UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
8-K
CURRENT
REPORT
Pursuant
To Section 13 or 15(d) of
the
Securities Exchange Act of 1934
Date
of report (Date of earliest event reported): January 20,
2010
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Morgan
Stanley
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(Exact
Name of Registrant
as
Specified in Charter)
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Delaware
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1-11758
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36-3145972
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(State
or Other Jurisdiction of Incorporation)
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(Commission
File Number)
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(IRS
Employer Identification No.)
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1585
Broadway, New York, New York
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10036
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(Address
of Principal Executive Offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (212)
761-4000
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Not
Applicable
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(Former
Name or Former Address, if Changed Since Last Report)
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Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General
Instruction A.2. below):
o
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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o
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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o
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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o
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Item
5.02. Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain
Officers. Item 8.01.
Other Events.
The Compensation, Management
Development and Succession Committee (the “CMDS Committee”) of the Board of
Directors of Morgan Stanley (the “Company”), in response to shareholder input and in
light of the environment in which the Company is operating, has fundamentally
restructured year-end compensation for the Company’s employees – instituting a
strengthened clawback provision, creating at-risk performance units tied to
three-year performance for senior executives, increasing deferred
compensation and reducing
cash bonuses.
For 2009, Chairman and former CEO John
J. Mack recommended to the CMDS Committee that he receive no year-end bonus,
given the unique operating environment and government support for the industry
this past year. Mr. Mack also received no year-end
compensation for 2008 and 2007. CEO James P. Gorman recommended to
the CMDS Committee that he be paid no cash bonus for 2009, and the CMDS
Committee decided that any 2009 year-end award for Mr. Gorman would be paid only
in deferred compensation. Mr. Gorman received no year-end
compensation for 2008. The CMDS Committee also decided to
substantially increase the share of compensation that is deferred – with
Operating Committee members receiving approximately 75 percent of year-end pay
in deferred compensation.
As a result of the structural changes
the CMDS Committee has made to Morgan Stanley’s compensation program, year-end
compensation for senior executives for 2009, except as noted below for our CEO,
is comprised of four components – with a significant portion of total
compensation at-risk and tied to long-term Company
performance:
·
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At-Risk
Performance Stock Units: For 2009, the Company for the
first time is granting senior executives “at risk” performance stock units
that only deliver value if the Company, after three years, meets specific
performance targets, including return on average common equity levels over
the three-year period along with relative stock price performance over the
same period. This performance-based stock unit program
is discussed in further
detail below.
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·
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Equity Vesting
Over Three Years Subject to Market Risk: The Company is granting equity
awards that convert over three years and are subject to market
risk. These awards ensure that the interests of senior
executives are directly aligned with shareholder interests, and the
Company’s senior executives are required to retain 75 percent of their
equity awards over time.
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·
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At-Risk
Deferred Cash Subject to Clawback: Morgan Stanley was the first
major U.S. bank to institute a clawback provision for a portion
of year-end
compensation in 2008. This year, the Company
strengthened that clawback so that it can reclaim compensation for up to
three years after it is awarded if the Company realizes losses on certain
trading positions, investments or holdings.
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·
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Cash
Bonuses: As a result of the
changes described above, the cash portion of year-end compensation paid to
senior executives will represent a substantially smaller share than in
past years. As noted, Mr. Gorman did not receive any cash bonus
for 2009.
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“At-Risk”
Performance-Based Stock Unit Program
The CMDS Committee, in response to shareholder feedback, has approved an at-risk performance-based stock unit program under the Company’s 2007 Equity Incentive Compensation Plan (the “2007 EICP”) in order to tie executive compensation even more closely to the Company’s long-term financial performance. Under this program, performance stock units will vest and convert to shares of Company common stock in 2013 only if the Company satisfies predetermined performance goals over the next three years. Participants will receive no portion of the award if the performance targets are not met. Any shares received upon conversion of these performance stock units will be subject to the 75% stock ownership commitment for senior executives. These at-risk performance stock units will be awarded to the Company’s named executive officers listed below, our current Chief Executive Officer and Chief Financial Officer (collectively, the “Officers”), but not to the Chairman of the Board, John J. Mack, who received no year-end compensation for 2009.
The
purpose of this grant is to further reinforce the Officers’ accountability for
the Company’s future financial and strategic goals by tying a greater portion of
compensation directly to certain of the Company’s core financial metrics –
return on equity and total shareholder return. A portion of the
Officers’ 2009 above-base compensation was paid with these at-risk performance
stock units. In the event that the Company does not achieve the
specified minimum performance levels under the award, the Officer will forfeit
his or her entire award.
