| Table of Contents |
| Annual meeting information |
| Voting information |
Item 1—Election of directors |
| New nominees |
| Board meetings and committees |
| Non-employee director meetings |
| Director compensation |
| Director attendance at
annual meetings |
| Corporate governance |
| Beneficial ownership of
Company common stock |
| Stock ownership of directors
and executive officers |
| Principal shareholders |
| Executive compensation |
| Compensation Committee
report on executive compensation |
| Summary compensation table |
| Option grants in last fiscal
year |
| Aggregated option exercises
in last fiscal year and fiscal year-end option values |
| Consulting Agreement |
| Pension plans |
| Stock performance graph |
|
Item 2—Ratification of appointment of Morgan Stanley’s
independent auditors |
| Audit Committee report |
| Shareholder proposals |
|
Item 3—Shareholder proposal regarding staggered boards |
|
Item 4—Shareholder proposal regarding golden parachutes |
|
Item 5—Shareholder proposal regarding political contributions
disclosure |
| Other Matters |
| Certain transactions |
| Other business |
| Shareholder communications
with directors |
| Shareholder recommendations
for director candidates |
| Shareholder proposals for
the 2005 annual meeting |
| Cost of soliciting your proxy |
| Shareholders sharing an address |
| Electronic access to annual
meeting materials |
| Annex: Definition of “Independent”
Directors |
Morgan Stanley
1585 Broadway
New York, New York 10036
March 4, 2004
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Proxy Statement
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We are sending you this proxy statement in connection with the solicitation
of proxies by our Board of Directors for the 2004 annual meeting of shareholders.
We are mailing this proxy statement and the accompanying form of proxy to
shareholders on or about March 6, 2004. In this proxy statement, we refer
to Morgan Stanley as the “Company,” “we” or “us.” When we refer to Morgan
Stanley’s fiscal year, as in “fiscal 2003,” we mean the twelve-month period
from December 1 through November 30.
Annual meeting information
Date and location of the annual meeting. We will hold the annual
meeting on Tuesday, April 20, 2004 at 11:00 a.m., local time, at our offices
at 2000 Westchester Avenue, Purchase, New York.
Admission to the annual meeting. Only record or beneficial owners
of Morgan Stanley’s common stock may attend the annual meeting in person.
When you arrive at the annual meeting, please present photo identification,
such as a driver’s license. Beneficial owners must also provide evidence
of stock holdings, such as a recent brokerage account or bank statement.
Electronic access to the annual meeting. You may listen to the meeting
over the internet through our website at www.morganstanley.com. Please go
to our website early to register and download any audio software.
Voting information
Record date. The record date for the annual meeting is February 20,
2004. You may vote all shares of Morgan Stanley’s common stock that you
owned as of the close of business on that date. Each share of common stock
entitles you to one vote on each matter to be voted on at the annual meeting.
On the record date, 1,096,950,522 shares of common stock were outstanding.
We need a majority of the shares of common stock outstanding on the record
date present, in person or by proxy, to hold the annual meeting.
Confidential voting. Our Bylaws provide that your vote is confidential
and will not be disclosed to any officer, director or employee, except in
certain limited circumstances such as when you request or consent to disclosure.
The Morgan Stanley 401(k) Plan (401(k) Plan) and the Employee Stock Ownership
Plan (ESOP) also have confidential voting provisions.
Submitting voting instructions for shares held in your name. If you
hold shares in your name as a record holder, you may vote your shares by
proxy through the mail, telephone or internet as described on the proxy
card. If you submit your proxy via the internet, you may incur costs such
as telephone and internet access charges. Submitting your proxy will not
limit your right to vote in person at the annual meeting. A properly completed
and submitted proxy will be voted in accordance with your instructions,
unless you subsequently revoke your instructions. If you submit a signed
proxy card without indicating your vote, the person voting the proxy will
vote your shares according to the Board’s recommendations.
Submitting voting instructions for shares held in employee plans.
If you hold shares in, or have been awarded stock units under, certain employee
plans, you will receive directions on how to submit your voting instructions
by mail, telephone or internet. Shares held in the following employee plans
also are subject to the following rules.
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| • |
401(k) Plan, Financial Advisor Productivity Compensation Plan
(FAPCP), Branch Manager Compensation Plan (BMCP), Employee Stock Purchase
Plan (ESPP) and ESOP. The 401(k) Plan, FAPCP, BMCP, ESPP and
ESOP trustee or custodian, as applicable, must receive your voting
instructions for the common stock held on your behalf in these plans
on or before April 18, 2004. If the trustee or custodian, as applicable,
does not receive your voting instructions by that date, it will vote
your shares (in the case of the ESOP, together with unallocated shares
in the ESOP), in each applicable plan, in the same proportion as the
voting instructions that it receives from other plan participants
in the applicable plan. On February 20, 2004, there were 253,037 shares
in the 401(k) Plan accounts, 1,418,940 shares in the FAPCP, 155,394
shares in the BMCP, 5,815,301 shares in the ESPP and 57,706,690 shares
in the ESOP.
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| • |
Other equity-based plans. State Street Bank and Trust
Company acts as trustee for a trust (Trust) that holds shares of common
stock underlying stock units awarded to employees under several of
Morgan Stanley’s equity-based plans. Mellon Bank, N.A. (Mellon) is
custodian of shares of restricted common stock awarded to employees
under the 1995 Equity Incentive Compensation Plan (EICP). Employees
allocated shares held in the Trust, or whose shares are held by Mellon,
must submit their voting instructions for receipt by the trustee or
Mellon, as applicable, on or before April 18, 2004. If the trustee
does not receive your instructions by that date, it will vote your
shares, together with shares held in the Trust that are unallocated
or held on behalf of former Morgan Stanley employees and employees
in certain foreign jurisdictions, in the same proportion as the voting
instructions that it receives for shares held in the Trust in connection
with such plans. If Mellon does not receive your instructions by that
date, it will vote your shares in the same proportion as the voting
instructions that the trustee receives for shares held in the Trust.
