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Deliver Pay for
Sustainable

Performance

•   Variable annual incentives and performance-vested long-term incentives tied to future performance against strategic goals

•   Consideration of returns for shareholders and appropriate rewards to motivate employees

Align
Compensation with 

Shareholders’

Interests

•   Significant portion of incentive compensation is deferred, subject to cancellation and clawback, and tied to the Firm’s stock with retention requirements

•   Ongoing shareholder engagement to understand shareholder views

•   Competitive pay levels to attract and retain the most qualified employees in a highly competitive global talent environment

•   Incentive awards include vesting and cancellation provisions that retain employees and protect the Firm’s interests

•   Compensation arrangements do not incentivize unnecessary or excessive risk-taking that could have a material adverse effect on the Firm

•   Robust governance around review and approval of compensation programs, including from a risk perspective

2018 – 2019 Strategic Objectives

2018 Results

Deliver Wealth Mgmt. Pre-Tax Margin⁽²⁾

of 26 – 28%

✓

Pre-Tax Margin⁽²⁾ of 26.2%

Expand Institutional Securities Penetration and Leadership

✓

8% net revenue operating growth⁽³⁾;

wallet share expansion across Sales

& Trading and Investment Banking

Position Investment Management for

Growth

Ongoing

9% asset management revenue

operating growth⁽³⁾; positive

long-term net flows⁽⁴⁾

Realize Firm Expense Efficiency Ratio⁽⁵⁾

of £73%

✓

Efficiency ratio⁽⁵⁾ of 72.0%

Maintain Attractive Capital Return Profile

✓-

Maintained $6.8Bn aggregate

distribution⁽⁶⁾

ROE⁽⁷⁾: 10% – 13%

ROTCE⁽⁸⁾: 11.5% – 14.5%

✓

ROE⁽⁷⁾: 11.5%

ROTCE⁽⁸⁾: 13.2%

Firm

Revenue

$40.1Bn

Record

Pre-Tax Profit⁽¹⁾

$11.2Bn

Record

Net Income⁽²⁾

$8.7Bn

Record

Investment Banking Revenues

$6.1Bn

Record

Equity Revenues

$9.0Bn

#1 Globally⁽³⁾

Revenues

$17.2Bn

Record

Pre-Tax Profit⁽¹⁾

$4.5Bn

Record

Pre-Tax Margin⁽⁴⁾

26.2%

Record

  Attractive Capital Return Profile

  Ability to Invest for Growth

  Share Repurchases⁽¹⁾

  (Calendar Year – $Bn)

  Capital

  (End of Period – $Bn)

  Return on Equity and Return on

  Tangible Common Equity⁽²⁾⁽³⁾

  (%)

  Firm Expense Efficiency Ratio⁽¹⁾, ex DVA⁽²⁾ (%)

Pre-Tax Profit⁽³⁾, ex DVA⁽²⁾ ($Bn)

Key Features of Compensation Program

Deferred Incentive Compensation

•  75% of 2018 CEO incentive compensation is deferred over three years

•  Clawbacks cover material adverse outcomes, even absent misconduct

•  No automatic vesting on change-in-control, double trigger in place

Performance-Vested Long-Term Equity Incentive Award

•  CEO performance-vested award is 50% of bonus, consistent with shareholder feedback

•  ROE goals were increased for awards granted as part of 2018 compensation

•  Shares earned can range from 0 – 1.5x target based on three year performance against ROE and TSR goals

Equity-Based Compensation

•  Significant portion of equity-based compensation aligns employee and shareholder interests with 100% of CEO deferred compensation awarded in equity

•  Meaningful share ownership and retention requirements further shareholder alignment

Executive Compensation Best Practices

•  Prohibitions on pledging, hedging, selling short or trading derivatives

•  No excise tax protection upon a change-in-control

•  Annual risk review of compensation programs

•  CMDS Committee retains independent compensation consultant

    Board Structure     

and Independence

•  5 new directors since 2016; diversity of skills, attributes and perspectives

•  Average tenure ~5 years; 31% female

•  Expansive Independent Lead Director role⁽¹⁾

•  Oversees Firm’s strategy, annual business plans, Enterprise Risk Management (ERM) framework, and culture, values and conduct

