 2017 service period beginning on the date of the 2017 annual meeting of shareholders that may be voluntarily deferred by the non-employee directors into Stock Units pursuant to the terms of DECAP, as such information is not yet determinable. Further, future awards under DECAP beyond 2017 are not determinable at this time.

Non-Employee Director Group       Dollar Value ($)       Number of Units
Stock Units   2,972,000 (1)                — (2)

(1) If all of the director nominees are elected to the Board at the 2017 annual meeting of shareholders, 11 non-employee directors would be eligible to receive an annual equity award (with an initial dollar value of $250,000) granted in the form of Stock Units on the date of the 2017 annual meeting of shareholders. The dollar amount reported in the table also includes the initial value of the Stock Units that will be granted on the date of the 2017 annual meeting of shareholders to the 4 eligible non-employee directors who voluntarily deferred the second 50% of the cash retainers they earned for the 2016 service period (that began on the date of the 2016 annual meeting of shareholders) into Stock Units.
(2) The number of Stock Units that will be awarded to the 11 eligible non-employee directors under DECAP in 2017 is not yet determinable. Under DECAP, the actual number of Stock Units that will be granted to the non-employee directors pursuant to the equity awards described above will be determined by dividing the dollar amount of the applicable award by the volume-weighted average price of a share of Company common stock on the grant date (the date of the 2017 annual meeting of shareholders).

Equity Compensation Plan Information

See “Item 5 — Company Proposal to Approve the Amended and Restated Equity Incentive Compensation Plan” for information about outstanding stock options, restricted stock units and performance stock units, and shares of common stock available for future awards under all of Morgan Stanley’s equity compensation plans (including DECAP) as of December 31, 2016.

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SHAREHOLDER PROPOSALS

The Company sets forth below two shareholder proposals and the proponents’ supporting statements. The Board and the Company accept no responsibility for the text of these proposals and supporting statements. The Board recommends that you vote against each of the two shareholder proposals. A proposal may be voted on at the annual meeting only if properly presented by the shareholder proponent or the proponent’s qualified representative.

Item 7
     
 

Shareholder Proposal Regarding a Change in the Treatment of Abstentions for Purposes of Vote Counting

 
           
 

Our Board unanimously recommends that you vote “AGAINST” this proposal.

 
       

Investor Voice, SPC – 111 Queen Anne Ave N, Suite 500, Seattle, Washington 98109, on behalf of Equality Network Foundation, the beneficial owner of 86 shares of common stock, has notified the Company that they intend to present the following proposal and related supporting statement at the annual meeting.

RESOLVED: Morgan Stanley shareholders ask the Board to take or initiate steps to amend Company governing documents to provide that all non-binding matters presented by shareholders shall be decided by a simple majority of the votes cast FOR and AGAINST an item. This policy would apply to all such matters unless shareholders have approved higher thresholds, or applicable laws or stock exchange regulations dictate otherwise.

SUPPORTING STATEMENT:

This proposal encourages greater transparency, clarity, and understanding around how informed stockholders vote on shareholder proposals

A democratic “simple majority” formula includes votes cast FOR and AGAINST but ignores abstentions. It provides the most clear and accurate picture of the intent of shareowners who are both informed and decided, while not including in the formula the votes of abstaining voters who, by definition, have chosen not to express an opinion.

When abstaining voters choose to not express an opinion and mark ABSTAIN (whether they are confused, disinterested, agnostic, or lack time to become fully informed), it is apparent that their votes should be regarded as neither FOR nor AGAINST an item.

Counter to this, Morgan Stanley unilaterally counts ABSTAIN votes as if AGAINST every shareholder sponsored item. ‘Notice’ of this policy choice is buried on page 87 of the 88-page 2016 proxy.

Is it reasonable for Morgan Stanley to assert it knows the will of undecided voters (and to artificially construe abstentions in favor of management)?


Morgan Stanley has implied it must use the Delaware “default standard”, when in fact this nominal ‘standard’ is what Delaware assigns to companies that do not proactively choose “simple majority” voting.

Research has demonstrated that the so-called “default standard” systematically disadvantages the shareholders of American companies [http://www.investorvoice.net/wp-content/uploads/2015/07/Vote-Counting_Article_Corporate-Secretary-magazine_2015-0318.pdf].

How does it do this?

By depressing the appearance of support for shareholder concerns.

 

The math is simple: When abstaining shareholders elect to not express an opinion, but then are treated as if having voted AGAINST a proposal, management benefits. This is because shareholder proposals normally appear in proxies only when management disagrees with the proposal or would rather avoid the subject.


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By subverting vote outcomes.

Historically, these practices have allowed management teams to describe numerous true majority votes on shareholder items as, instead, having ‘failed’.

By distorting communication.

 

Annual meeting votes offer the sole opportunity for most shareholders to communicate with Boards. Counting abstentions as de facto votes AGAINST shareholder proposals, management changes how outcomes are reported and how the public perceives support for shareholder concerns.