On February 20, 2004, 60,392,795 shares were held in the Trust in
connection with such plans and Mellon held 1,193,667 shares under
the EICP.
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Submitting voting instructions for shares held in street name.
If you hold shares through a broker, follow the voting instructions you
receive from your broker. If you want to vote in person, you must obtain
a legal proxy from your broker and bring it to the meeting. If you do not
submit voting instructions to your broker, your broker may still be permitted
to vote your shares. New York Stock Exchange (NYSE) member brokers may vote
your shares under the following circumstances.
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| • |
Discretionary items. The election of directors and
ratification of appointment of Morgan Stanley’s independent auditors
are “discretionary” items. Member brokers that do not receive instructions
from beneficial owners may vote on these proposals in the following
manner: (1) Morgan Stanley’s wholly owned subsidiaries, Morgan Stanley
& Co. Incorporated (MS&Co.) and Morgan Stanley DW Inc. (MSDWI), may
vote your shares only in the same proportion as the votes cast by
all record holders on the proposal; and (2) all other NYSE member
brokers may vote your shares in their discretion.
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| • |
Non-discretionary items. The shareholder proposals
are “non-discretionary” items and may not be voted on by NYSE
member brokers, including MS&Co. and MSDWI, absent specific voting
instructions from beneficial owners.
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If you do not submit voting instructions and your broker does not have
discretion to vote your shares on a matter, your shares will not be counted
in determining the outcome of the vote on that matter at the annual meeting.
Revoking your proxy. You can revoke your proxy at any time before
your shares are voted by (1) delivering a written revocation notice prior
to the annual meeting to Donald G. Kempf, Jr., Chief Legal Officer and Secretary,
Morgan Stanley, 1585 Broadway, New York, New York 10036; (2) submitting
a later proxy; or (3) voting in person at the annual meeting. Attending
the annual meeting does not revoke your proxy.
Votes required to elect directors and to adopt other proposals. Directors
are elected by a plurality of the votes cast. The ratification of
Deloitte & Touche’s appointment and the approval of the shareholder proposals
each requires the affirmative vote of a majority of the shares of
common stock represented at the annual meeting and entitled to vote thereon.
Withholding your vote or voting to “abstain.” In the election of
directors, you can withhold your vote for any nominee. Withheld votes will
be excluded entirely from the vote and will have no effect on the outcome.
On the other proposals, you can vote to “abstain.” If you vote to “abstain,”
your shares will be counted as present at the annual meeting for purposes
of that proposal and your vote will have the effect of a vote against
the proposal.
Item
1—Election of directors
Our Board currently has eleven (11) directors, divided into three classes.
Members of each class serve for a three-year term. Shareholders elect one
class of directors at each annual meeting. Each director holds office until
his or her successor has been duly elected and qualified or the director’s
earlier resignation, death or removal. Robert G. Scott, whose term expires
in 2006, has informed the Company that he will retire immediately following
the 2004 annual meeting. In addition, Robert P. Bauman, whose term expires
at the annual meeting, has informed the Company that, consistent with the
retirement provisions of the Board’s Corporate Governance Policies, he will
not stand for reelection. Our Board has nominated Sir Howard Davies to replace
Mr. Bauman. Therefore, upon Messrs. Scott’s and Bauman’s retirement, the
size of the Board will be reduced to ten (10) members and the class of directors
whose term expires in 2006 will be reduced from four (4) to three (3).
The Board proposes, based on the recommendation of its Nominating and Governance
Committee, the election of John W. Madigan, Dr. Klaus Zumwinkel and Sir
Howard Davies as directors for a term ending at the 2007 annual meeting.
Mr. Madigan and Dr. Zumwinkel are current directors of Morgan Stanley. Each
nominee has indicated that he 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 will be voted for another person nominated by
the Board.
Nominees for election for a three-year term ending in 2007
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John W. Madigan (66). Chairman (January
1996 to December 2003), Chief Executive Officer (May 1995 to December
2002) and President (May 1994 to July 2001) of Tribune Company, a
media company.
Director since: July 2000
Other directorships: AT&T Wireless Services, Inc. |
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Dr. Klaus Zumwinkel (60). Chairman of
the Board, Deutsche Post AG, a global corporation comprised of four
business divisions, including mail, express (including DHL Worldwide),
logistics and financial services (since 1995).
Director since: February 2004
Other directorships: Deutsche Lufthansa AG (Supervisory Board),
Deutsche Telekom AG (Chairman, Supervisory Board), Karstadt Quelle
AG (Supervisory Board) and C.V. International Post Corp., U.A. (Board
of Directors). |
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Sir Howard Davies (53). The Director,
London School of Economics and Political Science (since September
2003). Chairman and Chief Executive, the UK Financial Services Authority
(August 1997 to September 2003). Deputy Governor, the Bank of England
(September 1995 to August 1997).
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Our Board of Directors recommends a vote “FOR” the election of all
three nominees. Proxies solicited by our Board of Directors will be voted
“FOR” these nominees unless otherwise instructed.
Directors continuing in office—term expiring in 2005
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John E. Jacob (69). Executive Vice President-Global
Communications of Anheuser-Busch Companies, Inc., a global corporation
that includes a brewing organization, a manufacturer of aluminum beverage
containers and park operations (since 1994). President and Chief Executive
Officer of National Urban League, Inc. (1982 to 1994).
Director since: September 2001
Other directorships: Anheuser-Busch Companies, Inc. and Coca-Cola
Enterprises Inc. |
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Charles F. Knight (68). Chairman (since
1974), Chief Executive Officer (1973 to October 2000) of Emerson Electric
Co., a manufacturer of electronic and electrical products.
