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Morgan Stanley delivered record financial performance in 2021 with strong growth across its businesses and geographies. Fiscal stimulus and the reopening of many parts of the global economy led to robust economic growth and a favorable market environment in 2021. Amidst this backdrop, and with a strong focus on our clients, we delivered record financial results — our fourth consecutive year of earnings growth. For the full year, we reported record revenues of $59.8 billion and record net income of $15.0 billion, producing a return on average tangible common equity (ROTCE) of 19.8%.

The Firm’s performance in 2021 exceeded our expectations. As a result, we were able to achieve all of the two-year objectives that we had set out for ourselves at the beginning of the year. We have built a sustainable business model with both scale and momentum, and our diversified global franchise is well positioned for long-term success. Our strong brand and franchise are generating tangible results as we collaborate across our segments with a coordinated, client-focused approach.

The acquisitions of E*TRADE and Eaton Vance have advanced our growth strategy, capping a 12-year transformation of Morgan Stanley into a more balanced company, producing higher returns, and pivoting to long-term, sustainable growth. Our total revenues have more than doubled since 2009 with each business having grown significantly and contributing to the Firm’s enhanced profitability. We have built unique competitive advantages around each of our businesses and we expect to grow and maintain our leading positions.

In Institutional Securities, our competitive position is strong, and we are confident in our ability to capitalize on opportunities to hold, if not gain, share across the division. Share continues to aggregate to the industry leaders, and we expect this trend to persist. Our businesses are interconnected and integrated, delivering the entire Firm to all of our clients.

Our Wealth and Investment Management businesses together held $6.5 trillion in client assets at the end of 2021. We have significant scale advantages in these businesses, and they will benefit substantially as rates rise over the next several years. Our longer-term goal is to grow these assets to $10 trillion. The earnings power underlining these businesses will serve as an economic engine for the Firm for decades to come.

We have meaningfully and with intent transformed our business model over the past 12 years, and are laser focused on delivering value to our clients, shareholders, and employees. We have scale, significant growth opportunities in Wealth and Investment Management coupled with a leading Institutional business, strong brands that expand our footprint, and a commitment to capital return. While it is difficult to predict the economic environment in the short term, we believe unambiguously that Morgan Stanley is in its growth phase.

Our future growth and success will be guided by the depth of talent and leadership that exists across our Firm. It is our employees who will drive our business growth and sustain our culture. I am confident that our senior management team is strong and experienced. They are all long-term culture carriers with proven leadership, who will continue to build on our momentum. We also have a deep bench of talent within both the business and infrastructure sides of the Firm, and we are committed to investing in them and their success.

Building an increasingly diverse workforce remains central to our values, and we are continuing to take steps to ensure that our employees reflect the demographics of the communities in which we live and work. With the recent acquisitions of E*TRADE and Eaton Vance, we have welcomed thousands of employees to the Morgan Stanley franchise. As we continue to integrate these great organizations within our businesses, we remain committed to creating a diverse and equitable work environment where all employees can reach their highest potential and feel a sense of belonging.

Our Board of Directors 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, corporate governance, human capital management and environmental and social goals. At the annual meeting, Nobuyuki Hirano will step down from our Board and we are nominating Masato Miyachi to replace him as an MUFG director representative. I would like to thank Mr. Hirano for his many years of extraordinary service stretching back to the founding of our unique, more than decade-long strategic partnership with MUFG. I know we will benefit from Mr. Miyachi’s years of corporate and investment banking experience. Elizabeth Corley is also stepping down from the Board. She most recently served on the Nominating and Governance Committee, and I would like to thank Ms. Corley for her contributions to the Board.

I hope you will read my Letter to Shareholders where I discuss our achievements and opportunities for the future in greater detail. I look forward to hearing from you at the annual meeting next month. Please continue to stay healthy.

Thank you for your support of Morgan Stanley.

Very truly yours,

 

JAMES P. GORMAN

* See the “Explanatory Notes” of the Compensation Discussion and Analysis, which provide additional information regarding the metrics referenced and non-GAAP measures.

 

1585 Broadway

New York, NY 10036

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.”

 

As in prior years, the CMDS Committee used a well-defined framework to determine CEO compensation for 2021, including establishing a target compensation range for the CEO and guidelines for the CEO performance assessment, including performance priorities based on the Company’s strategic objectives.

Based on an evaluation of CEO performance and record Company financial performance in 2021, including meeting or exceeding its two-year objectives, and executing on the next phase of transformational growth and shareholder value, the CMDS Committee set CEO total compensation at $35 million, with shareholder-aligned features.

Under Mr. Gorman’s leadership, for 2021:

Consistent with previous years’ compensation and shareholder feedback over the years, 75% of Mr. Gorman’s incentive compensation is deferred over three years and is subject to cancellation, and 100% of Mr. Gorman’s deferred incentive compensation is delivered in the form of equity awards, aligning his compensation with shareholders’ interests. For 2021, the portion of Mr. Gorman’s incentive compensation delivered in performance-vested equity was increased from 50% to 60%. In addition, the CMDS Committee increased the MS Average ROTCE threshold of the 2022–2024 performance-vested equity awards from 15% to 16% in order to earn a maximum payout of 1.5 times this portion of the award, reflecting the transformative changes to the business last year.

 

Under Mr. Gorman’s leadership, our business model performed and achieved record results. The Company achieved record financial performance in terms of revenues, profits before tax and earnings per share. Company net revenues were $59.8 billion with net income applicable to Morgan Stanley of $15.0 billion, and earnings per share were $8.03.

 

 

In addition, the Company continued to execute on growth objectives. Institutional Securities continued to increase its wallet share, Wealth Management had leading businesses in each of its channels with $438 billion of net new assets and Investment Management reported record assets under management of $1.6 trillion.

In making progress on the Company’s long-term strategic objectives to provide a sustainable business model with growth momentum, the Company also met or exceeded its two-year objectives for ROTCE, efficiency ratio and Wealth Management Pre-Tax Margin, in each case excluding integration costs.

The Company also continued to increase returns to shareholders. The annualized dividend was doubled in 2021 to $2.80, while the Company repurchased $11 billion in shares. The Company continues to maintain excess capital that positions it well for future growth.