•  Reviews succession plans for CEO and senior executives and strategic progress

•  Conducts annual offsite with management to review long-term strategy

Shareholder Rights and Accountability

•  Bylaws provide for proxy access

•  Shareholders who own at least 25% of common stock may call special meeting of shareholders

•  All directors elected annually by majority vote

•  No “poison pill” in effect

Annual Evaluations

•  Board, Independent Lead Director and Committee self-assessments

•  One-on-one Board member interviews and written guidelines

•  Encompasses duties and responsibilities, individual director performance, Board and committee structure, culture, process and execution

Shareholder Engagement

•  Board and management values the views of shareholders

•  Investor input has led to proxy access and enhanced proxy disclosure of: Board evaluation process, director orientation/education, succession planning, Environmental, Social, and Governance matters and enhanced alignment of compensation and performance

A detailed analysis of the Firm’s financial and operational performance for 2018 is contained in the Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the Firm’s Annual Report on Form 10-K for the year ended December 31, 2018 (2018 Form 10-K).

Pre-Tax Profit is defined as income (loss) from continuing operations before income taxes.

Represents net income applicable to Morgan Stanley.

Pre-Tax Margin represents Pre-Tax Profit divided by net revenues. Pre-Tax Margin is a non-GAAP financial measure that the Firm considers useful for analysts, investors and other stakeholders to assess operating performance.

Net revenue operating growth for Institutional Securities excludes the impact of the 2018 gross ups which resulted from the adoption of the accounting update, Revenue from Contracts with Customers (‘Revenue Recognition’). See Note 2 to the financial statements included in the 2018 Form 10-K for information on the adoption of the Revenue Recognition accounting update. Net revenue operating growth excluding the impact of the adoption of the Revenue Recognition accounting update is a non-GAAP financial measure the Firm considers useful for analysts, investors and other stakeholders to assess year-over-year operating performance.

Compensation range informed by prior year CEO pay levels at 16 Peer Financial Companies, including (i) five large U.S. banks: Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, and Wells Fargo; and (ii) other financial companies in S&P 100 index: AIG, Allstate, American Express, BlackRock, BNY Mellon, Capital One, Mastercard, MetLife, Paypal, US Bancorp, and VISA.

Pre-Tax Margin represents income (loss) from continuing operations before taxes divided by net revenues. Pre-Tax Margin is a non-GAAP financial measure that the Firm considers useful for analysts, investors and other stakeholders to assess operating performance.

Firm Expense Efficiency Ratio represents total non-interest expenses as a percentage of net revenues.

The calculation of return on average common equity (‘ROE’) for the medium term target utilizes net income applicable to Morgan Stanley less preferred dividends as a percentage of average common equity, exclusive of intermittent discrete tax items. When excluding intermittent net discrete tax benefits, both the ROE numerator and denominator are adjusted. Beginning in 2017, income tax consequences associated with employee share-based awards are recognized in the provision for income taxes in the income statement, but are excluded from the intermittent net discrete tax items adjustment, as we anticipate conversion activity each year. ROE excluding intermittent discrete tax items is a non-GAAP financial measure that the Firm considers useful for analysts, investors and other stakeholders to assess operating performance.

The calculation of return on average tangible common equity (‘ROTCE’) for the medium term target utilizes net income applicable to Morgan Stanley less preferred dividends as a percentage of average tangible common equity, exclusive of intermittent discrete tax items. Tangible Common Equity (‘TCE’) equals common equity less goodwill and intangible assets net of allowable mortgage servicing rights. When excluding intermittent net discrete tax benefits, both the ROTCE numerator and denominator are adjusted. Beginning in 2017, income tax consequences associated with employee share-based awards are recognized in the provision for income taxes in the income statement, but are excluded from the intermittent net discrete tax items adjustment, as we anticipate conversion activity each year. ROTCE excluding intermittent discrete tax items and TCE are non-GAAP financial measures that the Firm considers useful for analysts, investors and other stakeholders to assess operating performance.

Represents results against the 2018 – 2019 Strategic Objectives established at the beginning of 2018.

Pre-Tax Margin represents income (loss) from continuing operations before taxes divided by net revenues. Pre-Tax Margin is a non-GAAP financial measure that the Firm considers useful for analysts, investors and other stakeholders to assess operating performance.