Director since: January 1999
Other directorships: Anheuser-Busch Companies, Inc.,
Emerson Electric Co., International Business Machines Corporation,
SBC Communications Inc. and BP p.l.c. |
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Miles L. Marsh (56). Chairman and Chief
Executive Officer of Fort James Corporation, a manufacturer and marketer
of consumer paper products (August 1997 to November 2000). Chairman
(January 1996 to August 1997) and President and Chief Executive Officer
(October 1995 to August 1997) of James River Corporation of Virginia.
Director since: May 1997; Director of Dean Witter, Discover
& Co. (December 1996 to May 1997)
Other directorships: GATX Corporation and Whirlpool Corporation |
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Dr. Laura D’Andrea Tyson (56). Dean of
the London Business School (since January 2002). Dean (July 1998 to
December 2001) and Class of 1939 Chair in Economics and Business Administration
(January 1997 to July 1998) at the Walter A. Haas School of Business
at the University of California, Berkeley. Chair of the President’s
National Economic Council (February 1995 to December 1996).
Director since: May 1997; Director of Morgan Stanley Group
Inc. (April 1997 to May 1997)
Other directorships: Eastman Kodak Company, SBC Communications
Inc. and Human Genome Sciences, Inc.
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Directors continuing in office—term expiring in 2006
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Philip J. Purcell (60). Chairman of the
Board and Chief Executive Officer (since May 1997). Chairman and Chief
Executive Officer of Dean Witter, Discover & Co. (1986 to May 1997).
Director or trustee of approximately 100 registered investment companies
for which Morgan Stanley Investment Advisors Inc., a wholly owned
subsidiary of Morgan Stanley, serves as investment manager or investment
adviser.
Director since: May 1997; Chairman of the Board of Dean Witter,
Discover & Co. (1986 to May 1997)
Other directorships: AMR Corporation |
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C. Robert Kidder (59).
President (November 2001 to March 2003) of Borden Capital,
Inc., a company which provided financial and strategic advice to the
Borden family of companies. Chairman of the Board (since January 1995)
and Chief Executive Officer (January 1995 to March 2002) of Borden
Chemical, Inc. (formerly Borden, Inc.), a forest products and industrial
chemicals company.
Director since: May 1997; Director of Dean Witter, Discover
& Co. (July 1993 to May 1997)
Other directorships: Electronic Data Systems Corporation and
Borden Chemical, Inc. |
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Michael A. Miles (64). Special Limited
Partner (since January 1995) in Forstmann Little & Co., a private
investment firm with interests in telecommunications, broadcasting,
healthcare and other industries.
Director since: May 1997; Director of Dean Witter, Discover &
Co. (February 1993 to May 1994; January 1995 to May 1997)
Other directorships: Sears, Roebuck and Co., The Allstate Corporation,
Time Warner Inc., Dell Computer Corporation, AMR Corporation, Exult,
Inc., Community Health Systems, Inc. and Citadel Broadcasting Corp.
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New nominees. At the direction of the Nominating
and Governance Committee, which consists solely of independent directors,
the Company retained a third party search firm, Heidrick and Struggles,
to identify potential board candidates with international experience. The
CEO provided the names of several potential director candidates, including
Dr. Klaus Zumwinkel and Sir Howard Davies, to Heidrick and Struggles to
consider for inclusion in a list of potential director candidates that it
prepared for the Committee. The Nominating and Governance Committee Chair
and the CEO asked several Committee members to meet with both nominees so
that the Committee members could assess the nominees as director candidates.
All Committee members who met the nominees recommended them as potential
directors to the Committee. The Committee, in turn, unanimously recommended
to the full Board that Dr. Zumwinkel be elected as a director and that Sir
Howard Davies be nominated for election. The Board followed the Committee’s
recommendation.
Board meetings and committees. Our Board met
10 times during fiscal 2003. Each director attended at least 78% of the
total number of meetings of the Board and committees on which the director
served that were held while the director was a member. As a group, the directors
attended approximately 94% of the total number of meetings of the Board
and committees on which the directors served while the directors were members.
The Board’s standing committees include the following:
| Committee |
Members |
Primary Responsibilities |
# of Meetings |
| Audit |
C. Robert Kidder (Chair)
John E. Jacob
John W. Madigan
Laura D’Andrea Tyson |
| |
• |
Monitors the integrity of the Company’s consolidated financial
statements, the Company’s compliance with legal and regulatory
requirements and the Company’s system of internal controls.
|
| |
• |
Selects, evaluates and, when appropriate, replaces the independent
auditor, and pre-approves audit and permitted non-audit services.
|
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• |
Monitors the qualifications, independence and performance
of the Company’s internal and independent auditors. |
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8 |
| Compensation |
Charles F. Knight (Chair)
Robert P. Bauman
C. Robert Kidder
Miles L. Marsh |
| |
• |
Determines the compensation of our executive officers and
such other officers as deemed appropriate.
|
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• |
Annually reviews and approves the corporate goals and objectives
relevant to the compensation of the CEO and evaluates his performance
in light of these goals and objectives.
|
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• |
Administers our incentive and equity-based compensation plans. |
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6 |
| Nominating and Governance |
Michael A. Miles (Chair)
Robert P. Bauman
John E. Jacob
John W. Madigan
Miles L. Marsh
Laura D’Andrea Tyson |
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• |
Identifies and recommends candidates for election to the Board.
|
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• |
Establishes procedures for its oversight of the evaluation
of the Board and management.
|
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• |
Recommends director compensation and benefits.
|
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• |
Reviews annually our corporate governance policies. |
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3 |
Our Board has adopted written charters for the Audit, Compensation and Nominating
and Governance Committees setting forth the roles and responsibilities of
each committee. These charters are available at www.morganstanley.com. The
Board has determined that each non-management director and director nominee
is independent in accordance with the standards of independence established
under our Corporate Governance Policies (attached as an Annex). All members
of the Audit, Compensation and the Nominating and Governance Committees
satisfy the standards of independence applicable to members of such committees
established under applicable law and NYSE listing requirements. In addition,
the Board has determined that each of Mr. Kidder and Mr. Madigan is an “audit
committee financial expert” within the meaning of the current rules of the
Securities and Exchange Commission (SEC).