The 2021 pay decision for the CEO was made by the CMDS Committee, in consultation with the Board, following its assessment of Mr. Gorman’s outstanding individual performance and record Company financial performance, including meeting or exceeding its two-year objectives announced in January 2021, and executing on the next phase of transformational growth and shareholder value. Company and CEO performance in 2021 were strong, and the CMDS Committee determined that a 2021 pay decision for Mr. Gorman of $35 million, up from $33 million in 2020, was appropriate.

 

CEO compensation was delivered in a combination of base salary, cash bonus, a time-vested deferred equity incentive compensation award, and a performance-vested equity incentive compensation award. A significant portion of CEO pay is deferred, all of which is awarded in equity, subject to future stock price performance, cancellation and clawback and, in the case of the performance-vested equity award, subject to future achievement of specified financial goals over a three-year period. The CMDS Committee believes this approach to executive compensation supports the Company’s pay for performance philosophy and key compensation objectives, and is consistent with shareholder feedback, best practices and regulatory principles.

At our 2021 annual meeting of shareholders, approximately 96% of the votes cast were in favor of our annual “Say on Pay” proposal. In anticipation of the 2022 “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 praised the quality of the Company’s disclosure and reported that the Committee’s use of discretion in the administration of the program is reasonable and that executive compensation at Morgan Stanley is viewed as well-aligned with performance.

After carefully considering shareholder feedback and other factors, the CMDS Committee maintained its performance-based approach to executive compensation for 2021 and increased the proportion of incentive compensation granted to the CEO in the form of performance-vested stock unit awards from 50% to 60%. In addition, as discussed in Section 4.2 of the CD&A, the CMDS Committee increased the MS Average ROTCE threshold of the 2022–2024 performance-vested equity awards from 15% to 16% in order to earn a maximum payout of 1.5 times this portion of the award, reflecting the transformative changes to the business last year.

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:

While the Board has not adopted a formal written policy regarding director diversity, the Corporate Governance Policies provide that the Board will take into account the diversity of a director candidate’s perspectives, background, work experience and other demographics, including race, gender, ethnicity and nationality. In considering potential candidates for the Board, the Nominating and Governance Committee considers the extent to which a candidate contributes to the diversity of the Board. The Nominating and Governance Committee and the Board may also determine specific skills and experience they are seeking in director candidates based on the needs of the Company in light of the Company’s long-term strategy. 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. The Nominating and Governance Committee continuously reviews the experience, qualifications, attributes, skills, race, gender, ethnicity, nationality and tenure of the members of the Board and maintains a list of potential director candidates that is reviewed and refreshed regularly throughout the course of the year.

The Nominating and Governance Committee may 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. The Nominating and Governance Committee may also consider director candidates proposed by shareholders, as provided for in the Corporate Governance Policies. 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.

The Corporate Governance Policies provide that the Board expects a director to advise the Chairman and Corporate Secretary if he or she plans to join the board of directors or similar governing body of another public or private company or advisory board, or experiences other changed circumstances that could diminish his or her effectiveness as a director or otherwise be detrimental to the Company. They also provide that the Board expects a director to advise and to offer to tender his or her resignation for consideration by the Board if his or her principal occupation or employer changes. In addition, the Corporate Governance Policies provide that a director candidate should not be nominated for election if the candidate would be 72 years old or older at the time of election.

Our Board currently includes two directors (Messrs. Hirano and Kamezawa) who are designated in accordance with the terms of the Investor Agreement between Morgan Stanley and MUFG, dated October 13, 2008, as amended and restated (Investor Agreement), pursuant to which Morgan Stanley agreed to take all lawful action to cause two of MUFG’s senior officers or directors to become members of Morgan Stanley’s Board.

Nobuyuki Hirano, the former Chair and President and Group CEO of MUFG, who has served on the Board since November 2015 and also previously served from 2009 through 2011, will not be standing for re-election at the 2022 annual meeting of shareholders. The Board thanks Mr. Hirano for his service and contributions to Morgan Stanley. MUFG has designated Masato Miyachi, Deputy President and Chief Executive of Global Corporate and Investment Banking of MUFG Bank, as a representative director under the Investor Agreement to stand for election, along with MUFG’s other representative director, Hironori Kamezawa, President and Group CEO of MUFG, at the 2022 annual meeting of shareholders.

The Nominating and Governance Committee considered the experience, qualifications and skills of Mr. Miyachi, including his over 35 years of international banking experience and financial services, risk management and sustainability expertise, and unanimously recommended that the Board nominate Mr. Miyachi as a director for election at the 2022 annual meeting of shareholders. Based on the recommendation of the Nominating and Governance Committee, the Board unanimously nominated and recommends that Mr. Miyachi be elected as a director at the 2022 annual meeting of shareholders.

As previously disclosed, Elizabeth Corley, who has served on the Board since 2018, will conclude service on the Board on or about April 27, 2022 and will not be standing for re-election at the 2022 annual meeting of shareholders. The Board thanks Ms. Corley for her service and contributions 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 Erika James as a potential director candidate to the Nominating and Governance Committee. Based on the recommendation of the Nominating and Governance Committee, the Board unanimously elected Ms. James to the Board, effective January 1, 2022. The Board determined that Ms. James brings strong management and strategy experience as a leading expert in crisis leadership and workplace diversity.

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. This evaluation is part of the Nominating and Governance Committee’s ongoing Board succession planning processes as well as the Board’s annual self-evaluation.

The Company believes that an effective board consists of a diverse group of individuals who possess a variety of complementary skills and a range of tenures. The Nominating and Governance Committee and the 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 the broad set of challenges that it faces and reflects the diversity of the Company’s workforce, communities it services, its customers and other key stakeholders. The following chart depicts the experience, qualifications, attributes and skills that the director nominees bring individually and in the aggregate to the Board. Additional detail for each director nominee is also included in the director’s biography.