In contrast, we note that Morgan Stanley’s Director Election (where management benefits from the appearance of strong support), does not count abstentions. Thus, management items and shareholder items do not receive equal treatment; though the Company has complete discretion to cure such inconsistencies in its voting policies.

To avert discrepancies such as this, the Council of Institutional Investors states: “...abstentions should be counted only for purposes of a quorum.”

THEREFORE:     

Support accuracy, fairness, and good governance at Morgan Stanley by voting FOR simple majority vote-counting on shareholder-sponsored proposals.


STATEMENT OF THE BOARD RECOMMENDING A VOTE AGAINST THIS PROPOSAL

The Board believes that this proposal is not in the best interest of Morgan Stanley or its shareholders and opposes this proposal for the reasons discussed below:

We clearly explain our vote counting standards in this proxy statement.

We are committed to the highest standards of integrity and the best interests of our shareholders by ensuring consistency, fairness and transparency in the application of our vote counting standard.

At this year’s annual meeting, our shareholders are asked to vote on both Company-sponsored proposals, such as say on pay and approval of the amended and restated Equity Incentive Compensation Plan, and shareholder proposals, including this proposal.

As clearly disclosed in a table format under the heading “What Vote Is Required and How Will My Votes Be Counted?” herein, abstentions will be counted and will have the same effect as a vote “against” for both Company-sponsored proposals and shareholder proposals.

We also clearly disclose that, consistent with Delaware law and many Fortune 500 companies, we have adopted a majority vote policy standard for director elections that applies equally to candidates that have been nominated by the Company or a shareholder. Abstentions have no effect in our director elections, which we believe is consistent with best corporate governance.

Accordingly, we believe that our shareholders recognize the impact of their “abstain” vote.

We believe our voting methodology honors the intent of our shareholders and our shareholders supported our vote methodology at last year’s annual meeting of shareholders.

Our voting methodology honors the intent of our shareholders who consciously “abstain” and expect their abstentions to be included in the vote tabulation in the manner that is described in our proxy statement. Moreover, in some instances, shareholder groups/institutions may publish proxy voting guidelines that call for an “abstain” vote under specified circumstances. We do not believe it is in the best interest of our shareholders or effective corporate governance to disregard these views.

The Board believes that as a matter of good governance, for matters other than the election of directors, a proposal should receive more “for” votes than the sum of “against” and “abstain” votes in order to constitute shareholder approval.

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SHAREHOLDER PROPOSALS

Further, the Board carefully considers any matter that receives, and engages with shareholders on any matter that has, significant support from shareholders.

A similar vote counting proposal was submitted to our shareholders for vote at our 2016 annual meeting of shareholders and received minimal shareholder support (approximately 6% calculated under both the proponent’s proposed vote counting methodology and our current methodology).

Our voting standard is consistent with the treatment of abstentions under Delaware law.

We are incorporated in Delaware and our bylaws follow the general default voting standard under Delaware law and we believe that a majority of Delaware corporations in the S&P 500 adhere to this voting standard.

Our Board unanimously recommends that you vote “AGAINST” this proposal. Proxies solicited by the Board will be voted “AGAINST” this proposal unless otherwise instructed.

Item 8
     
 

Shareholder Proposal Regarding a Policy to Prohibit Vesting of Deferred Equity Awards for Senior Executives Who Resign to Enter Government Service

 
           
 

Our Board unanimously recommends that you vote “AGAINST” this proposal.

 
       

The Reserve Fund of the American Federation of Labor and Congress of Industrial Organizations, 815 Sixteenth Street, N.W., Washington, D.C. 20006, beneficial owner of 869 shares of common stock, has notified the Company that it intends to present the following proposal and related supporting statement at the annual meeting.

RESOLVED: Shareholders of Morgan Stanley (the "Company") request that the Board of Directors adopt a policy prohibiting the vesting of equity-based awards for senior executives due to a voluntary resignation to enter government service (a "Government Service Golden Parachute").

For purposes of this resolution, "equity-based awards" include stock options, restricted stock and other stock awards granted under an equity incentive plan. "Government service" includes employment with any U.S. federal, state or local government, any supranational or international organization, any self-regulatory organization, or any agency or instrumentality of any such government or organization, or any electoral campaign for public office.

This policy shall be implemented so as not to violate existing contractual obligations or the terms of any compensation or benefit plan currently in existence on the date this proposal is adopted, and it shall apply only to equity awards or plan amendments that shareholders approve after the date of the 2017 annual meeting.

SUPPORTING STATEMENT:

Our Company provides its senior executives with vesting of equity awards after their voluntary resignation of employment from the Company to pursue a career in government service. In other words, our Company gives a "golden parachute" for entering government service. For example, Company Chairman and CEO James Gorman was entitled to $11.4 million in unvested equity awards if he had a government service termination on December 31, 2015.

At most companies, equity-based awards vest over a period of time to compensate executives for their labor during the commensurate period. If an executive voluntarily resigns before the vesting criteria are satisfied, unvested awards are usually forfeited. While government service is commendable, we question the practice of our Company providing accelerated vesting of equity-based awards to executives who voluntarily resign to enter government service.