The
following target number of at-risk performance stock units, rounded down to the
nearest whole share, were awarded to the executive officers reflected
below:
Executive
Officer
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Target
Number
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Mr.
Gorman
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97,295
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Ms.
Porat
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82,460
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Mr.
Kelleher
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80,520
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Mr.
Chammah
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96,861
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Mr.
Lynch
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46,563
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Mr.
Nides
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56,737
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The award
is at risk and the Officer will not earn any portion of the award if the Company
does not achieve specified minimum performance levels during the three-year
performance period beginning on January 1, 2010 and ending on December 31, 2012
(the “Performance Period”). Further, if the Company exceeds the
target performance hurdles, the Officer can potentially earn an award with a
number of units in excess of the target number, as described
below. Under the terms of the grant, the number of at-risk
performance stock units that will actually vest and convert to shares will be
based on the extent to which the Company achieves the specified performance
goals during the Performance Period (subject to the other terms and conditions
of the award), as described below. The CMDS Committee must certify
the extent to which the performance goals are achieved before the Officer can
earn all or a portion of the award.
One-half
of the award will be earned based on the Company’s return on average common
shareholders’ equity, excluding the impact of debt valuation adjustments –
representing the change in fair value of certain short-term and long-term
borrowings, including structured notes and subordinated debentures, accounted
for under the fair value option, that is included in net income and is
attributable to changes in the Company’s own debt-related credit spreads –
(“Average ROE”) during the Performance Period, as follows (based on the
number of stock units granted with respect to this portion of the
award):
MS 3 Year Average
ROE
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Multiplier
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18%
or more
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2.00
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12%
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1.00
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7.5%
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0.25
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less
than 7.5%
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0
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* |
If
return on average common shareholders’ equity is
between two of the thresholds noted above, the number of performance stock
units that will vest and convert to shares will be obtained by straight
line interpolation between the two
points.
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One half
of the award will be earned based on the Company’s total shareholder return
(“TSR”) relative to
the TSR of the members of the comparison group consisting of Bank of
America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs,
JPMorgan Chase, UBS and Wells Fargo (the “Comparison Group”). The
number of at-risk performance stock units earned based on this measure will be
determined in accordance with the following grid (based on the number of stock
units granted with respect to this portion of the award):
MS TSR
Rank
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Multiplier
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1
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2.00
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2
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1.75
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3
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1.50
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4
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1.25
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5
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1.00
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6
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0.75
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7
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0.50
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8
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0.25
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9
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0.00
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10
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0.00
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Except as
described below, the at-risk performance stock units will not vest and
convert until following the end of the Performance Period and then, only to the
extent the foregoing performance measures are satisfied. To the
extent the Officer voluntarily terminates from the Company prior to January 1,
2013 (the scheduled vesting date), other than due to full career retirement,
none of the units will vest and the entire award will be
forfeited. In certain instances of a termination of the Officer’s
employment prior to January 1, 2013, including due to: (i) full career
retirement (defined in a similar manner as for purposes of the Officer’s 2009
year-end equity awards), if the Officer, other than the CEO if he resigns for
good reason (as defined in his award certificate), does not engage in
competitive activity, (ii) involuntary termination not involving a cancellation
event or (iii) a disability, a pro rata portion of the at-risk performance stock
units will vest and convert to shares following the conclusion of the
Performance Period once the CMDS Committee certifies to the
performance. If an Officer’s employment terminates due to full career
retirement during the second half of the Performance Period (and the Officer,
other than the CEO if he resigns for good reason, does not engage in competitive
activity), the full award will vest and convert to shares following the
conclusion of the Performance Period once the CMDS Committee certifies to the
performance. In the event of a change in control of the Company,
performance will be measured through the last day of the Company’s quarter
preceding the change in control. The at-risk performance stock units
remain subject to cancellation upon certain events until conversion. The awards
will receive dividend equivalents in cash which will accumulate and pay out, if
at all, when the underlying shares are paid to the Officers. Further,
in the event the CMDS Committee later determines that all or a portion of the
shares earned under the award was based on materially inaccurate financial
statements, then such number of shares (or cash equivalent if the shares were
transferred) shall be subject to clawback by the Company.
The CMDS
Committee also approved a new base salary for our newly elected Chief Financial
Officer, Ruth Porat, of $750,000, consistent with the Company’s Operating
Committee members, other than the CEO.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, hereunto
duly authorized.
MORGAN
STANLEY
(Registrant)
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Date:
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January
22, 2010
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By:
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/s/
Martin M. Cohen
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Name:
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Martin
M. Cohen
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Title:
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Corporate
Secretary
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