Data and metrics as of the date of the annual meeting and based on characteristics self-identified by director nominees

The Board has nominated the following 14 director nominees for election at the 2022 annual meeting of shareholders. The Board believes that, in totality, the mix of experience and qualifications and the diversity of attributes and skills among the nominees enhances our Board’s effectiveness and is aligned with the Company’s long-term strategy. Our directors have a combined wealth of leadership experience derived from extensive service guiding large, complex organizations as executive leaders or board members and in government, academia and public policy, and possess a diversity of qualifications, attributes and skills applicable to our business and long-term strategy. The Board stands for election at each annual meeting of shareholders. Each director holds office until his or her successor has been duly elected and qualified or the director’s earlier resignation, death or removal.

Each nominee has indicated that he or she will serve if elected. We do not anticipate that any nominee will be unable or unwilling to stand for election, but if that happens, your proxy may be voted for another person nominated by the Board or the Board may reduce the number of directors to be elected. In the biographical information for each director nominee that follows, the ages indicated are as of the date of the annual meeting and all other information is current as of the date of the filing of this proxy statement.

 

 

 

 

 

 

 

 

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.

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 (which is not incorporated by reference to this proxy statement). The Board initially adopted the Corporate Governance Policies in 1995 and reviews and approves them, and the Board committee charters, at least 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, our bylaws and our committee charters, as applicable.

Our Board represents a tapestry of complementary skills, attributes and perspectives and includes individuals with financial services experience and a diverse international background.

The Independent Lead Director and committee chairs serve for approximately three to five years to provide for rotation of Board leadership and committee chairs while maintaining experienced leadership.

The Board oversees the Company’s strategic, capital and annual business plans. The Board:

The Board also oversees the Company’s practices and procedures relating to culture, values and conduct. The Board oversees the Company’s global ERM framework and is responsible for helping to ensure that the Company’s risks are managed in a sound manner. The Board regularly reviews the Company’s risks and the responsibilities of management and the Board committees to assist the Board in its risk oversight. The Board has a separate committee responsible for operations and technology, including cybersecurity risk, and the Board receives briefings on cybersecurity.

See “Board Leadership Structure and Role in Risk Oversight” and “Board Oversight of Cybersecurity Risk.”

Independent directors, including the Chairs of the Audit Committee and Risk Committee, meet with our primary regulator, the Federal Reserve, and other global regulators as requested. Directors also have complete and open access to senior members of management and other employees of the Company. For instance:

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.

The director equity ownership requirement helps to align director and shareholder interests. Directors also may not enter into hedging transactions in respect of Morgan Stanley common stock or pledge Morgan Stanley common stock in connection with a margin or other loan transaction. See “Director Equity Ownership Requirement.”

Director education about Morgan Stanley, our strategy, control framework, regulatory environment and our industry begins when a director is elected to our Board and continues throughout his or her tenure on the Board. The Nominating and Governance Committee oversees an orientation program for new directors, which includes an overview of director duties, our Corporate Governance Policies, Code of Ethics and Business Conduct and other applicable policies. New directors also receive presentations by senior management on the Company’s strategy and regulatory framework, its primary business lines and risk and control framework, and 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 ongoing educational briefings on ESG, regulatory and control matters, as well as “deep dive” presentations on certain businesses, emerging risks and focus areas identified by the Board, including climate risk. In addition, we reimburse directors for reasonable costs incurred attending educational sessions on subjects that would assist them in discharging their duties.

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 opportunities to become familiar with the Company’s executive talent in different settings, which is critical to the Company’s succession planning.

In 2021, we made important changes to the executive leadership structure to continue developing our senior leaders. We appointed Edward Pick and Andrew Saperstein to be Co-Presidents of Morgan Stanley. Mr. Saperstein was also appointed Head of Firmwide Marketing. Daniel Simkowitz continues to lead Investment Management and, along with Mr. Pick, is co-heading Corporate Strategy. Jonathan Pruzan was appointed COO, responsible for Technology, Operations and Firm Resilience, our U.S. Banks, Finance, and Corporate Services, following his six years as CFO. Sharon Yeshaya, who was the Head of Investor Relations, succeeded Mr. Pruzan as CFO.

The Board believes that establishing and maintaining a constructive evaluation process is essential to maintaining Board effectiveness and best corporate governance practices. Accordingly, the Nominating and Governance Committee reviews and approves the evaluation process annually so that the evaluation process continues to be effective in identifying areas to enhance the performance and effectiveness of the Board, the Independent Lead Director and the Board committees.

 

This process is aided by written discussion guides used to facilitate the assessments. These guidelines are updated annually to reflect significant new developments and areas of focus as the N&G Committee determines appropriate and encompass many factors, including:

 

Upon conclusion of such self-assessments, Board and committee policies and practices are revised as appropriate. The Board self-assessment process has led to:

Shareholders may submit recommendations for director candidates for consideration by the Nominating and Governance Committee at any time by sending the information set forth under “Director Candidates Recommended by Shareholders” in the Corporate Governance Policies 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 2023 annual meeting of shareholders, recommendations must be submitted in accordance with the policy by December 9, 2022.

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, corporate governance, human capital management, including diversity and inclusion, and environmental and social goals. Our Board receives reporting on feedback from investors and shareholder voting results. In addition, management routinely engages with investors at conferences and other forums. We also speak with proxy advisors to discuss, and receive feedback on, our governance practices and executive compensation programs. Feedback from investors informs the Board’s ongoing review of governance and compensation matters.

The Board has taken action responsive to such shareholder feedback, including the adoption of amendments to our bylaws to implement proxy access. In recent years, we have also enhanced our proxy disclosure of:

After discussion with shareholders, in 2020 we published our inaugural Diversity and Inclusion report. In addition, our Board closely monitors shareholders’ views on the appropriate number of public company boards on which a director may serve. In 2020, the Board approved amendments to its Corporate Governance Policies to reduce the number of public company boards that Board members who are not CEOs of another public company may serve on from five to four, including the Company’s board. Responsive to shareholder feedback, we have included a board matrix identifying the gender, race/ethnicity, and skills and attributes of each director nominee under “Director Nominees” herein.

Our Corporate Political Activities Policy Statement aims to ensure transparency of the Company’s practices and procedures regarding political activities and oversight by senior management and the Board. Our Corporate Political Activities Policy Statement:

Morgan Stanley seeks to integrate sustainability considerations into business strategies, products and services, thought leadership and operations. We offer financial solutions and advisory services that provide positive long-term benefits for clients and shareholders, as well as for the environment and global communities. ESG matters are overseen by our Nominating and Governance Committee, as applicable, with reporting to the Board.