Non-employee director meetings. The non-employee
directors met two (2) times in fiscal 2003 without any Company representative
present. Pursuant to the Company’s Corporate Governance Policies, the chair
of the Audit, Compensation or Nominating and Governance Committee leads
the non-employee Board sessions and is chosen by the non-employee directors
based on who is the most knowledgeable and appropriate leader given the
subject of the meeting. The session leader can retain independent consultants
and schedule meetings.
Director compensation. Employee directors
receive no compensation for Board service.
| • |
Fees. The Corporate Governance Policies provide that
the Company should not enter into paid consulting agreements with
non-employee directors. Non-employee directors receive the following
retainers and fees for their Board service:
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Board Member |
$ |
35,000 |
|
annually |
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Committee Chair |
$ |
7,500 |
|
annually |
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Committee Member |
$ |
5,000 |
|
annually |
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Attendance at Board or Committee
Meeting
|
$ |
1,000 |
|
per meeting |
|
| • |
Directors’ Equity Capital Accumulation Plan (DECAP).
Under DECAP, non-employee directors receive 6,000 stock options and
2,000 shares of common stock upon becoming a director and annually
thereafter while a director. Stock options have an exercise price
equal to the fair market value of a share of common stock on the award
date. DECAP also provides that the non-employee directors may elect
to (1) receive all or a portion of their annual committee retainers,
on a current or deferred basis, in cash or shares of common stock;
(2) receive all or a portion of their meeting fees, on a current or
deferred basis, in cash or in shares of common stock (with respect
to elections to receive common stock on a current basis, meeting fees
are credited to a cash deferral account until the date of the next
annual meeting); (3) defer receipt of common stock grants; and (4)
receive the annual $35,000 Board retainer either in shares of common
stock, on a current or deferred basis, or in stock options (the number
of stock options is obtained by dividing $35,000 by the fair market
value of a share of common stock on the award date and multiplying
the result by three; each stock option has an exercise price equal
to the fair market value of a share of common stock on the award date).
Directors receive dividends on any deferred common stock in the form
of additional deferred common stock.
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| • |
Other benefits. Morgan Stanley matches certain charitable
gifts by non-employee directors up to $2,000 per year. During fiscal
2003, we matched $2,000 in charitable gifts on behalf of each of John
E. Jacob and Charles F. Knight. Miles L. Marsh received Company-provided
transportation valued at $1,099. Non-employee directors do not receive
Company retirement benefits. |
Director attendance at annual meetings.
In 2003, our Board revised the Company’s Corporate Governance Policies to
state that directors are expected to attend annual meetings of shareholders.
Two directors attended the 2003 meeting, which was held before our Board
revised the policies.
Corporate governance
Our Board has maintained corporate governance policies for many years and
has updated them from time to time. Our Board has had in place several of
the NYSE’s new corporate governance requirements for many years. Corporate
governance highlights are listed below.
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• |
Our Board has a substantial majority (82%) of non-employee
directors. Upon Mr. Scott’s retirement, our Board will be composed
of 90% non-employee directors. Since our Board adopted its Corporate
Governance Policies, all non-employee directors have been independent
in accordance with those policies.
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| |
• |
Our director independence definition is more stringent than required
by the NYSE.
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| |
• |
Since 1994, only non-employee directors have comprised our Audit,
Compensation and Nominating and Governance committees.
|
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• |
All of our Audit Committee members meet NYSE standards for independence,
financial literacy and
financial management expertise. Two members of the Audit Committee
are “audit committee financial
experts” under SEC rules.
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| |
• |
Our Audit Committee hires, determines the compensation of, and decides
the scope of services performed by our independent auditors. It also
has authority to retain independent outside advisors.
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• |
Our Corporate Governance Policies provide that the Company should
not enter into paid consulting agreements with non-employee directors.
|
| |
• |
Our Compensation Committee retained an independent consultant, Towers
Perrin, to assist it.
|
| |
• |
Our Compensation Committee evaluates the CEO and discusses the evaluation
with the Board in executive session.
|
| |
• |
Our Nominating and Governance Committee retained an independent
consultant, Towers Perrin, to advise it on director compensation.
At the direction of the Nominating and Governance Committee, the Company
retained an independent consultant, Heidrick and Struggles, to advise
on potential director candidates.
|
| |
• |
Our Code of Ethics and Business Conduct applies to our directors,
officers and employees and sets forth basic principles to guide their
day-to-day activities.
|
| |
• |
Our Corporate Governance Policies oppose the re-pricing of our outstanding
stock options.
|
| |
• |
Our Bylaws provide for confidential voting.
|
| |
• |
Our Management Committee has adopted an Equity Ownership Commitment
that its members retain 75% of net equity held and equity subsequently
awarded to them.
|
The Corporate Governance Policies (including our independence definition),
Code of Ethics and Business Conduct, Board committee charters and Management
Committee Equity Ownership Commitment are available at www.morganstanley.com.
Beneficial ownership of Company
common stock
Stock ownership of directors and executive officers.