Operating growth rate percentages for Institutional Securities (‘ISG’) net revenue and Investment Management (‘IM’) asset management revenue exclude the impact of the 2018 gross ups which resulted from the adoption of the accounting update, Revenue from Contracts with Customers (‘Revenue Recognition’). See Note 2 to the financial statements included in the 2018 Form 10-K for information on the adoption of the Revenue Recognition accounting update. In determining the growth rate percentages approximately $320 million was excluded from ISG 2018 net revenue and approximately $78 million was excluded from IM 2018 asset management revenue. Growth rate percentages excluding the impact of the adoption of the Revenue Recognition accounting update are non-GAAP financial measures the Firm considers useful for analysts, investors and other stakeholders to assess year-over-year operating performance.

Long-term net flows include the equity, fixed income and alternative/other asset classes and exclude the liquidity asset class.

Firm Expense Efficiency Ratio represents total non-interest expenses as a percentage of net revenues.

In June 2018, we received a conditional non-objection to our Capital Plan, where the only condition was that our capital distributions not exceed the greater of the actual distributions we made over the previous four calendar quarters, or the annualized average of actual distributions over the previous eight calendar quarters. Our 2018 Capital Plan includes the repurchase of up to $4.7 billion of outstanding common stock for the four quarters beginning in the third quarter of 2018 through the end of the second quarter of 2019, as well as an increase in the Firm’s quarterly common stock dividend to $0.30 per share from the previous $0.25 per share that commenced with the dividend announced on June 28, 2018. The total amount of expected 2018 capital distributions is consistent with the $6.8 billion of actual dividends and gross share repurchases included in our 2017 Capital Plan.

The calculation of return on average common equity (‘ROE’), for both the medium term target and 2018 results, utilizes net income applicable to Morgan Stanley less preferred dividends as a percentage of average common equity, exclusive of intermittent discrete tax items. The 2018 ROE result excludes intermittent net discrete tax benefits of approximately $203 million, which resulted in an approximate 30 basis point reduction in ROE. When excluding intermittent net discrete tax benefits, both the numerator and denominator are adjusted. Beginning in 2017, income tax consequences associated with employee share-based awards are recognized in the provision for income taxes in the income statement, but are excluded from the intermittent net discrete tax items adjustment, as we anticipate conversion activity each year. ROE excluding intermittent discrete tax items is a non-GAAP financial measure that the Firm considers useful for analysts, investors and other stakeholders to assess operating performance.

The calculation of return on average tangible common equity (‘ROTCE’), for both the medium term target and 2018 results, utilizes net income applicable to Morgan Stanley less preferred dividends as a percentage of average tangible common equity, exclusive of intermittent discrete tax items. Tangible Common Equity (‘TCE’) equals common equity less goodwill and intangible assets net of allowable mortgage servicing rights. The 2018 ROTCE result excludes intermittent net discrete tax benefits of approximately $203 million, which resulted in an approximate 30 basis point reduction in ROTCE. When excluding intermittent net discrete tax benefits, both the ROTCE numerator and denominator are adjusted. Beginning in 2017, income tax consequences associated with employee share-based awards are recognized in the provision for income taxes in the income statement, but are excluded from the intermittent net discrete tax items adjustment, as we anticipate conversion activity each year. ROTCE excluding intermittent discrete tax items and TCE are non-GAAP financial measures that the Firm considers useful for analysts, investors and other stakeholders to assess operating performance.

Pre-Tax Profit is defined as income (loss) from continuing operations before income taxes.

Represents net income applicable to Morgan Stanley.

ISG Equity Revenues market share is based on the reported 2018 net revenues for the equity sales and trading businesses of Morgan Stanley and the following global peer companies: Goldman Sachs, JPMorgan Chase, Bank of America, Citigroup, Barclays, UBS Group, Deutsche Bank, and Credit Suisse.

Pre-Tax Margin represents Pre-Tax Profit divided by net revenues. Pre-Tax Margin is a non-GAAP financial measure that the Firm considers useful for analysts, investors and other stakeholders to assess operating performance.

Share repurchases represent actual shares re-acquired during the year noted, representing a blend of two sequential CCAR cycles.