 

Morgan Stanley aims to manage our business for the long term while providing value for our clients and shareholders by incorporating climate considerations into our business activities. Climate risk is overseen by the Risk Committee, with reporting to the Board.

 

You can access information about our sustainability initiatives at our sustainability webpage (which is not incorporated by reference to this proxy statement) at www.morganstanley.com/about-us/sustainability-at-morgan-stanley.

Morgan Stanley aims to create investment opportunities that attract both philanthropic and private capital to create lasting positive changes in communities across the U.S. Our U.S. Banks have consistently received “Outstanding” ratings from the Office of the Comptroller of the Currency for their track records in meeting community needs.

 

Morgan Stanley is committed to giving back to the communities where we live and work through long-lasting partnerships, community-based delivery and engaging our best asset – our employees. Through continuously challenging times, our Firm and employees have supported children’s physical and mental health, raised awareness and funds for global hunger, delivered strategic pro bono work, and more. The impact of our philanthropic initiatives includes:

 

Our employees are our most important asset. To facilitate talent attraction and retention, we strive to make Morgan Stanley a diverse and inclusive workplace, with a strong culture and opportunities for our employees to grow and develop in their careers and be supported by competitive compensation, benefits and wellbeing programs. In 2021, feedback from the global benefits survey and lessons learned during the pandemic helped identify several key opportunities to strategically enhance our global offerings with respect to parental leave policies, paid leave benefits for family care, family building benefits, a subsidized physical fitness program and financial wellness resources. Further, in response to the pandemic, the Company expanded offerings such as paid time off to receive vaccinations, set up in-office vaccination clinics, and made testing available both in office and at home, as well as implemented additional on-site safety measures for our facilities.

 

For more detailed information regarding our Human Capital programs and initiatives, see “Our People” in our 2020 Sustainability Report and our 2021 Diversity and Inclusion Report (both located on our website www.morganstanley.com, which are not incorporated by reference into this proxy statement) and “Human Capital” in Part 1, Item 1 of the 2021 Form 10-K.

As set forth under “Communications with the Board” in the Corporate Governance Policies, shareholders and other interested parties may contact the Board, the non-management or independent directors, an individual director (including the Independent Lead Director or Chairman) or a committee of the Board, by writing to them at Morgan Stanley, Suite D, 1585 Broadway, New York, New York 10036. Such communications will be handled in accordance with the procedures approved by the independent directors of the Board.

In addition to the Corporate Governance Policies and other policies described above, our corporate governance webpage (www.morganstanley.com/about-us-governance) includes the following:

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 or calling our Investor Relations Department at 212-762-8131.

None of the reports referenced above, or any other reports referenced or discussed in this proxy statement, are deemed part of this proxy statement or incorporated by reference. Some of the reports contain cautionary statements regarding the forward-looking information in those reports, include statistics or metrics that are estimates, make assumptions based on developing standards that may change and provide aspirational goals that are not intended to be promises or guarantees. The reports may also change at any time and we expect updated versions will be posted on our website.

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:

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.

The Board has determined that 11 of our 14 director nominees (Messrs. Darling, Glocer and Herz, Mss. James and Leibowitz, Mr. Luczo, Ms. Miscik, Mr. Nally, Ms. Schapiro, and Messrs. Traquina and Wilkins) are independent in accordance with the Director Independence Standards. The Board has also determined that Ms. Corley, who is not standing for re-election at the annual meeting of shareholders, was independent during the time she served on the Board in 2021 and 2022, and that Hutham S. Olayan, who retired from the Board effective May 20, 2021, was independent during the time she served on the Board in 2021.

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 directors’ 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:

The Corporate Governance Policies state that directors are expected to attend annual meetings of shareholders. All directors who were on the Board at the time, including all current directors who were nominees at the time, attended the 2021 annual meeting of shareholders.

Our Board met 14 times during 2021. 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 2021 while the director was a member. In addition to Board and committee meetings, our directors also engaged in less formal communications between meetings, 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.

The Board’s standing committees, their membership and the number of meetings in 2021 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, which webpage is not incorporated by reference in this proxy statement.

 

 

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 director 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 Board has determined that the appointment of a strong Independent Lead Director (as described below), together with a combined Chairman and CEO, serves the best interests of the Company and its shareholders. By serving in both positions, the Chairman and CEO 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 Chairman and CEO 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.

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, Thomas H. Glocer, was appointed by our other independent directors and as part of his formal duties and responsibilities shall:

 

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

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. The Board committees assist the Board in oversight of the risks set forth below, coordinating as appropriate. In addition, the entire Board receives reporting on a quarterly basis regarding cross-enterprise risks, including strategic, reputational, and culture, values and conduct risk. The committees report to the entire Board on a regular basis and have overlapping directors, invite Chairs of other committees and other directors to attend meetings, as appropriate given topics of discussion, and hold joint meetings as necessary to discharge their duties.

The Board has also authorized the Firm Risk Committee, a management committee appointed and co-chaired by the CEO and CRO that includes the most senior officers of the Company, including the COO, CRO, CLO, CFO and business heads, 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, 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, 2021 (2021 Form 10-K).

Cybersecurity risk is overseen by the Board as well as the Operations and Technology Committee. The Operations and Technology Committee has primary responsibility for oversight of operations, technology and operational risk, including information security, fraud, vendor, data protection and privacy, business continuity and resilience, and cybersecurity risks (including review of cybersecurity risks against established risk

methodologies). In accordance with its charter, the Operations and Technology Committee receives regular reporting at each quarterly meeting from senior officers in Technology, Operations and Firm Resilience and Firm Risk Management Departments on operational risk and the steps management has taken to monitor and control such exposures. Such reporting includes updates on the Company’s cybersecurity program, the external threat environment and the Company’s programs to address and mitigate the risks associated with the evolving cybersecurity threat environment.