We encourage stock ownership by our directors, officers and employees to
align their interests with your interests as shareholders. The following
table sets forth the beneficial ownership of common stock, as of January
30, 2004, by each of our directors and executive officers named in the summary
compensation table (Named Executive Officers), as well as by all our directors,
director nominees and executive officers as a group.
|
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Common
Stock Beneficially Owned as of January 30, 2004
|
|
|
Name |
|
|
Shares(1) |
|
|
|
Underlying
Stock Units(2) |
|
|
Subject
to
Stock Options
Exercisable within 60
days of 1/30/04(3) |
|
|
Total(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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NAMED EXECUTIVE OFFICERS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Philip J. Purcell |
|
|
2,790,157 |
|
|
|
464,726 |
|
|
|
2,618,744 |
|
|
|
5,873,627 |
|
|
Robert G. Scott |
|
|
1,979,111 |
|
|
|
451,791 |
|
|
|
1,303,832 |
|
|
|
3,734,734 |
|
|
Stephan F. Newhouse |
|
|
386,639 |
|
|
|
676,714 |
|
|
|
942,454 |
|
|
|
2,005,807 |
|
|
Vikram S. Pandit |
|
|
352,071 |
|
|
|
1,242,530 |
|
|
|
1,471,289 |
|
|
|
3,065,890 |
|
|
Zoe Cruz |
|
|
103,068 |
|
|
|
733,686 |
|
|
|
780,492 |
|
|
|
1,617,246 |
|
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DIRECTORS AND DIRECTOR NOMINEES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert P. Bauman |
|
|
6,152 |
|
|
|
11,723 |
|
|
|
68,108 |
|
|
|
85,983 |
|
|
Sir Howard Davies |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
John E. Jacob |
|
|
1,000 |
|
|
|
6,748 |
|
|
|
24,000 |
|
|
|
31,748 |
|
|
C. Robert Kidder |
|
|
19,500 |
|
|
|
16,143 |
|
|
|
84,108 |
|
|
|
119,751 |
|
|
Charles F. Knight |
|
|
2,012 |
|
|
|
12,729 |
|
|
|
48,000 |
|
|
|
62,741 |
|
|
John W. Madigan |
|
|
0 |
|
|
|
6,610 |
|
|
|
39,177 |
|
|
|
45,787 |
|
|
Miles L. Marsh |
|
|
13,200 |
|
|
|
8,002 |
|
|
|
64,000 |
|
|
|
85,202 |
|
|
Michael A. Miles |
|
|
42,788 |
|
|
|
15,901 |
|
|
|
76,108 |
|
|
|
134,797 |
|
|
Dr. Laura D’Andrea Tyson |
|
|
7,498 |
|
|
|
1,222 |
|
|
|
53,796 |
|
|
|
62,517 |
|
|
Dr. Klaus Zumwinkel |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
All directors, director nominees and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
executive officers as a group (24 persons) |
|
|
6,651,336 |
|
|
|
7,074,749 |
|
|
|
13,876,816 |
|
|
|
27,602,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Each director and executive officer has sole voting and investment
power with respect to these shares, except as described in this footnote:
45,362 shares owned by Mr. Purcell’s spouse and 5,696 shares held for Mr.
Purcell’s child in a custodial account for which Mr. Purcell is custodian,
with respect to all of which he disclaims beneficial ownership; 150,000
shares contributed by Mr. Scott to an exchange fund, with respect to which
the fund’s investment manager has sole voting and investment power but which
Mr. Scott may redeem within 60 days if the fund then holds the shares; and
241,047 shares, shown in the table as held by the directors, director nominees
and executive officers as a group (20,000 of which beneficial ownership
has been disclaimed), with respect to which certain executive officers (other
than Named Executive Officers) have shared voting and investment power with
family members.
(2) Shares of common stock held in the Trust corresponding to
stock units. Directors and executive officers may direct the voting of the
shares corresponding to their stock units. Voting by executive officers
is subject to the voting provisions of the Trust described on page 2.
(3) Includes options granted to executive officers in respect
of fiscal 2003, 2002 and 1999 compensation.
(4) Each executive officer and director beneficially owned less
than 1% of the shares of common stock outstanding. All directors and executive
officers as a group beneficially owned approximately 2.5% of the common
stock outstanding.
Principal shareholders. The following table
contains information regarding the only persons we know of that beneficially
own more than 5% of our common stock.
|
|
|
|
|
|
|
|
| |
|
|
Shares of Common Stock
Beneficially Owned |
| |
Name and Address |
|
Number |
|
Percent |
|
|
|
|
|
|
| |
State Street Bank and Trust Company(1)
225 Franklin Street, Boston, MA 02110 |
|
94,267,589 |
|
8.7% |
| |
FMR Corp.(2)
82 Devonshire Street, Boston, MA 02109 |
|
83,984,148 |
|
7.7% |
| |
Barclays Global Investors, N.A.,
and other reporting entities(3)
45 Fremont Street, San Francisco, CA 94105 |
|
55,075,614 |
|
5.1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Based on a Schedule 13G Information Statement filed February
4, 2004 by State Street, acting in various fiduciary capacities. The Schedule
13G discloses that State Street had sole voting power as to 27,155,932 shares,
shared voting power as to 64,664,771 shares, sole dispositive power as to
28,475,012 shares and shared dispositive power as to 65,792,577 shares;
that shares held by State Street on behalf of the Trust and a Company-sponsored
equity-based compensation program amounted to 6.1% of the common stock;
and that State Street disclaimed beneficial ownership of all shares reported
therein.
(2) Based on a Schedule 13G Information Statement filed February
17, 2004 by FMR, Edward C. Johnson 3d, Abigail P. Johnson and Fidelity Management
& Research Company (Fidelity), a wholly owned subsidiary of FMR. Certain
of the shares listed above are beneficially owned by FMR subsidiaries and
related entities. The Schedule 13G discloses that FMR had sole voting power
as to 5,704,552 shares and that Mr. and Ms. Johnson did not have sole voting
power as to any shares. The Schedule 13G also discloses that FMR and Mr.
and Ms. Johnson had sole dispositive power as to all shares and no shared
voting or dispositive power. The Schedule 13G states that Mr. and Ms. Johnson
and various family members, through their ownership of FMR voting common
stock and the execution of a shareholders’ voting agreement, may be deemed
to form a controlling group with respect to FMR. The Schedule 13G indicates
that 77,812,326 shares are beneficially owned by Fidelity as a result of
acting as an investment adviser to several investment companies (ICs). Mr.
Johnson, FMR, through its control of Fidelity, and the ICs each had sole
dispositive power as to all such shares. Neither Mr. Johnson nor FMR had
sole voting power as to such shares, as such power resides with the ICs’
Boards of Trustees and is carried out by Fidelity under written guidelines
established by such Boards. The Schedule 13G also indicates that 4,126,755
shares are beneficially owned by Fidelity Management Trust Company (Fidelity
Trust), a wholly owned subsidiary of FMR, as a result of its serving as
investment manager of certain institutional accounts. Mr. Johnson and FMR,
through its control of Fidelity Trust, each had sole dispositive power as
to all such shares and sole voting power as to 3,651,355 shares. The Schedule
13G indicates that 2,036,110 shares are beneficially owned by Fidelity International
Limited (FIL), an entity independent of FMR. Mr. Johnson is Chairman of
FIL, and approximately 40% of the voting power of FIL is held by a partnership
controlled by him and family members. FIL had sole voting and dispositive
power as to all such shares. FMR and FIL are of the view that they are not
required to attribute to each other shares beneficially owned by the other
corporation.
(3) Based on a Schedule 13G Information Statement filed February
17, 2004 by Barclays Global Investors, N.A., Barclays Global Fund Advisors,
Barclays Global Investors, Ltd, Barclays Global Investors Japan Trust and
Banking Company Limited, Barclays Life Assurance Company Limited, Barclays
Bank PLC, Barclays Capital Securities Limited, Barclays Capital Inc., Barclays
Private Bank & Trust (Isle of Man) Limited, Barclays Private Bank and Trust
(Jersey) Limited, Barclays Bank Trust Company Limited, Barclays Bank (Suisse)
SA and Barclays Private Bank Limited. In the Schedule 13G, the reporting
entities do not affirm the existence of a group. The Schedule 13G discloses
that the reporting entities, taken as a whole, had sole voting and sole
dispositive power as to 48,217,483 shares and 48,271,543 shares, respectively,
and did not have shared power as to any shares.
Executive compensation
Compensation Committee report on executive
compensation.
Compensation governance. The Compensation Committee is responsible
to Morgan Stanley’s Board of Directors and to shareholders for approving
compensation awarded to all members of the Company’s Management Committee,
including the Named Executive Officers. The Committee authorizes all awards
under Morgan Stanley’s equity-based compensation plans and operates under
a written charter adopted by the Board.
Compensation policies. Our fundamental policy is to link closely
our Management Committee’s compensation with the achievement of annual and
long-term performance goals. We award compensation based upon Company, business
unit and individual performance in a manner that motivates our Management
Committee members to achieve strategic business objectives and continue
to perform at the highest levels in the future. We provide total compensation
that we believe is comparable to that of Morgan Stanley’s competitors, thereby
enabling Morgan Stanley to attract and retain employees critical to its
long-term success and the creation of shareholder value. We also include
a significant equity component in total compensation because we believe
that equity-based compensation aligns the long-term interests of employees
with those of shareholders.
We consider several factors in awarding compensation. We assess Morgan Stanley’s
results and compare them to estimates of competitors’ results. We also receive
input and estimates from external sources of what our competitors will pay
their key employees. External sources also provide input regarding the competitive
marketplace for the talents and skills of Morgan Stanley’s employees. We
utilize both quantitative and qualitative factors when determining total
compensation for Management Committee members and when awarding equity-based
compensation to employees. Quantitative factors include, among others, absolute
levels of, and year-to-year changes in, return on equity (ROE), consolidated
net revenues, consolidated net income, profit before taxes, earnings per
share, book value per share, market share and several key business drivers.
Qualitative factors include achievement of pre-established performance goals,
differentiating our brand, customer satisfaction, retaining key employees
and subjective assessments of individual performances. We utilize ROE as
a key measure of corporate performance, both on an absolute basis and compared
to estimates of our competitors’ performance. We also review the ratios
of compensation to net revenues and compensation to pre-compensation profit
before taxes. We review survey data regarding competitors for purposes of
monitoring Management Committee compensation levels in relation to similar
jobs in the marketplace. We engaged Towers Perrin to provide independent
insights on executive compensation matters, both generally and within our
industry. We considered all these factors, but determined total compensation
based upon a more subjective process, focusing primarily on Company and
business unit financial performance, on an absolute and comparative basis,
individual performance and expected market compensation.
Our policy is to maximize the tax deductibility of compensation payments
to Management Committee members under Section 162(m) of the Internal Revenue
Code and the regulations thereunder (Section 162(m)). Our shareholders have
approved our incentive plans designed and administered to qualify compensation
awarded thereunder as “performance-based.” We may, however, authorize payments
to Management Committee members that may not be fully deductible if we believe
such payments are in our shareholders’ interests.
Compensation program. Our Management Committee members receive annual
compensation (excluding employee benefits) composed of base salary and incentive
compensation consisting of a cash bonus and equity-based awards (restricted
stock units and stock options). Base salary and incentive compensation constitute
a Management Committee member’s “Total Reward.” In general, the greater
the Total Reward, the greater the percentage of the total that is awarded
in the form of long-term, equity-based compensation.
1. Base salaries. Management Committee members receive a relatively
small portion of their overall compensation as base salary. We consider
individual experience, responsibilities and tenure when determining base
salaries. Base salaries are generally in the range of median base salaries
paid by certain key competitors included in the group of Financial Services
Companies identified below to employees having duties and responsibilities
comparable to those of our Management Committee members.
|
2. Incentive compensation. Our Management Committee members’ Total
Reward is heavily weighted towards performance-based long-term incentive
compensation. Their annual incentive compensation varies by Company, business
unit and individual performance. We believe this links their compensation
with Company, business unit and individual performance, and is consistent
with our compensation policies discussed above. Generally, a portion of
the annual incentive compensation is paid in cash, and a significant portion
is paid in equity. During employment, equity awards vest 50% two years after
grant and 50% three years after grant, and option and unit shares are not
transferable for approximately five years after grant. The value of equity
awards cannot be realized immediately and depends upon the future market
value of Morgan Stanley’s stock. We believe that equity-based compensation,
the value of which depends upon the Company’s future financial performance
and stock price, provides a continuing incentive to Management Committee
members to continue in employment and foster Morgan Stanley’s success long
after we award the compensation. We believe it also aligns their interests
with those of shareholders.
Compensation for fiscal 2003. We analyzed several different factors
when awarding incentive compensation for fiscal 2003. We:
|
| |
• |
considered Morgan Stanley’s ROE on an absolute and comparative basis;
|
| |
• |
reviewed Morgan Stanley’s achievements and financial performance
for fiscal 2003 and individual and business unit performance, both
on an absolute basis and against pre-established performance goals;
|
| |
• |
compared Morgan Stanley’s and its business units’ financial performance
in fiscal 2003 to the estimated financial performance of most of the
Financial Services Companies identified below, including key competitors
in that group, and certain other competitors;
|
| |
• |
considered market share progress in each of the Company’s business
units;
|
| |
• |
considered the estimated compensation levels of executives of the
Financial Services Companies and other competitors; and
|
| |
• |
considered positive differentiation of reputation and brand, including
positive client development, on an absolute and comparative basis. |
|
These factors were not, however, the sole items we considered, and we
did not target Total Rewards to fall at any particular point within a range
established by a comparison of the financial performance of, or compensation
levels of, the Financial Services Companies or the other competitors operating
in the same or similar businesses as the Company. For purposes of this report,
the term “Financial Services Companies” means the following companies (or
subdivisions thereof): Alliance Capital Management; American Express Company;
Bank One Corporation; The Bear Stearns Companies Inc.; BlackRock, Inc.;
Capital One Financial Corporation; Citigroup Inc.; Credit Suisse Group;
Deutsche Bank AG; The Goldman Sachs Group, Inc.; J.P. Morgan Chase & Co.;
Lehman Brothers Holdings Inc.; MBNA Corporation; Merrill Lynch & Co., Inc.;
MFS Investment Management; Putnam Investments; T. Rowe Price Group, Inc.;
UBS AG; and Wachovia Corporation.
We believe Morgan Stanley performed well in 2003, in securities markets
that generally improved during the year. Fixed income trading, capital markets,
mergers and acquisitions and IIG all experienced increasing business activities,
particularly during the second half of the year. The Company increased market
share in announced M&A and global equity underwriting, maintained a leading
market share role in equity secondary trading and had stable market shares
in fixed income and IIG. It also experienced market share declines in Investment
Management and Credit Services.
Net income increased 27% from $2.99 billion in fiscal 2002 to $3.79 billion
in fiscal 2003 driven by improved results in Institutional Securities and
IIG that were partially offset by weaker results in Investment Management
and Credit Services. The Company strengthened its balance sheet, improved
its capital and liquidity positions, had the lowest adjusted leverage of
its peers and maintained strong credit ratings, including ratings from Fitch,
Moody’s and Standard & Poor’s of “AA–”, “Aa3” and “A+”, respectively. The
Company ROE was 16.5%, a strong performance in the 2003 business environment,
and up 17% from 14.1% in 2002. Consolidated net revenues increased 9% from
$19.12 billion in fiscal 2002 to $20.86 billion in fiscal 2003.
We certified in accordance with Section 162(m) that Morgan Stanley’s financial
results for fiscal 2003 satisfied the performance criteria set in accordance
with Section 162(m) for fiscal 2003. After an analysis of the considerations
set forth above, we awarded above-base incentive compensation to the Management
Committee members for fiscal 2003 that was equal to or below the maximum
amount yielded by the application of the compensation formula contained
in the performance criteria. We awarded incentive compensation to the Management
Committee members, partly in cash and partly in the form of long-term equity
components (restricted stock units and options). We awarded an average of
approximately 40% of each Management Committee member’s Total Reward in
long-term equity. We ascribed value to restricted stock units based on a
25% discount from the fair market value of the common stock to compensate
for the vesting characteristics and the significant restrictions on disposition
of these units. Accordingly, the value we ascribed to such units differs
from the amounts reported in the summary compensation table under the column
headed “Restricted Stock Awards” because the amounts contained in the table
are based on the fair market value of the common stock on the grant date
without any discount. We valued stock option awards based upon a ratio of
three options per share of Morgan Stanley’s common stock (2.25:1 with a
25% discount). The ratio is based upon Morgan Stanley’s historical practices
and is competitive with Morgan Stanley’s key competitors’ compensation practices.
CEO compensation for fiscal 2003. The CEO’s salary is based on the
criteria described in this report. Based upon competitive data, we did not
increase the CEO’s salary for fiscal 2003.
We determined incentive compensation for Mr. Purcell in accordance with
the policies described above relating to all Management Committee members
based on substantially the same factors and Section 162(m) performance criteria
as for the other Management Committee members. In addition, we considered
Mr. Purcell’s work with several important institutional clients. Based on
his individual and Morgan Stanley’s overall performance, Mr. Purcell’s Total
Reward was $14,000,000, consisting of the following components:
|
| Base Salary |
|
Cash Bonus |
|
73,493 Restricted Units |
|
165,360 Stock Options |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
| $775,000 |
|
$7,112,500 |
|
$3,056,250 |
|
$3,056,250 |
|
$14,000,000 |
|
|
The equity-based awards contain the terms and conditions discussed in the
tables on pages 14 through 15. Approximately 44% of Mr. Purcell’s incentive
compensation was equity-based and its value is tied to the performance of
Morgan Stanley’s common stock. Mr. Purcell’s compensation reflects the Company’s
financial performance and his individual leadership displayed throughout
the year.