The vesting of equity-based awards over a period of time is a powerful tool for companies to attract and retain talented employees. But contrary to this goal, our Company's equity incentive compensation plan's award certificates contain a "Governmental Service Termination" clause that provides for the vesting of equity awards for executives who voluntarily resign to pursue a government service career (subject to certain conditions).

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SHAREHOLDER PROPOSALS

Last year in its opposition statement to this resolution, the Company stated its desire to promote "equitable treatment of employees seeking public sector employment" because private sector employees "often have their unvested awards granted in respect of service in prior years 'bought out' by their new employer." In our view, it is simply not appropriate for our Company's employees who choose to enter government service to be "bought out."

We believe that compensation plans should align the interests of senior executives with the long-term interests of the Company. We oppose compensation plans that provide windfalls to executives that are unrelated to their performance. For these reasons, we question how our Company benefits from providing Government Service Golden Parachutes. Surely our Company does not expect to receive favorable treatment from its former executives?

STATEMENT OF THE BOARD RECOMMENDING A VOTE AGAINST THIS PROPOSAL

The Board believes that this proposal is not in the best interest of Morgan Stanley or its shareholders and opposes this proposal for the reasons discussed below:

Our Governmental Service Termination clause serves to avoid conflicts of interest and is administered in a way that protects the interests of the Company and its shareholders.

Our Governmental Service Termination clause applies equally to all Morgan Stanley employees who receive deferred incentive compensation awards, not just to senior executives.

The clause permits the vesting of an employee’s deferred incentive compensation awards granted in respect of service in prior years. In the case of performance-based RSUs, which are granted under the Company’s long-term incentive program for senior executives, only a pro rata portion of the award earned based on pre-established objective performance measures will vest, and the remainder of the award will be cancelled.

All awards vested under the Governmental Service Termination clause are subject to clawback if the employee triggers a cancellation event, which includes competitive activity.

The clause serves to avoid conflicts of interest by only applying where an employee is required by his or her new government employer to divest Morgan Stanley award holdings to avoid such a conflict.

To receive Governmental Service Termination treatment, an employee must (i) provide the Company with satisfactory proof of a conflict of interest that necessitates divestiture of his or her awards and (ii) sign an agreement to repay the awards if he or she triggers a cancellation event under the original award terms, which includes competitive activity.


Our Governmental Service Termination clause reinforces Morgan Stanley’s culture of public service and aligns the interests of our employees with the long-term interests of the Company and its shareholders in attracting and retaining talented employees.

Morgan Stanley has a strong culture of public service and is committed to providing skills and resources to create a lasting civic impact. Our employees may be uniquely positioned to contribute meaningfully through governmental service. The Governmental Service Termination clause avoids penalizing those highly qualified employees, at any level in the Company, who desire to leave the private sector to pursue governmental service.

The Governmental Service Termination clause helps maintain strong employee relations and avoids a potential perception of unfairness. Employees who leave to work in the private sector are often awarded inducement and replacement awards by their new employer, and as a consequence do not face economic penalty due to cancellation of their unvested awards granted in respect of service in prior years. The clause promotes equitable treatment of employees seeking public service employment and removes a financial impediment to public service. We do not think it is appropriate to penalize employees who leave to enter public service.

The Governmental Service Termination clause is consistent with our compensation philosophy, including the need to remain competitive in recruiting and retaining talent. We believe that this clause enhances our ability to attract key employees and avoids penalizing those who may wish to enter or return to governmental service after leaving Morgan Stanley.


Our Board unanimously recommends that you vote “AGAINST” this proposal. Proxies solicited by the Board will be voted “AGAINST” this proposal unless otherwise instructed.

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INFORMATION ABOUT THE ANNUAL MEETING

QUESTIONS AND ANSWERS

Why Did I Receive a One-Page Notice Regarding the Internet Availability of Proxy Materials?

Pursuant to SEC rules, we are mailing to certain of our shareholders a Notice about the availability of proxy materials on the Internet instead of paper copies of the proxy materials. This process allows us to expedite our shareholders’ receipt of proxy materials, lower the costs of distribution and reduce the environmental impact of our annual meeting. All shareholders receiving the Notice will have the ability to access the proxy materials and submit a proxy over the Internet. It is important that you submit your proxy to have your shares voted. Instructions on how to access the proxy materials over the Internet or to request a paper copy of the proxy materials may be found in the Notice. The Notice is not a proxy card and cannot be returned to submit your vote. You must follow the instructions on the Notice to submit your proxy to have your shares voted.

How Do I Attend the Annual Meeting?

Only record or beneficial owners of Morgan Stanley’s common stock as of the record date, the close of business on March 27, 2017, or a valid proxy or representative of such shareholder, may attend the annual meeting in person if they comply with the admission requirements below. Guests of shareholders will not be admitted to the annual meeting. If you do not comply with the requirements set forth below, you will not be admitted to the meeting.