The Operations and Technology Committee also receives an annual independent assessment of key aspects of the Company’s cybersecurity program from an external party and holds joint meetings with the Audit Committee and Risk Committee as necessary and appropriate. The Board or the Operations and Technology Committee reviews and approves the Global Cybersecurity Program Policy, the Global Information Security Program Policy and the Global Technology Policy at least annually. The Chair of the Operations and Technology Committee regularly reports to the Board on cybersecurity risks and other matters reviewed by the Operations and Technology Committee. In addition, the Board receives separate presentations on cybersecurity risk and all Board members are invited to attend Operations and Technology Committee meetings and have access to meeting materials.

Senior management, including the senior officers mentioned above, discuss cybersecurity developments with the Chairs of the Operations and Technology Committee and the Risk Committee between Board and committee meetings, as necessary. The Operations and Technology Committee meets regularly in executive session with management, including the CRO, COO and senior officers from Technology, Operations and Firm Resilience Department.

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, 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, Nominating and Governance, Operations and Technology, and Risk Committees provides the appropriate leadership to help ensure effective risk oversight by the Board.

The CMDS Committee actively engages in its duties and follows procedures intended to ensure excellence in compensation governance.

Our director compensation program is guided by three goals: compensation should fairly pay directors for work required in a company of our size and scope; compensation should align directors’ interests with the long-term interests of shareholders; and the structure of the compensation should be easy for shareholders to understand. The Board believes that a director’s total compensation should include a significant equity component because it believes that this more closely aligns the long-term interests of directors with those of shareholders and provides a continuing incentive for directors to foster the Company’s success. In furtherance of these goals, our directors are bound by a shareholder-approved annual compensation (cash and equity) limit of $750,000 and an equity ownership requirement of five times the annual cash Board retainer (as described in more detail below under “Director Equity Ownership Requirement”).

Directors’ compensation is determined by the Board, and the Nominating and Governance Committee makes recommendations to the Board based on periodic benchmarking assessments and advice received from FW Cook, its independent advisor. In 2020, FW Cook conducted a customized review of the design and pay levels of our director compensation program compared to competitive market practices. Taking into account our director compensation program’s emphasis on equity compensation, our shareholder-approved annual compensation limit, and our equity ownership requirement, among other features of our program, FW Cook determined that our director compensation program remained consistent with best market practices and competitive with the market and continued to align the interests of our non-employee directors with the long-term interests of our shareholders. No changes were made to our director compensation program in 2021.

The following table contains information with respect to the annual compensation (including deferred compensation) of our non-employee directors earned during 2021 with respect to their Board service.

Our Board has adopted a written Related Person Transactions 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 a related person or an entity in which a related person has an interest if the transaction is made under terms and conditions and under circumstances substantially similar to those prevailing at the time for comparable transactions with unaffiliated third parties and the related person does not otherwise have a direct or indirect material interest in the transaction.

Our subsidiaries may extend credit in the ordinary course of business to certain of our directors, officers and members of their immediate families. These extensions of credit may be in connection with margin loans, mortgage loans or other extensions of credit by our subsidiaries. These extensions of credit are made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to the lender and do not involve more than the normal risk of collectability or present other unfavorable features.

Each of MUFG, State Street Corporation (State Street), BlackRock, Inc. (BlackRock) and The Vanguard Group (Vanguard) beneficially owns more than 5% of the outstanding shares of Morgan Stanley common stock as reported under “Principal Shareholders.” During 2021, we engaged in transactions in the ordinary course of business with each of MUFG, State Street, BlackRock and Vanguard, 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.

Children of Jeffrey Brodsky, a former executive officer, are non-executive employees of the Company and received compensation in 2021 of approximately $350,000 and $151,000, respectively. A sister-in-law of Andrew Saperstein, an executive officer, is a non-executive employee of the Company and received compensation in 2021 of approximately $203,000. The compensation and benefits for these employees was determined in accordance with the Company’s standard compensation practices applicable to similarly situated employees.

In addition to the transactions described above, as part of the global strategic alliance between MUFG and the Company, the Company and MUFG have a joint venture in Japan comprised of their respective investment banking and securities businesses, which is conducted through Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (MUMSS) and Morgan Stanley MUFG Securities Co., Ltd. (MSMS) (MSMS, together with MUMSS, the Joint Venture). 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 for Shareworks products in Japan and a secondment arrangement of personnel between MUFG and the Company for the purpose of sharing best practices and expertise. On April 18, 2018, the Company entered into a sales plan (the Plan) with MUFG and Morgan Stanley & Co. LLC (MS&Co.) whereby MUFG agreed to sell shares of the Company’s common stock to the Company, through its agent, MS&Co., as part of the Company’s share repurchase program. The Plan, which has been suspended as of December 10, 2020, has no impact on the strategic alliance between MUFG and the Company and is intended only to maintain MUFG’s ownership percentage of the common stock below 24.9% in order to comply with MUFG’s passivity commitments to the Board of Governors of the Federal Reserve System.

The Audit Committee has the sole authority and responsibility to appoint, compensate, retain, oversee and evaluate the independent registered public accounting firm (independent auditor) retained to audit the Company’s consolidated financial statements. The Audit Committee reviews and assesses annually the qualifications and performance of the independent auditor. 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 and other engagement partners of the independent auditor. In connection with such rotations, the Audit Committee is directly involved in the selection of key engagement partners of the independent auditor, including the lead audit partner, who may provide services to the Company for a maximum of five consecutive years. In approving the selection of the lead audit partner from Deloitte & Touche LLP (Deloitte & Touche), Company management and the Audit Committee interviewed proposed candidates, and, after discussing the desired qualifications of the lead audit partner, the Audit Committee approved the selection of the current lead audit partner of the Company beginning with the 2021 audit. The lead audit partner is expected to serve in this capacity through the end of the 2025 audit.

As part of the Audit Committee’s annual review of Deloitte & Touche, the Audit Committee reviewed and considered, among other factors:

 

In particular, our Audit Committee reviewed and considered:

Based on this review, the Audit Committee has appointed Deloitte & Touche as independent auditor for the year ending December 31, 2022 and although not legally required to do so presents this selection to the shareholders for ratification as a matter of governance best practices. The Audit Committee believes that 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, 2022 and will perform other permissible, pre-approved services. If shareholders do not ratify the appointment of Deloitte & Touche, the Audit Committee will consider this in determining whether to appoint Deloitte & Touche as independent auditor for the year ending December 31, 2023.