Conclusion. Attracting and retaining talented and motivated management
and employees is essential to create long-term shareholder value. Offering
a competitive, performance-based compensation program with a large equity
component helps to achieve this objective by aligning the interests of Management
Committee members and other key employees with those of shareholders. We
believe that Morgan Stanley’s fiscal 2003 compensation program met these
objectives.
Respectfully submitted,
Charles F. Knight, Chair
Robert P. Bauman
C. Robert Kidder
Miles L. Marsh
Summary compensation table. The following table
contains information with respect to the CEO and the four other most highly
compensated executive officers.
|
| |
|
|
ANNUAL COMPENSATION |
|
|
LONG-TERM
COMPENSATION
AWARDS |
|
|
|
| Name and Principal
Position |
Fiscal
Year |
|
Salary ($)(1) |
|
Bonus ($)(1) |
|
Other
Annual
Compensation ($) |
|
|
Restricted
Stock
Awards ($)(2) |
|
Securities
Underlying
Options (#) |
|
|
All Other
Compensation ($)(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Philip J. Purcell |
2003 |
|
775,000 |
|
7,112,500 |
|
|
156,341 |
(4) |
|
|
4,062,693 |
|
165,360 |
(5) |
|
|
17,480 |
| Chairman of the Board |
2002 |
|
775,000 |
|
5,612,500 |
|
|
— |
|
|
|
3,063,570 |
|
162,572 |
(5) |
|
|
14,590 |
| and CEO |
2001 |
|
775,000 |
|
7,612,500 |
|
|
— |
|
|
|
4,410,193 |
|
173,934 |
(5) |
|
|
19,690 |
Robert G. Scott* |
2003 |
|
550,000 |
|
14,839,000 |
(6) |
|
132,853 |
(4) |
|
|
— |
|
— |
|
|
|
17,480 |
| President and COO |
2002 |
|
550,000 |
|
5,475,000 |
|
|
— |
|
|
|
2,972,240 |
|
157,726 |
(5) |
|
|
14,590 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
284,189 |
(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
441,915 |
|
|
|
|
| |
2001 |
|
474,658 |
|
7,262,671 |
|
|
— |
|
|
|
4,176,858 |
|
164,732 |
(5) |
|
|
19,690 |
Stephan F. Newhouse* |
2003 |
|
425,000 |
|
6,787,500 |
|
|
909,149 |
(8) |
|
|
3,846,658 |
|
156,567 |
(5) |
|
|
17,480 |
| Co-President and COO of |
2002 |
|
425,000 |
|
5,287,500 |
|
|
247,575 |
(8) |
|
|
2,847,711 |
|
151,117 |
(5) |
|
|
14,590 |
| Institutional Securities Group |
2001 |
|
425,000 |
|
7,037,500 |
|
|
245,470 |
(8) |
|
|
4,026,703 |
|
158,809 |
(5) |
|
|
19,690 |
Vikram S. Pandit* |
2003 |
|
425,000 |
|
6,787,500 |
|
|
— |
|
|
|
3,846,658 |
|
156,567 |
(5) |
|
|
17,480 |
| Co-President and COO of |
2002 |
|
425,000 |
|
5,287,500 |
|
|
— |
|
|
|
2,847,711 |
|
151,117 |
(5) |
|
|
14,590 |
| Institutional Securities Group |
2001 |
|
425,000 |
|
7,037,500 |
|
|
— |
|
|
|
4,026,703 |
|
158,809 |
(5) |
|
|
19,690 |
Zoe Cruz |
2003 |
|
300,000 |
|
7,850,000 |
|
|
— |
|
|
|
4,552,860 |
|
185,311 |
(5) |
|
|
17,480 |
| Head of Worldwide |
2002 |
|
300,000 |
|
4,600,000 |
|
|
— |
|
|
|
2,391,063 |
|
126,886 |
(5) |
|
|
14,590 |
| Fixed Income, FX and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Commodities |
2001 |
|
300,000 |
|
5,350,000 |
|
|
— |
|
|
|
2,901,220 |
|
114,421 |
(5) |
|
|
19,690 |
|
* Mr. Scott retired as President and Chief Operating Officer November 30,
2003. On December 1, 2003, Mr. Newhouse became President of Morgan Stanley,
and Mr. Pandit became President and COO of Institutional Securities.
(1) Includes amounts contributed to various Morgan Stanley deferred
compensation plans.
(2) The market value of the common stock underlying restricted
stock units (RSUs) using the closing price per share of common stock on
the applicable grant date, as reported on the New York Stock Exchange Composite
Transaction Tape, and without recognizing any diminution in value attributable
to the restrictions on RSUs. Fiscal 2003 RSUs were granted on November 28,
2003 (the closing price on that date was $55.28) and vest 50% on January
2, 2006 and the final 50% on January 2, 2007. Fiscal 2002 RSUs were granted
on December 5, 2002 (the closing price on that date was $42.40) and vest
on January 2, 2005. Fiscal 2001 RSUs were granted on December 6, 2001 (the
closing price on that date was $57.05) and vested on January 2, 2004. All
unvested RSUs are subject to earlier vesting upon termination of employment
without cause or upon a change of control of Morgan Stanley and receive
dividend equivalents at the same rate that dividends are paid on shares
of common stock. These RSUs are neither transferable nor generally distributed
in the form of shares of common stock for five years after the grant date
and are subject to cancellation in certain circumstances. The following
lists the number of RSUs awarded in each applicable year and the total number
and value of RSUs held as of fiscal 2003 year end (including the fiscal
2003 grant). The value ascribed to RSUs in this table differs from the value
ascribed to them by the Compensation Committee. See the Compensation Committee
report on executive compensation, beginning on page 11.
|
|
|