The calculations of ROE and ROTCE for each year utilize net income applicable to Morgan Stanley less preferred dividends as a percentage of average common equity and average tangible common equity, respectively, exclusive of intermittent discrete tax items. The 2018 ROE and ROTCE percentages exclude intermittent net discrete tax benefits of approximately $203 million (an approximate 30 basis point reduction). For reconciliations of ROE and ROTCE, excluding intermittent discrete tax items for the years 2016 through 2018, see pages 29 and 30 of the 2018 Form 10-K. When excluding intermittent net discrete tax items both the ROE and ROTCE numerators and denominators are adjusted. Beginning in 2017, income tax consequences associated with employee share-based awards are recognized in the provision for income taxes in the income statement, but are excluded from the intermittent net discrete tax items adjustment, as we anticipate conversion activity each year. ROE and ROTCE, excluding intermittent discrete tax items are non-GAAP financial measures that the Firm considers useful for analysts, investors and other stakeholders to assess year-over-year operating performance.

Tangible Common Equity (‘TCE’) equals common equity less goodwill and intangible assets net of allowable mortgage servicing rights. TCE is a non-GAAP financial measure that the Firm considers useful for analysts, investors and other stakeholders to assess capital adequacy.

Firm Expense Efficiency ratio represents total non-interest expenses as a percentage of net revenues. For 2013, the Expense Efficiency ratio was calculated as non-interest expenses of $27,935 million, divided by net revenues of $33,174 million, which excludes the negative impact of $681 million from debt valuation adjustments (‘DVA’). The Expense Efficiency ratio, excluding DVA is a non-GAAP financial measure the Firm considers useful for analysts, investors and other stakeholders to assess year-over-year operating performance.

DVA represents the change in fair value resulting from the fluctuations in the Firm’s credit spreads and other credit factors related to liabilities carried at fair value under the fair value option, primarily certain long-term and short-term borrowings. The Firm believes that most analysts, investors and other stakeholders assess its operating performance exclusive of DVA. Effective January 1, 2016, pursuant to new accounting guidance that the Firm adopted, gains and losses from DVA are presented in other comprehensive income (i.e., a component of common equity) as opposed to net revenues and net income. Prior to January 1, 2016, gains and losses from DVA are presented in trading revenues (i.e., a component of Net Revenues).

Pre-Tax Profit is defined as income (loss) from continuing operations before income taxes. Pre-Tax Profit for 2013 excludes the negative impact of $681 million from DVA. Pre-Tax Profit and Pre-Tax Profit, excluding DVA are non-GAAP financial measures the Firm considers useful for analysts, investors and other stakeholders to assess year-over-year operating performance.

Total Shareholder Return represents the change in share price over a period of time plus the dividends paid during such period, expressed as a percentage of the share price at the beginning of such period (defined herein as “TSR”).

Source of TSR percentages and averages: Bloomberg.

Global peers include the following eight companies: Goldman Sachs, JP Morgan Chase, Bank of America, Citigroup, Barclays, UBS Group, Deutsche Bank, and Credit Suisse.

Pursuant to SEC rules, the Summary Compensation Table in the Firm’s proxy statement is required to include for a particular year, only those equity awards granted during the year, rather than awards granted after year end that were awarded for performance in that year. Our annual equity awards relating to performance in a year are made shortly after year end. Therefore, the Summary Compensation Table that appears in the Firm’s 2019 proxy statement includes not only non-equity compensation awarded for service in 2018, but also stock awards and forward-looking performance vested compensation in respect of performance in 2017, in each case granted in 2018.

As part of his or her formal duties and responsibilities, the Independent Lead Director shall:

Preside at all meetings of the Board at which the Chairman is not present;

Have the authority to call, and lead, Non-Management Director Sessions and Independent Director Sessions;

Help facilitate communication among the Chairman, the CEO and the non-management and independent directors, including serving as liaison between the Chairman and the Independent directors;

Help facilitate the efficient and effective functioning and performance of the Board and open dialogue among the Board;

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

Communicate with the Chairman and the CEO between meetings and act as a “sounding board” and advisor;

Advise the Chairman and the CEO of the Board’s informational needs;

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

Collaborate with the Chairman and the CEO in developing the agenda for meetings of the Board and approve Board meeting agendas and the schedule of Board meetings to assure that there is sufficient time for discussion of all agenda items and may request inclusion of additional agenda items;

Be available, if requested, to meet with the Firm’s primary regulators;

Be available, if requested by major shareholders, for consultation and direct communication in accordance with the Board Corporate Governance Policies;

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

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

Interview candidates for the Board; and

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

For a detailed description of each director’s professional experience and qualifications, skills and attributes, see “Director Nominees” in the 2019 Proxy Statement.