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

Our Board unanimously recommends that you vote “FOR” the ratification of Deloitte & Touche’s appointment as our independent auditor. Proxies solicited by the Board will be voted “FOR” this ratification unless otherwise instructed.

The Audit Committee’s charter (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 registered accounting firm engaged as the “independent auditor,” the performance of the Company’s internal auditor and independent auditor, and the Company’s compliance with legal and regulatory requirements. We have the sole authority and responsibility to appoint, compensate, retain, oversee, evaluate and, when appropriate, replace the Company’s independent auditor. As described under “Corporate Governance Matters — Corporate Governance Practices — Board Meetings and Committees,” the Board has determined that all four members of the Audit Committee are independent and “financially literate” within the meaning of the NYSE listing standards and that each of Robert H. Herz, the Audit Committee Chair, and Dennis M. Nally are “audit committee financial experts” within the meaning of SEC rules.

The Audit Committee serves in an oversight capacity and is not part of the Company’s managerial or operational decision-making process. Management is responsible for the financial reporting process, including the system of internal controls, for the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the U.S. (GAAP) and for the report on the Company’s internal control over financial reporting. The Company’s independent auditor, Deloitte & Touche, is responsible for planning and conducting an independent audit of those financial statements and expressing an opinion as to their conformity with GAAP and expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Our responsibility is to oversee the financial reporting process and to review and discuss management’s report on the Company’s internal control over financial reporting. We rely, without independent verification, on the information provided to us and on the representations made by management, the internal auditor and the independent auditor, who generally attends each Audit Committee meeting.

The Audit Committee, among other things:

We reviewed and discussed with management, the Chief Audit Officer and Deloitte & Touche:

We also discussed with Deloitte & Touche the matters required to be discussed by the applicable requirements of the PCAOB and the SEC. 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 its independence from the Company, and considered if services it provided to the Company beyond those rendered in connection with its 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 its opinion on the effectiveness of the Company’s internal control over financial reporting were compatible with maintaining its independence. We also reviewed and pre-approved, among other things, the audit, audit-related, tax and all other 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 2021 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, 2022 and are presenting the selection to the shareholders for ratification.

Respectfully submitted,

Robert H. Herz, Chair

Alistair Darling

Shelley B. Leibowitz

Dennis M. Nally

The Audit Committee is responsible for overseeing the audit fee negotiations associated with the engagement of Deloitte & Touche, including considering the appropriateness of fees relative to both audit quality and efficiency. 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. In 2021 and 2020, all of Deloitte & Touche’s fees were approved by the Audit Committee.

The following table summarizes the aggregate fees (including related expenses; $ in millions) for professional services provided by Deloitte & Touche related to 2021 and 2020. The increase in audit fees year-over-year is predominantly attributable to the E*TRADE and Eaton Vance acquisitions.

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 $19.4 million in 2021 and $9.4 million in 2020.

As required by Section 14A of the Securities Exchange Act of 1934, the below resolution gives shareholders the opportunity to cast an advisory vote to approve the compensation of our NEOs as disclosed in this proxy statement pursuant to Item 402 of Regulation S-K:

“RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the Company’s named executive officers, as disclosed in the Company’s proxy statement for the 2022 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).”

As this “Say on Pay” vote is advisory, the result will not be binding on our Board, although the CMDS Committee will consider the outcome of the vote when evaluating the effectiveness of our executive compensation program and making future executive compensation decisions. At the 2021 annual meeting of stockholders, approximately 96% of the votes cast were in favor of our “Say on Pay” proposal. In light of the significant majority of votes cast in favor of the 2020 compensation of our NEOs, the CMDS Committee maintained its performance-based approach to executive compensation for 2021 and believes that our current program appropriately links the compensation of our NEOs to performance and properly aligns the interests of our NEOs with those of our shareholders.

As discussed in the CD&A, the 2021 pay decision for the CEO was made by the CMDS Committee, in consultation with the Board. Based on an evaluation of 2021 Company and CEO performance, including meeting or exceeding its two-year objectives announced in January 2021, and executing on the next phase of transformational growth and shareholder value, the CMDS Committee set CEO total compensation for 2021 at $35 million, with shareholder-aligned features.

Under Mr. Gorman’s leadership, for 2021:

Consistent with previous years’ compensation and shareholder feedback over the years, 75% of Mr. Gorman’s incentive compensation is deferred over three years and is subject to cancellation, and 100% of Mr. Gorman’s deferred incentive compensation is delivered in the form of equity awards, aligning his compensation with shareholders’ interests. For 2021, the portion of Mr. Gorman’s incentive compensation delivered in

performance-vested equity was increased from 50% to 60%. In addition, the CMDS Committee increased the MS Average ROTCE threshold of the 2022–2024 performance-vested equity awards from 15% to 16% in order to earn a maximum payout of 1.5 times this portion of the award, reflecting the transformative changes to the business last year.

The Board has resolved to hold annual advisory votes to approve the compensation of our NEOs. Accordingly, the next advisory vote to approve our executive compensation program will occur at the 2023 Annual Meeting, unless the Board modifies its policy on the frequency of holding such advisory votes.

For a detailed description of our executive compensation program, see “Overview of Voting Items,” CD&A and “Executive Compensation.” For additional information relating to the metrics and certain non-GAAP measures referenced above, see Section 5 “Explanatory Notes” of the CD&A.

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

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 2021 compensation decisions for our named executive officers (NEOs):

Effective June 1, 2021, Ms. Yeshaya was elected Chief Financial Officer, Mr. Pruzan was elected Chief Operating Officer, Messrs. Pick and Saperstein were elected Co-Presidents in addition to their roles as business segment heads, and Messrs. Pick and Simkowitz were elected Co-Heads of Corporate Strategy in addition to their roles as business segment heads.

The “2021 Summary Compensation Table” and other compensation and benefits disclosures follow this CD&A.

The CD&A is organized into the following five sections:

The “Explanatory Notes” to this CD&A are an integral part of the Company’s financial and operating performance described herein. A detailed analysis of the Company’s financial and operational performance for 2021 is contained in the Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the Company’s 2021 Form 10-K. 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 are included in either the 2021 Form 10-K or in the “Explanatory Notes.”

The CMDS Committee follows a prescribed framework for determining executive compensation to ensure that Morgan Stanley’s compensation program delivers pay for sustainable performance, aligns compensation with shareholders’ interests, is motivating and competitive, and reflects shareholder input and best practices in corporate governance, risk management and regulatory principles. The CMDS Committee’s commitment to these compensation objectives is demonstrated in the structure of executive compensation and our CEO pay framework detailed in this CD&A.

Based on an evaluation of 2021 Company and CEO performance, including record financial performance and significant progress in implementing a long-term strategy that has led to transformational change and a resilient business model, the CMDS Committee set CEO total compensation for 2021 at $35 million, with shareholder-aligned features.

Under Mr. Gorman’s leadership, for 2021:

Consistent with previous years’ compensation and shareholder feedback over the years, 75% of Mr. Gorman’s incentive compensation is deferred over three years and is subject to cancellation, and 100% of Mr. Gorman’s deferred incentive compensation is delivered in the form of equity awards, aligning his compensation with shareholders’ interests. For 2021, the portion of Mr. Gorman’s incentive compensation delivered in performance-vested equity was increased from 50% to 60%. In addition, as discussed in Section 4.2, the CMDS Committee increased the MS Average ROTCE threshold of the 2022–2024 performance-vested equity awards from 15% to 16% in order to earn a maximum payout of 1.5 times this portion of the award, reflecting the transformative changes to the business last year.

 

The CMDS Committee’s framework for determining CEO compensation supports and reinforces the Company’s pay-for-performance philosophy and incorporates the following key steps:

 

Each year, the CMDS Committee establishes a target compensation range for the CEO and outlines guidelines for the CEO performance assessment at year end.

In its assessment of 2021 performance, the CMDS Committee considered Morgan Stanley’s financial performance, progress in relation to its strategic objectives, shareholder returns, and other key accomplishments.

Under Mr. Gorman’s leadership, our business model performed and achieved record results. The Company achieved record financial performance in terms of revenues, profits before tax and earnings per share. Company net revenues were $59.8 billion with net income of $15.0 billion, and earnings per share were $8.03.

 

In addition, the Company continued to execute on growth objectives. Institutional Securities continued to increase its wallet share across its businesses, Wealth Management had leading businesses in each of its channels with $438 billion of net new assets and Investment Management reported record assets under management of $1.6 trillion.

 

During 2021, the Company continued to execute on its strategic transformation to drive significant growth in each of its businesses. The Company continued to successfully integrate its E*TRADE and Eaton Vance acquisitions, which have significantly increased the scale and breadth of the Company’s Wealth Management and Investment Management franchises. In addition, the Company continued its clear and consistent strategy to transform the business to emphasize a more stable balance sheet and sources of revenue, which should provide more durable results during various market conditions in the future.

In making progress on these long-term strategic objectives, the Company also met or exceeded its two-year objectives by reporting full year ROTCE of 19.8%, efficiency ratio of 66%, and Wealth Management Pre-Tax Margin of 27%, each excluding integration expenses.

 

The Company also continued to increase returns to shareholders. The annualized dividend was doubled in 2021 to $2.80, while the Company repurchased $11 billion shares. The Company continues to maintain excess capital that positions it well for future growth.

 

The market recognized the Company’s continuing transformation and growth, as reflected in strong relative performance in total shareholder return versus peers in 2021 and top performance over 3- and 5-year periods. During 2021, the Morgan Stanley share price increased by 43% from $68.53 to $98.16 – a significant increase in stock price and a multiple expansion relative to peers – adding approximately $50 billion in market value to end the year at $174 billion.

 

Under Mr. Gorman’s leadership, the Company continued to focus on the health and wellbeing of its employees against a backdrop that continued to include the COVID-19 health crisis. In 2021, the Company launched a Global Wellbeing board, assembling senior leaders with a mission to advance the Company’s wellbeing strategy. Additionally, in 2021, the Company made health and financial wellbeing enhancements to our global offerings, including with respect to parental leave policies, paid leave benefits for family care, family building benefits, and subsidized fitness access, and implementing a new U.S. national concierge primary care benefit. Further, in

response to the COVID-19 pandemic, the Company expanded offerings such as paid time off to receive vaccinations, in-office vaccination clinics, and making testing available both in office and at home, as well as implementing additional on-site safety measures for Morgan Stanley facilities. The Company also awarded a special payment of $1,000 (or the local currency equivalent) at year end to approximately 40,000 employees.

The Company also continued its commitment to diversity and inclusion under Mr. Gorman’s leadership. In conjunction with the Institute for Inclusion, chaired by Mr. Gorman, the Company drove workforce diversity, invested in underserved communities, enhanced engagement with diverse-led businesses, and supported diverse communities where employees live and work. The Company also supported a number of organizations driving racial equity, including a $20 million investment to create more accessible pathways to college and career success for students from low-income backgrounds. Through targeted professional development and recruiting programs, the Company developed and recruited diverse talent. The Company also introduced representation objectives to drive greater accountability for a diverse workforce.

Section 3.2 contains further details about Company performance; see also Section 5 “Explanatory Notes.”

The 2021 pay decision for the CEO was made by the CMDS Committee, in consultation with the Board, following its assessment of Mr. Gorman’s outstanding individual performance and record Company financial performance, including meeting or exceeding its two-year objectives announced in January 2021, and executing on the next phase of transformational growth and shareholder value. Company and CEO performance in 2021 were strong, and the CMDS Committee determined that a 2021 pay decision for Mr. Gorman of $35 million, up from $33 million in 2020, was appropriate.

Section 3.2 contains more details about individual NEO performance. Section 4.1 contains the 2021 compensation decisions for each NEO, which follows a similar performance evaluation process as for the CEO.

 

The alignment of Mr. Gorman’s pay with Company performance can also be demonstrated over the longer term. A significant portion of CEO pay is delivered through equity awards, the realizable value of which increases or decreases over time with stock price performance. Mr. Gorman’s total realizable pay over the 2019–2021 period was approximately 44% greater than his total pay as reported in the “2021 Summary Compensation Table” for the relevant years, while the Company’s three-year stock price performance for the same period was higher at 148%. Realizable pay reflects the current aggregate value of base salary, cash bonus and equity awards disclosed in the 2019, 2020 and 2021 proxy statements, with equity awards valued using the closing price of the Company’s common stock on December 31, 2021 and performance-vested awards valued based on performance at target.

NEO pay in a given year is typically delivered in a combination of fixed compensation (base salary), cash bonus, and deferred incentive compensation provided in time-vested deferred restricted stock units (RSUs) and a long-term incentive program (LTIP) award in the form of performance-vested stock units.

In determining the portions of compensation to award as cash bonus, deferred incentive compensation, RSUs and LTIP awards, the CMDS Committee considers applicable regulatory requirements and guidelines for deferral, as well as market practices and shareholder feedback. A significant portion of pay is deferred, all of which is 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 objectives over a three-year period.

These compensation elements support the Company’s key compensation objectives, discussed in Section 2, including delivering pay for sustainable performance.

Section 4.1 contains the compensation decisions (both the amount and mix of compensation elements) for each NEO. Sections 4.2 and 4.3 contain more detail about the elements and key features of our compensation program.

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 96%) of the votes cast at the May 2021 annual meeting of shareholders were in favor of our annual “Say on Pay” proposal. In 2021, we continued our engagement program, seeking feedback from shareholders and proxy advisory firms on a variety of topics, including executive compensation, corporate governance, diversity 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 praised the quality of the Company’s disclosure and reported that the Committee’s use of discretion in the administration of the program is reasonable and that executive compensation at Morgan Stanley is viewed as well-aligned with performance. The CMDS Committee factored shareholder feedback, including the “Say on Pay” vote results, into its consideration of the executive compensation structure and determination of 2021 NEO pay levels. After carefully considering shareholder feedback and other factors, the CMDS Committee maintained its performance-based approach to executive compensation for 2021 and increased the proportion of incentive compensation granted to the CEO in the form of performance-vested long-term stock unit awards from 50% to 60%. In addition, as discussed in Section 4.2, the CMDS Committee increased the MS Average ROTCE threshold of the 2022–2024 performance-vested equity awards from 15% to 16% in order to earn a maximum payout of 1.5 times this portion of the award, reflecting the transformative changes to the business last year.

Morgan Stanley is committed to responsible and effective compensation programs. The CMDS Committee continually evaluates the Company’s compensation programs with a view toward balancing the following key objectives, all of which support the Company’s culture and values and shareholders’ interests:

The 2021 compensation of the NEOs was determined by the CMDS Committee after consideration of Company business results, 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.

For 2021, a number of quantitative and qualitative 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. To inform its decision-making process for NEO compensation for 2021, the CMDS Committee evaluated Company and individual performance in light of the pre-established performance priorities. See Section 3.2 “Evaluating Company and Individual Performance for Alignment with Executive Compensation.”

For 2021, the CMDS Committee reviewed performance priorities in the following areas:

 

During 2021, the CMDS Committee reviewed analyses of our competitors’ pay levels, including historical compensation data obtained from public filings and compensation surveys conducted by consultants on an unattributed basis, as well as compensation plan design. The Company uses a Comparison Group to understand market practices and trends, evaluate the competitiveness of our compensation programs, and inform compensation decisions. Our Comparison Group consists of companies that either directly compete with the Company for business and/or talent or are global organizations with scope, size, or other characteristics similar to those of the Company.

 

As discussed in Section 1.2, the CMDS Committee, in consultation with its independent compensation consultant, Pay Governance, established a target range for 2021 compensation for the CEO of $28 million or more for performance exceeding expectations to $10 million or less for performance substantially below expectations. To inform its decision-making with respect to the appropriate target range, the CMDS Committee reviewed available 2020 compensation levels for the 16 financial companies in the S&P 100 index, 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 2021 compensation for the CEO.

 

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 incentivize 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.

At the end of the year, Mr. Gorman presented the CMDS Committee with performance assessments and compensation recommendations for each NEO, other than himself. The CMDS Committee reviewed these recommendations with its independent compensation consultant to assess whether they were reasonable compared with the market for executive talent and met in executive session to discuss the performance of our CEO and the other NEOs and to determine their compensation. In addition, the CMDS Committee and Board reviewed proposed NEO incentive compensation with Mr. Gorman, and the CMDS Committee reviewed CEO compensation with the Board (other than Mr. Gorman).

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, commissions and amortization of prior deferred compensation awards), and incentive compensation as a subset of overall compensation expense. This exercise furthers the balancing of the objectives of delivering returns for shareholders, while providing appropriate rewards to motivate superior individual performance.

The Company’s compensation practices are subject to oversight by our regulators in the U.S. and internationally. For example, the Company is subject to the Federal Reserve Board’s (Federal Reserve) guidance that is designed to help ensure that incentive compensation paid by banking organizations does not encourage imprudent risk-taking that threatens the organizations’ safety and soundness. The Company is also subject to the compensation-related provisions of the Dodd-Frank Act, as well as the remuneration code of the U.K. Financial Conduct Authority and the U.K. Prudential Regulation Authority (U.K. PRA) Rulebook, which prescribes the compensation structure for certain employees who are identified as material risk takers.

Section 162(m) of the Internal Revenue Code (Section 162(m)) limits the tax deductibility of compensation for certain executive officers that is more than $1 million. The CMDS Committee continues to have the flexibility to pay nondeductible compensation if it believes it is in the best interests of the Company.

As set forth in Section 1.3, in determining the annual incentive compensation of the CEO and other NEOs, the CMDS Committee weighed the Company’s overall financial performance and, as applicable, business unit performance and achievement of its long-term strategic objectives. Management reviewed the Company’s forecasted 2021 financial performance with the CMDS Committee in December 2021, and the CMDS Committee assessed full-year actual financial results before finalizing compensation decisions in January 2022.

In 2021, Morgan Stanley’s strategic progress and financial performance were reflected in the Company’s record financial results. The CMDS Committee considered these results, as well as the performance indicated below, in determining compensation for our NEOs.

In addition to the performance factors discussed above, the Committee considered the following individual contributions of the CEO and each other NEO: