Morgan Stanley

2000 Westchester Avenue, Purchase, New York

•    Elect the Board of Directors

•    Ratify the appointment of Deloitte & Touche LLP as independent auditor

•    Approve the amendment of the 2007 Equity Incentive Compensation Plan

•    Approve the amendment of the Directors’ Equity Capital Accumulation Plan

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

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

Item 1—Election of Directors

Director Selection and Nomination Process

Director Experience, Qualifications, Attributes and Skills

Director Nominees

Corporate Governance

Corporate Governance Policies

Director Independence

Director Attendance at Annual Meeting

Board Meetings and Committees

Board Leadership Structure and Role in Risk Oversight

Director Compensation

Related Person Transactions Policy

Certain Transactions

Beneficial Ownership of Company Common Stock

Executive Equity Ownership Commitment

Director Career Stock Unit Holding Requirement

Stock Ownership of Executive Officers and Directors

Principal Shareholders

Section 16(a) Beneficial Ownership Reporting Compliance

Executive Compensation

Compensation Governance

Consideration of Risk Matters in Determining Compensation

Compensation Discussion and Analysis

Compensation, Management Development and Succession Committee Report

2011 Summary Compensation Table

2011 Grants of Plan-Based Awards Table

2011 Outstanding Equity Awards at Fiscal Year-End Table

2011 Option Exercises and Stock Vested Table

2011 Pension Benefits Table

2011 Nonqualified Deferred Compensation Table

Potential Payments Upon Termination or Change-in-Control

Item 2—Ratification of Appointment of Morgan Stanley’s Independent Auditor

Item 3—Company Proposal to Amend the 2007 Equity Incentive Compensation Plan

Item 4—Company Proposal to Amend the Directors’ Equity Capital Accumulation Plan

Item  5—Company Proposal to Approve the Compensation of Executives as Disclosed in the Proxy Statement (Non-Binding Advisory Resolution)

Information About the Annual Meeting

Other Business

Annex A: Morgan Stanley 2007 Equity Incentive Compensation Plan (As Proposed to be Amended)

Annex B: Morgan Stanley Directors’ Equity Capital Accumulation Plan (As Proposed to be Amended)

Combine a broad spectrum of experience and expertise with a reputation for integrity;

Have experience in positions with a high degree of responsibility;

Are leaders in the companies or institutions with which they are affiliated;

Can make contributions to the Board and management; and

Represent the interests of shareholders.

Regulatory

Public Accounting and Financial Reporting

Finance

Risk Management

Business Development

Operations

Strategic Planning

Management Development and Succession

Compensation

Corporate Governance

Public Policy

International Matters

Banking

Financial Services

Roy J. Bostock (71)

Director Since 2005

Professional Experience:

• Mr. Bostock has served as non-executive Vice Chairman of the Board of Delta Air Lines, Inc. since 2009 and Chairman of the Board of Yahoo! Inc. since 2008.

• He has served as a principal of Sealedge Investments, LLC, a diversified private investment company, since 2002.

• Mr. Bostock is Chairman Emeritus, and served as Chairman from 2002 to 2010, of the Partnership for a Drug-Free America and served as Chairman of the Committee for Economic Development from 2002 to 2005.

• He worked in the advertising agency business for 38 years beginning in 1964.

• Mr. Bostock was Chairman of B|Com3 Group, Inc., now part of the Publicis Groupe S.A., from 2000 to 2001.

• He also served as Chairman and Chief Executive Officer of D’Arcy, Masius Benton & Bowles and its successor firm, The MacManus Group, Inc., from 1990 to 2000, when The MacManus Group, Inc. merged with the Leo Burnett Company to form B|Com3 Group, Inc., and was President from 1986 to 1990 of D’Arcy, Masius Benton & Bowles.

Other Current Directorships:    Delta Air Lines, Inc. (Non-Executive Vice Chairman) and Yahoo! Inc. (Non-Executive Chairman; announced that he is not standing for re-election)

Other Directorships in the Past Five Years:    Northwest Airlines Corporation (prior to its merger with Delta Air Lines, Inc.)

Qualifications, Attributes and Skills:    Mr. Bostock’s varied leadership positions, including as chief executive officer of advertising and marketing services firms and in connection with non-profit organizations and public company boards, brings to the Board the perspective of an experienced leader with strategic planning, operations and business development skills.

Erskine B. Bowles (66)

Director Since 2005

Professional Experience:

• Mr. Bowles has been President Emeritus of the University of North Carolina since 2011 and served as President from 2006 through 2010.

• He served as Co-Chair of the National Commission on Fiscal Responsibility and Reform through 2010.

• Mr. Bowles has been a senior advisor at BDT Capital Partners LLC, a private investment firm, since 2012. He has been a senior advisor since 2001 and was Managing Director from 1999 to 2001 of Carousel Capital LLC, a private investment firm. He was also a partner at the private investment firm of Forstmann Little & Co. from 1999 to 2001 and was a founder of Kitty Hawk Capital, a venture capital firm.

• He began his career in corporate finance at Morgan Stanley in 1969 and subsequently helped found and served as Chairman and Chief Executive Officer of Bowles Hollowell Connor & Co., an investment banking firm.

• Mr. Bowles served as White House Chief of Staff from 1996 to 1998 and Deputy White House Chief of Staff from 1994 to 1995. He was head of the Small Business Administration from 1993 to 1994 and served as United Nations Under Secretary General, Deputy Special Envoy for Tsunami Recovery in 2005.

Other Current Directorships:    Belk Inc., Cousins Properties Incorporated, Facebook, Inc. and Norfolk Southern Corporation

Other Directorships in the Past Five Years:    General Motors Corporation

Qualifications, Attributes and Skills:    Mr. Bowles brings to the Board his extensive experience in the financial services industry and academia as well as distinguished public service.

Howard J. Davies (61)

Director Since 2004

Professional Experience:

• Mr. Davies has served as a professor at SciencesPo, the Paris School of International Affairs since 2011.

• He is an external advisor to the Government Investment Corporation of Singapore and a member of the International Advisory Board of the China Securities Regulatory Commission.

• Mr. Davies served as Director of the London School of Economics and Political Science from 2003 to 2011. He was Chairman of the U.K. Financial Services Authority, the U.K.’s financial regulator, from 1997 to 2003.

• Mr. Davies previously served as Deputy Governor of the Bank of England from 1995 to 1997. He was Director General of the Confederation of British Industry from 1992 to 1995 and Controller of the Audit Commission in the U.K. from 1987 to 1992.

• He worked at McKinsey & Co. from 1982 to 1987 and was seconded to the Treasurer as Special Advisor to the Chancellor of the Exchequer. Mr. Davies also previously worked at the U.K. Treasury and the Foreign and Commonwealth Office, including two years as Private Secretary to the British Ambassador in Paris.

Other Current Directorships:    Prudential plc

Qualifications, Attributes and Skills:    Mr. Davies brings an international perspective to the Board as well as extensive financial regulatory, accounting and risk management experience from his years of accomplished public service.

James P. Gorman (53)

Director Since 2010

Professional Experience:

• Mr. Gorman has served as Chairman of the Board since 2012, President and Chief Executive Officer of Morgan Stanley since 2010, and Chairman of Morgan Stanley Smith Barney Holdings LLC since 2009.

• He was Co-President of Morgan Stanley from 2007 to 2009, Co-Head of Strategic Planning from 2007 to 2009 and President and Chief Operating Officer of the Global Wealth Management Group from 2006 to 2008.

• Mr. Gorman joined Merrill Lynch & Co., Inc. in 1999 and served in various positions including Chief Marketing Officer, Head of Corporate Acquisitions Strategy and Research in 2005 and President of the Global Private Client business from 2002 to 2005.

• Prior to joining Merrill Lynch, he was a senior partner at McKinsey & Co., serving in the firm’s financial services practice. Earlier in his career, Mr. Gorman was an attorney in Australia.

Other Directorships in the Past Five Years:    MSCI Inc.

Qualifications, Attributes and Skills:    As Chief Executive Officer of the Company, Mr. Gorman is a proven leader with an established record as a strategic thinker backed by strong operating, business development and execution skills and brings an extensive understanding of Morgan Stanley’s businesses and decades of financial services experience.

C. Robert Kidder (67)

Director Since 1993

Professional Experience:

• Mr. Kidder served as Chairman and Chief Executive Officer of 3Stone Advisors LLC, a private investment firm, from 2006 to 2011, and as non-executive Chairman of the Board of Chrysler Group LLC from 2009 to 2011.

• He was Principal at Stonehenge Partners, Inc., a private investment firm, from 2004 to 2006. Mr. Kidder served as President of Borden Capital, Inc., a company that provided financial and strategic advice to the Borden family of companies, from 2001 to 2003.

• He was Chairman of the Board from 1995 to 2004 and Chief Executive Officer from 1995 to 2002 of Borden Chemical, Inc. (formerly Borden, Inc.), a forest products and industrial chemicals company.

• Mr. Kidder was Chairman and Chief Executive Officer from 1991 to 1994 and President and Chief Executive Officer from 1988 to 1991 of Duracell International Inc. Prior to joining Duracell International Inc. in 1980, Mr. Kidder worked in planning and development at Dart Industries. He also previously worked at McKinsey & Co. as a general management consultant.

Other Current Directorships:    Merck & Co. Inc.

Other Directorships in the Past Five Years:    Chrysler Group LLC and Schering-Plough Corporation (prior to its merger with Merck & Co. Inc.)

Qualifications, Attributes and Skills:    Mr. Kidder brings to the Board extensive financial and senior executive experience, including in business development, operations and strategic planning, as well as a deep understanding of our Company, particularly in his capacity as Lead Director appointed by our independent directors.

Klaus Kleinfeld (54)

Director Nominee

Professional Experience:

• Mr. Kleinfeld has served as Chairman and CEO of Alcoa Inc., a producer and manager of primary aluminum, fabricated aluminum and alumina, since 2010.

• He served as President and CEO from 2008 to 2010 and President and Chief Operating Officer from 2007 through 2008 of Alcoa.

• Mr. Kleinfeld served for 20 years at Siemens AG from 1987 to 2007, including as CEO and President from 2005 to 2007, a member of the Managing Board from 2004 to 2007, and as President and Chief Executive Officer from 2002 to 2004 and Executive Vice President and Chief Operating Officer in 2001 of Siemens AG’s principal U.S. subsidiary, Siemens Corporation.

• He serves on the Brookings Institution Board of Trustees and is Chairman of the U.S.-Russia Business Council.

Other Current Directorships:    Alcoa, Inc. and Bayer AG (Supervisory Board)

Other Directorships in the Past Five Years:    Siemens AG (Managing Board) and Citigroup Inc.

Qualifications, Attributes and Skills:    Mr. Kleinfeld brings to the Board extensive international and senior executive experience, including in business development, operations and strategic planning at multinational organizations.

Donald T. Nicolaisen (67)

Director Since 2006

Professional Experience:

• Mr. Nicolaisen was Chief Accountant for the U.S. Securities and Exchange Commission (SEC) from 2003 to 2005, where he served as the principal advisor to the SEC on accounting and auditing matters and was responsible for formulating and administering the accounting program and policies of the SEC.

• He was a partner of PricewaterhouseCoopers, an accounting firm, from 1978 to 2003 and first joined Price Waterhouse in 1967.

• Mr. Nicolaisen led Price Waterhouse’s national office for accounting and SEC services and its financial services practice and was responsible for auditing and providing risk management advice to large, complex multi-national corporations.

Other Current Directorships:    MGIC Investment Corporation, Verizon Communications Inc. and Zurich Financial Services

Qualifications, Attributes and Skills:    Mr. Nicolaisen brings to the Board over 40 years of regulatory, public accounting and financial reporting, risk management and financial experience and the varied perspectives he has gained in the private sector as well as through distinguished service at the SEC.

Hutham S. Olayan (58)

Director Since 2006

Professional Experience:

• Ms. Olayan has been a principal and director since 1981 of The Olayan Group, a private multinational enterprise that is a diversified global investor and operator of commercial and industrial businesses in Saudi Arabia.

• Ms. Olayan has been President and Chief Executive Officer of The Olayan Group’s U.S. operations for more than 20 years, overseeing all investment activity in the Americas.

• Ms. Olayan is a member of the International Advisory Board of The Blackstone Group and a former director of Equity International and Thermo Electron Corporation.

Qualifications, Attributes and Skills:    Ms. Olayan’s extensive financial experience in the U.S. and internationally, including the Middle East, strengthens the Board’s global perspective.

James W. Owens (66)

Director Since 2011

Professional Experience:

• Mr. Owens served as Chairman and Chief Executive Officer of Caterpillar Inc., a manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines, from 2004 to 2010.

• He served as Vice Chairman of Caterpillar Inc. from 2003 to 2004 and as Group President from 1995 to 2003, responsible at various times for 13 of the company’s 25 divisions.

• Mr. Owens served at Caterpillar Inc. as Vice President and Chief Financial Officer from 1993 to 1995, Corporate Vice President and President of Solar Turbines Incorporated from 1990 to 1993, and managing director of P.T. Natra Raya, Caterpillar Inc.’s Indonesian joint venture, from 1987 to 1990.

• He held various managerial positions in the Accounting and Product Source Planning Departments from 1980 to 1987 and was chief economist of Caterpillar Overseas S.A. in Geneva, Switzerland from 1975 to 1980. Mr. Owens joined Caterpillar Inc. in 1972 as a corporate economist.

• He served on the President’s Economic Recovery Advisory Board from 2009 to 2011. Mr. Owens serves on the boards of the Peter G. Peterson Institute for International Economics and the Council on Foreign Relations and is a senior advisor at Kohlberg Kravis Roberts & Co.

Other Current Directorships:    Alcoa Inc. and International Business Machines Corporation

Other Directorships in the Past Five Years:    Caterpillar Inc.

Qualifications, Attributes and Skills:    Mr. Owens’ various leadership positions, including as Chief Executive Officer of a major global corporation, bring to the Board extensive management experience and economics expertise and strengthens the Board’s global perspective.

O. Griffith Sexton (68)

Director Since 2005

Professional Experience:

• Mr. Sexton has served as an adjunct professor at Columbia Business School since 1995 and visiting lecturer at Princeton University since 2000, teaching courses in corporate finance.

• He was an Advisory Director of Morgan Stanley from 1995 to 2008.

• Mr. Sexton joined Morgan Stanley in 1973 and was a Managing Director from 1985 to 1995, ultimately serving as Director of the Corporate Restructuring Group within the Advisory Services Department.

Other Current Directorships:    Investor AB

Qualifications, Attributes and Skills:    Mr. Sexton brings to the Board extensive financial services, accounting and risk experience as well as substantive knowledge of Morgan Stanley’s businesses from his nearly 40 years of prior service at the Company.

Ryosuke Tamakoshi (64)

Director Since 2011

Professional Experience:

•   Mr. Tamakoshi has served as a Senior Advisor of The Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU) since 2010.

•   Mr. Tamakoshi served as Chairman of MUFG from 2005 to 2010 and as Deputy Chairman of The Bank of Tokyo-Mitsubishi UFJ, Ltd. from 2006 to 2008. Before the merger between Mitsubishi Tokyo Financial Group and UFJ Holdings, Mr. Tamakoshi was President and Chief Executive Officer of UFJ Holdings, Inc. and also Chairman of UFJ Bank, Ltd.

•   Mr. Tamakoshi began his professional career at The Sanwa Bank, one of the legacy banks of BTMU, in 1970.

Other Directorships in the Past Five Years:    Mitsubishi UFJ Financial Group, Inc.

Qualifications, Attributes and Skills:    As a senior officer advisor to BTMU and as former Chairman of Mitsubishi UFJ Financial Group, Inc., Mr. Tamakoshi brings to the Board over 40 years of banking experience and international, risk management and strategic expertise.

Masaaki Tanaka (59)

Director Since 2011

Professional Experience:

•   Mr. Tanaka has served as Resident Managing Officer for the United States for MUFG since June 2011 and has served as the Senior Managing Executive Officer and Chief Executive Officer for the Americas of BTMU since 2011.

•   He served as Managing Executive Officer and Chief Executive Officer for the Americas of BTMU from 2010 to 2011. In 2007, he was named a Managing Executive Officer of BTMU.

•   From 2007 to 2010, Mr. Tanaka was President and Chief Executive Officer of UnionBanCal Corporation and its primary subsidiary, Union Bank, N.A., where he continues to serve as a director.

•   Following the merger of The Bank of Tokyo-Mitsubishi, Ltd. (BTM) and UFJ Bank, Ltd., which created BTMU, Mr. Tanaka served as Executive Officer and General Manager of the Corporate Planning Division for the newly combined bank from 2006 to 2007.

•   From 1996 to 2005, Mr. Tanaka served in various capacities in the Corporate Planning Division of BTM and was Executive Officer and General Manager of the Corporate Banking Division with responsibility for relationships with leading corporations. He was also General Manager of the Corporate Business Development Division where he directed strategic planning and coordination of the company’s corporate banking business.

•   Mr. Tanaka began his professional career at the Mitsubishi Bank, a predecessor to BTMU, in 1977.

Other Current Directorships:    UnionBanCal Corporation

Qualifications, Attributes and Skills:    As a senior officer of BTMU and its associated companies, Mr. Tanaka brings to the Board over 35 years of banking experience and international, risk management and strategic expertise.

Laura D. Tyson (64)

Director Since 1997

Professional Experience:

•   Dr. Tyson has served as the S. K. and Angela Chan Professor of Global Management since 2008 and served as Professor of Business Administration and Economics from 2007 to 2008 at the Walter A. Haas School of Business, University of California, Berkeley.

•   She was Dean of the London Business School from 2002 to 2006.

•   Dr. Tyson was Dean from 1998 to 2001 and Class of 1939 Professor in Economics and Business Administration from 1997 to 1998 at the Walter A. Haas School of Business, University of California, Berkeley.

•   She served as National Economic Advisor to the President and Chair of the President’s National Economic Council from 1995 to 1996 and as Chair of the White House Council of Economic Advisors from 1993 to 1995.

•   Dr. Tyson served on the President’s Economic Recovery Advisory Board from 2009 to 2011 and was appointed in 2011 to the President’s Council on Jobs and Competitiveness.

•   She also serves on the Peter G. Peterson Institute of International Economics.

Other Current Directorships:    AT&T Inc., CBRE Group, Inc. and Silver Spring Networks, Inc.

Other Directorships in the Past Five Years:    Eastman Kodak Company

Qualifications, Attributes and Skills:    Dr. Tyson brings to the Board economics and public policy expertise and leadership skills from her positions in academia and through her distinguished public service.

Shareholders who own at least 25% of common stock have the ability to call a special meeting of shareholders;

No supermajority vote requirements in our charter or bylaws;

All directors are elected annually by majority vote standard;

Our Board has a majority of independent directors;

Our Board has financial services experience and a diverse international background;

Lead independent director is appointed, and reviewed annually, by the other independent directors; and

Board policy favors committee chair and lead director rotation.

Corporate Governance Policies (including our Director Independence Standards)

Code of Ethics and Business Conduct

Board Committee Charters

Policy Regarding Communication by Shareholders and Other Interested Parties with the Board of Directors

Policy Regarding Director Candidates Recommended by Shareholders

Policy Regarding Corporate Political Contributions

Policy Regarding Shareholder Rights Plan

Information Regarding the Integrity Hotline and the Equity Ownership Commitment

Commercial relationships in the last three years between Morgan Stanley and entities where the directors are employees or executive officers, or their immediate family members are executive officers, that did not exceed the greater of $1 million or 2% of such other entity’s consolidated gross revenues in any of the last three years

Ordinary course relationships arising from transactions on terms and conditions substantially similar to those with unaffiliated third parties between Morgan Stanley and entities where the directors or their immediate family members own equity of 5% or more of that entity

Morgan Stanley’s contributions to charitable organizations where the directors or their immediate family members serve as officers, directors or trustees that did not exceed the greater of $100,000 or 1% of the organization’s consolidated gross revenues in the preceding year

Audit

Donald T. Nicolaisen (Chair)

Howard J. Davies

James H. Hance, Jr.

O. Griffith Sexton

•

After review, recommends to the Board the acceptance and inclusion of the annual audited consolidated financial statements in the Company’s Annual Report on Form 10-K.

Compensation,

Management

Development

and Succession

(CMDS)

Erskine B. Bowles (Chair)

C. Robert Kidder

Donald T. Nicolaisen

Hutham S. Olayan

See “Compensation Governance” and “Consideration of Risk Matters in Determining Compensation” herein.

Nominating and

Governance

Laura D. Tyson (Chair)

Roy J. Bostock

C. Robert Kidder

James W. Owens

Reviews and approves related person transactions in accordance with the Company’s Related Person Transactions Policy.

Operations and

Technology*

Donald T. Nicolaisen (Chair)

Howard J. Davies

James H. Hance, Jr.

Ryosuke Tamokoshi

(effective July 20, 2011)

Oversees risk management and risk assessment guidelines and policies regarding operational risk.

Risk

Howard J. Davies (Chair)

Roy J. Bostock

James H. Hance, Jr.

Maasaki Tanaka

(effective May 18, 2011)

The composition of the Board;

The role of the Company’s independent Lead Director;

The Company’s strong corporate governance practices;

The Chief Executive Officer’s (CEO) working relationship with the Board; and

The challenges specific to the Company.

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

Having the authority to call, and lead, sessions composed only of non-management directors or independent directors;

Serving as liaison between the Chairman and the independent directors;

Advising the Chairman of the Board’s informational needs;

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

Approving Board meeting agendas and the schedule of Board meetings and requesting, if necessary, the inclusion of additional agenda items; and

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

The Board has a majority of independent and non-management directors. Ten out of the 13 director nominees are independent as defined by the NYSE listing standards and the Company’s more stringent Corporate Governance Policies and 12 out of the 13 director nominees are non-management directors. All of the Company’s directors are elected annually.

The Board’s key standing committees are composed solely of non-management directors. The Audit Committee, the Compensation, Management Development and Succession Committee, and the Nominating and Governance Committee are each composed solely of independent directors. The Operations and Technology Committee and Risk Committee consist of a majority of independent directors and include only non-management directors. The committees provide independent oversight of management.

The Board’s non-management directors meet regularly in executive session. The non-management directors meet regularly in executive session without management present and, consistent with the NYSE listing standards, at least annually, the independent directors meet in executive session. These sessions are chaired by the Lead Director.

The Company’s risk governance structure;

The Company’s risk management and risk assessment guidelines and policies regarding market, credit and liquidity and funding risk;

The Company’s risk tolerance, including risk tolerance levels and capital targets and limits;

The Company’s capital, liquidity and funding; and

The performance of the Chief Risk Officer.

Fees Earned or

Paid in Cash

($)⁽²⁾

Stock Awards

($)⁽³⁾⁽⁴⁾

Option Awards

($)⁽⁴⁾

Change in

Pension Value

and

Nonqualified

Deferred

Compensation

Earnings

All Other

Compensation

($)

Total

($)

Roy J. Bostock

Erskine B. Bowles

Howard J. Davies

James H. Hance, Jr.

C. Robert Kidder

Donald T. Nicolaisen

Hutham S. Olayan

James W. Owens

O. Griffith Sexton⁽⁵⁾

Laura D. Tyson

Lead Director (Mr. Kidder)

Committee Chair

Audit Committee (Mr. Nicolaisen)*

Compensation, Management Development and Succession Committee (Mr. Bowles)

Nominating and Governance Committee (Dr. Tyson)

Operations and Technology Committee (Mr. Nicolaisen)*

Risk Committee (Mr. Davies)

Committee Members

Audit Committee (Messrs. Davies, Hance and Sexton)*

Compensation, Management Development and Succession Committee (Messrs. Kidder and Nicolaisen and Ms. Olayan)

Nominating and Governance Committee (Messrs. Bostock, Kidder and Owens)

Operations and Technology Committee (Messrs. Davies and Hance)*

Risk Committee (Messrs. Bostock and Hance)

Roy J. Bostock

Erskine B. Bowles

Howard J. Davies

James H. Hance, Jr.

C. Robert Kidder

Donald T. Nicolaisen

Hutham S. Olayan

James W. Owens

O. Griffith Sexton

Laura D. Tyson

Directors were awarded stock options annually under DECAP until February 8, 2005, at which point stock option awards were discontinued. As of December 31, 2011, the outstanding stock options had no intrinsic value because the exercise price of each stock option was greater than $15.13, the closing price of the Company’s common stock on December 30, 2011.

Subject to

Stock Options
Exercisable within
60 days

NAMED EXECUTIVE OFFICERS

James P. Gorman

Ruth Porat

Gregory J. Fleming

Colm Kelleher

Paul J. Taubman

DIRECTORS

Roy J. Bostock

Erskine B. Bowles

Howard J. Davies

James H. Hance, Jr.

C. Robert Kidder

Klaus Kleinfeld⁽⁴⁾

Donald T. Nicolaisen

Hutham S. Olayan

James W. Owens

O. Griffith Sexton

Ryosuke Tamakoshi⁽⁵⁾

Masaaki Tanaka⁽⁵⁾

Laura D. Tyson

Shares of Common Stock

Beneficially Owned

China Investment Corporation (CIC)⁽²⁾

New Poly Plaza, No. 1 Chaoyangmen Beidajie

Dongcheng District, Beijing 100010,

People’s Republic of China

Mitsubishi UFJ Financial Group, Inc.⁽³⁾

7-1, Marunouchi 2-chome

Chiyoda-ku, Tokyo 100-8330, Japan

State Street Corporation (State Street)⁽⁴⁾

225 Franklin Street, Boston, MA 02110

Retains its own independent compensation consultant to provide advice to the CMDS Committee on executive compensation matters. The independent compensation consultant generally attends all CMDS Committee meetings, reports directly to the CMDS Committee Chair and regularly meets with the CMDS Committee without management present. In addition, the Chair of the CMDS Committee regularly speaks with the CMDS Committee’s compensation consultant, without management, outside of the CMDS Committee meetings.

Regularly reviews the competitive environment and the design and structure of the Company’s compensation programs to ensure that they are consistent with and support our compensation objectives.

Regularly reviews the Company’s achievements with respect to predetermined performance priorities and strategic goals and evaluates executive performance in light of such achievements.

Regularly reviews legislative and regulatory developments affecting compensation in the U.S. and globally.

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

Grants senior executive annual incentive compensation after a comprehensive review and evaluation of Company, business unit and individual performance for the year both on a year-over-year basis and as compared to our key competitors.

Oversees plans for management development and succession.

Regularly meets throughout the year and regularly meets in executive session without the presence of management or its compensation consultant.

Receives materials for meetings in advance, and the Chair of the CMDS Committee participates in pre-meetings with management to review the agendas and materials.

Regularly reports on its meetings to the Board.

The CMDS Committee has delegated to the Equity Awards Committee (which consists of the Chief Executive Officer) its authority to make special new hire and retention equity awards; however, this delegation of authority does not extend to awards to our executive officers and certain other senior executives of the Company. Awards granted by the Equity Awards Committee are subject to a share limit imposed by the CMDS Committee and individual awards are reported to the CMDS Committee on a regular basis.

The CMDS Committee has delegated to the Chief Operating Officer its authority to administer the Company’s cash-based nonqualified deferred compensation plans, including the Morgan Stanley Compensation Incentive Plan (discussed in the CD&A); however, the CMDS Committee has sole authority relating to grants of cash-based nonqualified deferred compensation plan awards to, or amendments to such awards held by, executive officers and certain other senior executives, material amendments to any such plans or awards, and the decision to implement certain of these plans in the future.

Our balance of fixed compensation and discretionary compensation;

Our balance between short-term and long-term incentives;

Our mandatory deferrals into both equity-based and cash-based long-term incentive programs;

The governance procedures followed in making compensation decisions, including our rigorous up-front risk adjustment process for assessing performance based on financial, capital and risk metrics;

The risk-mitigating features of our awards, such as cancellation, holdback and clawback provisions; and

Our equity retention requirements.

Redesigning the process for sizing the year-end incentive compensation pool to more fully consider risk-adjusted returns, compliance with risk limits and the market and competitive environment;

Implementing a new process to allocate the incentive compensation pool among business areas to take into account the businesses’ returns on certain financial, capital and risk metrics;

For more senior-level employees, generally increasing the level of year-end deferrals subject to multi-year clawback and cancellation provisions; and

As described more fully in the CD&A, expanding clawback provisions to apply to both deferred equity and deferred cash awards; increasing the accountability of compensation managers for executing clawback and cancellation provisions, with a focus on employee risk-taking; and implementing a rigorous review process by the independent control functions of potential clawback and cancellation situations. Clawback provisions provide for the forfeiture of an award upon, among other things, the employee’s violation of the Company’s risk policies and standards.

I.      Executive Summary

II.     Compensation Objectives and Strategy

III.   Compensation Program for 2011

IV.   2011 Compensation Process and Decisions

We reduced Mr. Gorman’s compensation for 2011 by 25% from 2010 to $10,500,000, reflecting the fact that the Company did not fully meet certain 2011 performance priorities.

We paid no cash bonus to members of the Company’s Operating Committee (for 2011, our eight most senior executives, including the NEOs) and instead delivered 100% of year-end compensation in deferred long-term incentive awards subject to market and cancellation risk over a three-year period.

We redesigned our “at-risk” performance stock unit program, which only delivers value if the Company meets specific performance targets after three years, to further moderate risk-taking incentives while continuing to incent performance.

We expanded our “clawback” provisions to apply to all long-term incentive compensation and enhanced our processes for preventing, investigating and addressing circumstances (such as poor risk outcomes, significant losses and improper employee behavior) that could require clawback or cancellation of previously awarded compensation, as well as adjustments to current year compensation.

Deliver Pay-for-Performance.    The core of our executive compensation program emphasizes variable incentive compensation that is clearly linked to Company and individual performance. This approach encourages executives to balance increasing financial performance and shareholder value over the year with achievement of the Company’s long-term strategic priorities. It is also designed to reward superior individual performance and promote a shared long-term view among our executive team.

Attract and Retain Top Talent.    The Company competes for talent globally with investment banks, commercial banks, brokerage firms, hedge funds and other companies offering financial services, and the Company’s ability to sustain or improve its position in this highly competitive environment depends substantially on its ability to continue to attract and retain the most highly qualified employees. To serve as one reference point in determining compensation, the CMDS Committee monitors competitive pay levels and structures within the industry. As part of the Company’s effort to be competitive in retaining top talent, our long-term incentive awards include payment, cancellation and clawback provisions to protect the Company’s interests and to encourage executives not to leave the Company for a competitor.

Align Executive Compensation with Shareholders’ Interests.    The Company delivers a significant portion of long-term incentive compensation in equity awards to align employee interests with those of shareholders. The CMDS Committee believes that linking incentive compensation to Company results over the year and delivering it primarily as deferred long-term incentive awards that are subject to market and cancellation risk over the course of several years helps motivate executives to achieve financial and strategic goals. In addition, members of the Company’s Operating Committee (our most senior executives), including the NEOs, are required to retain at least 75% of the after-tax shares they receive as compensation. Executives are also prohibited from engaging in hedging strategies, selling short or trading derivatives with Company securities. These policies tie a significant portion of our executive officers’ compensation directly to the Company’s stock price.

Mitigate Excessive Risk-taking.    The CMDS Committee is advised by the Company’s Chief Risk Officer and the CMDS Committee’s independent compensation consultant to help ensure that the structure and design of compensation arrangements do not encourage unnecessary or excessive risk-taking that threatens the Company’s interests or gives rise to risk that could have a material adverse effect on the Company. The CMDS Committee, together with the Chief Risk Officer, evaluated Morgan Stanley’s current compensation programs and considered the Chief Risk Officer’s determination that such programs do not encourage such behavior, due in part to: (i) our balance of fixed compensation and discretionary compensation; (ii) our balance between short-term and long-term incentives; (iii) our mandatory deferrals into both equity-based and cash-based long-term incentive programs; (iv) the procedures followed in making incentive

compensation decisions, including our rigorous up-front risk adjustment process for assessing performance, based on financial, capital and risk metrics; (v) the risk-mitigating features of our awards, such as cancellation, holdback and clawback provisions; and (vi) our equity retention requirements. The CMDS Committee, along with its consultant and the Chief Risk Officer, will continue to review the Company’s compensation programs to ensure they are consistent with evolving best practices, applicable legal and regulatory standards and the Company’s risk policies.

Mr. Gorman’s compensation for 2011 was down 25% from 2010.    Despite the progress the Company achieved in executing its strategy in 2011 under his leadership, Mr. Gorman’s compensation for 2011 was 25% below the level of the prior year, reflecting the fact that the Company did not fully meet certain financial priorities for the year. Compensation for the remaining members of the Operating Committee was also down significantly on average from 2010 levels.

Members of the Company’s Operating Committee, including each NEO, received no cash bonus for 2011. Instead, 100% of year-end compensation was paid with deferred long-term incentive awards, which are subject to market and cancellation risk over a three-year period.    Members of the Operating Committee in 2011 received 100% of their year-end compensation in deferred long-term incentive awards. Deferred compensation for the NEOs was comprised of “at-risk” PSUs, RSUs and deferred cash-based awards under the Morgan Stanley Compensation Incentive Program (MSCIP). A meaningful portion of the 2011 year-end compensation for NEOs was paid in equity, further aligning a significant portion of their compensation with shareholders’ interests by tying it directly to the Company’s stock price. These long-term incentive awards continue to be subject to the Company’s cancellation and clawback provisions, as described below, over a three-year period.

We redesigned our “at-risk” PSUs program to further moderate risk-taking incentives while continuing to incent performance.    For the third consecutive year, the Company granted 20% of each NEO’s 2011 year-end incentive compensation in “at-risk” PSUs that deliver value only if the Company, after the full three-year performance period, achieves objective performance goals with respect to return on average common shareholders’ equity (ROE) and relative total shareholder return (TSR). In order to better align the PSU program for 2011 with principles of balanced risk-taking, the maximum payout has been reduced from two times the target award to 1.5 times the target award to provide for a less leveraged payout range and the performance target for the average ROE portion of the award was reduced to better reflect the current operating environment. In addition, the TSR portion of the award was modified to provide for a comparison to an industry index rather than a small group of peer companies. By reducing the payout leverage, setting a challenging but achievable goal and removing the volatility of a small peer group, the program is more balanced and less likely to encourage executives to take excessive risk in order to achieve payouts.

We expanded our “clawback” provisions to apply to all long-term incentive compensation.    In 2008, Morgan Stanley implemented a clawback for a substantial portion of year-end compensation. For 2011, the clawback was expanded to apply to each NEO’s RSUs, in addition to each NEO’s PSUs and deferred cash-based awards. The clawback can be triggered with respect to RSUs, PSUs and deferred cash-based awards if an individual’s act or omission (including with respect to direct supervisory responsibilities) causes a restatement of the Company’s consolidated financial results or constitutes a violation of the Company’s risk policies and standards, whether such action results in a favorable or unfavorable impact to the Company’s consolidated financial results. The PSUs are also subject to clawback following payment if the CMDS Committee determines that the payout was based on materially inaccurate financial statements or other performance metric criteria. The deferred cash-based awards are also subject to clawback if an individual’s act or omission causes, or is reasonably expected to cause, a substantial financial loss on a trading strategy, investment, commitment or other holding originating either in the current year or in any prior year and such trading strategy, investment, commitment or other holding was a factor in his or her award determination. In addition to these clawback provisions, our long-term incentive awards provide for cancellation if the

employee engages in conduct that constitutes “cause” (defined as any act or omission that constitutes a breach of obligations to the Company, which includes, among other things, failure to comply with our compliance, ethics or risk management standards and failure or refusal to perform satisfactorily any duties reasonably required, including supervisory or management duties).

We enhanced our processes for preventing, investigating and addressing circumstances such as poor risk outcomes, significant losses and improper employee behavior that could require clawback or cancellation of previously awarded compensation, as well as adjustments to current year compensation.    In 2011, the Company’s independent control functions implemented an enhanced, robust review process for identifying and evaluating situations occurring throughout the course of the year that could require clawback or cancellation of previously awarded compensation, as well as adjustments to current year compensation. Clawbacks of previously awarded compensation are reviewed with a committee of senior management quarterly and reported to the CMDS Committee on a regular basis. In addition, the CMDS Committee adopted a global incentive compensation discretion policy that sets forth standards for exercise of managerial discretion in year-end incentive compensation decisions and specifically provides that all managers must consider whether an employee effectively managed and supervised the risk control practices of his or her employee reports during the performance year.

12% or more

10%

6%

Less than 6%

Above

Equal

Below

1. Base Salary

2. Incentive Compensation

Mix of Cash and Long-Term Incentives

a.     Equity Awards – PSUs

With the exception of Mr. Fleming’s award, 2011 year-end RSUs are considered vested upon grant; however, these RSUs are subject to cancellation provisions, including upon termination of employment if the NEO leaves the Company to join a competitor.

2011 PSUs and MSCIP awards are subject to vesting and, until vested, are generally cancelable upon termination of employment other than by the Company without cause. As a result, the cost of leaving the Company to go to a competitor can be significant to an NEO. Similarly, a competitor who wants to recruit the NEO would incur a significant cost if it were to agree to replace the NEO’s canceled awards.

b.     Equity Awards –RSUs

c.      MSCIP Deferred Cash-Based Awards

3. Voluntary Deferred Compensation Programs

4. Pension and Retirement

The SEREP was originally intended to compensate for the limitations imposed by the Internal Revenue Service on qualified pension plan benefits and eligible pay. When it was determined that SEREP benefits were no longer needed to remain competitive, the SEREP was generally closed to new participants.

Company contributions to savings plans for NEOs are disclosed in the “2011 Summary Compensation Table.” Pension arrangements for NEOs are described under the “2011 Pension Benefits Table.”

5. Health and Insurance Benefits

6. Personal Benefits

The Company’s Board-approved policy authorizes the Chief Executive Officer to use the Company’s aircraft. For personal travel, Mr. Gorman entered into an aircraft time-share agreement with the Company as of January 1, 2010 and, since entering into such agreement, has fully reimbursed the Company for the incremental cost of his personal use of the Company’s aircraft.

Personal benefits provided to NEOs are discussed under the “2011 Summary Compensation Table.”

7. Severance

Performance Priorities and Metrics.    At the beginning of 2011, in consultation with the full Board, the CMDS Committee approved specific performance priorities representing qualitative and/or quantitative measures in five key areas: (1) Company financial performance; (2) business development; (3) financial and operating risk management; (4) international businesses and alliance with MUFG; and (5) culture and stakeholder engagement.

Absolute returns, as measured by return on equity;

Relative returns, as measured by return on equity and total shareholder return relative to a comparison group;

Capital strength, as measured by the Company’s Tier 1 capital ratio; and

Credit rating, as measured by the current rating assigned by the major rating agencies and outlook.

Business development.    Priorities were approved for each primary business unit related to business development, client franchise and products. For Institutional Securities, it was the attainment of top

rankings in advisory and equity underwriting, and market-share improvement for both Fixed Income and Equity Sales and Trading. For the Global Wealth Management Group, it was the continued integration of the Morgan Stanley Smith Barney (MSSB) joint venture as measured by the technology platform conversion, pre-tax profit margin, net new assets and net fee-based asset flows. For Asset Management, it was the continued refocusing of the business around core strengths, performance against investment benchmarks, and net new flows.

Compensation Expense Considerations.    Prior to determining individual NEO incentive compensation, the CMDS Committee reviewed and considered the relationship between Company performance, total compensation expense (which includes fixed compensation costs such as base salaries, benefits and commissions) and incentive compensation as a subset of overall compensation expense. The CMDS Committee approved an incentive compensation program for 2011 that met the Committee’s objective of balancing adequate returns for shareholders with appropriate rewards to retain and motivate top talent.

Market Data and Review.    The CMDS Committee uses comparison groups to understand market practices and trends and to evaluate the competitiveness of our compensation programs. Throughout the year, the CMDS Committee reviewed analyses of our competitors’ pay levels, including historical compensation data obtained from analyses of public filings and compensation surveys conducted by consultants on an unattributed basis, and compensation plan design. Our comparison group consists of companies that either directly compete with us for business and/or talent or are global organizations with scope, size or other characteristics similar to the Company’s. Bank of America Corp., Barclays Plc, Citigroup Inc., Credit Suisse Group, Deutsche Bank AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., UBS AG and Wells Fargo & Company are the companies that we consider for purposes of compensation for the CEO, CFO and other functional heads of our business. The market compensation information considered by the CMDS Committee is either prepared or validated by its independent compensation consultant. The CMDS Committee does not target NEO compensation at a certain range compared to any comparison group. Rather, the CMDS Committee uses this information to better understand the market and to inform our focus on pay-for-performance. The CMDS Committee also reviews and discusses trends regarding executive compensation with its compensation consultant.

Relative Pay Considerations.    We place importance on the pay relationships among members of our Operating Committee because we view our Operating Committee members as highly talented executives capable of rotating among the leadership positions of our businesses and key functions. Our goal is always to be in a position to appoint our most senior executives from within our Company and to incent our people to aspire to senior executive roles. At year-end, the CMDS Committee reviewed the relative differences between the compensation for the CEO and other NEOs and the NEOs and other members of the Operating Committee. Consideration is also given to the year-over-year change in compensation for the CEO and NEOs relative to changes in the aggregate bonus pool and other executives in similar business areas.

Input and Recommendations from the Chief Executive Officer, Independent Directors and CMDS Committee’s Independent Consultant.    All of our NEOs participated in our “360 degree” feedback process as part of their individual performance evaluations. Our Global Head of Human Resources discussed with the CMDS Committee the results of this process for our CEO, as well as Mr. Gorman’s business and individual accomplishments during the year. At the end of the year, Mr. Gorman presented the CMDS Committee with a performance assessment and compensation recommendations for each NEO other than himself. The CMDS Committee reviewed these recommendations with the Committee’s independent compensation consultant to assess whether they were reasonable compared with the market for executive talent and met in executive session to discuss the performance of our CEO and the other NEOs and to determine their year-end compensation. In addition, the CMDS Committee considered input on NEO compensation from the other independent directors.

Global Regulatory Principles.    The Company’s compensation practices are subject to oversight by our regulators in the U.S. and internationally. Throughout 2011, senior management briefed the CMDS Committee on relevant regulatory developments in respect of compensation, including with regard to the mix of long-term incentive compensation and the portion of compensation that should be deferred for certain populations, as well as principles of balanced risk-taking. For example, the Board of Governors of the U.S. Federal Reserve System (the Federal Reserve), together with other U.S. federal banking regulators, issued final guidance in June 2010 to help ensure that incentive compensation paid by banking organizations does not encourage imprudent risk-taking that threatens the safety and soundness of the organization, and in 2011 the Federal Reserve continued to develop its policies on compensation during its ongoing review of incentive compensation policies and practices of the Company and other banking organizations. In addition, the FSA prescribed the deferred compensation structure, including minimum deferral rates and the portion of incentive compensation granted as equity awards, for certain executives and employees working in the U.K, including Mr. Kelleher.

“Say on Pay” Vote in 2011.    As previously disclosed, at the 2011 annual meeting of shareholders, in alignment with the recommendations of the Board, a significant majority of our shareholders who voted on the matter approved, by advisory resolution, the compensation of the Company’s executives as disclosed in the Company’s 2011 proxy statement (the 2011 “say on pay” vote) and approved an advisory vote to hold an annual advisory vote on the compensation of executives as disclosed in the proxy statement. The CMDS Committee believes that an annual advisory vote on executive compensation is consistent with our long-standing practice of seeking the views of, and engaging in discussions with, our shareholders on corporate governance matters and our executive compensation philosophy, policies and practices. In that regard, and in anticipation of the 2011 “say on pay” vote, Company management solicited feedback from our shareholders and from proxy advisory services on the Company’s 2010 compensation program and conveyed the feedback received to the CMDS Committee. Following the 2011 annual meeting of shareholders, the CMDS Committee considered the results of the 2011 “say on pay” vote, as well as the insights gained from our dialogue with shareholders, in determining 2011 compensation. The changes to the 2011 compensation program described in Sections I and III.A of this CD&A reflect the CMDS Committee’s evaluation of the vote results and dialogue, as well as the CMDS Committee’s and the Company’s ongoing efforts to improve our executive compensation program and the quality of our executive compensation disclosures.

Tax Deductibility under Section 162(m) of the Internal Revenue Code.    Section 162(m) of the Internal Revenue Code (Section 162(m)) limits the deductibility of compensation for certain executive officers (other than the Chief Financial Officer) that is more than $1 million, unless the compensation qualifies as “performance-based.” While our policy, in general, is to preserve the tax deductibility of compensation for executive officers covered under Section 162(m), the CMDS Committee nevertheless may authorize awards or payments that might not be deductible if it believes they are in the best interests of the Company and its shareholders and individuals may receive non-deductible payments resulting from awards made prior to becoming an executive officer. To qualify as “performance-based” compensation, the award must be based on objective, pre-established performance criteria approved by shareholders. This formula imposes a cap of 0.5% of our adjusted pre-tax earnings on “performance-based” compensation paid to designated executives who may be subject to the Section 162(m) limit.

Company Financial Performance.    In December 2011, management reviewed the Company’s year-over-year estimated financial performance for 2011 with the CMDS Committee. Before finalizing compensation decisions, the CMDS Committee reviewed the Company’s final financial results, including the following:

The Company had net revenues for 2011 of $32.4 billion, up 3% from 2010, and income from continuing operations of $1.26 per diluted share. Excluding the impact of the Company’s Debt-Related Credit Spreads on borrowings that are accounted for at fair value, revenues were $28.7 billion, down 11%. Operating results were adversely impacted by strategic actions that the Company undertook over the course of the year to strengthen capital and liquidity. These included the conversion of MUFG’s preferred shares into common stock, which resulted in a negative adjustment in the calculation of basic and fully diluted earnings per share of approximately $1.7 billion, as well as a comprehensive settlement with MBIA that resulted in a pre-tax loss of $1.7 billion.

As a result of the aforementioned strategic actions undertaken by the Company, Morgan Stanley significantly enhanced its common equity, liquidity and capital levels. As of December 31, the Company’s Tier 1 capital ratio under Basel I was 16.6% and its Tier 1 common ratio was 13.0%.

The Institutional Securities Business reported net revenues of $17.2 billion, up 6% from 2010. Investment Banking net revenues were $4.2 billion, down 2% from 2010, as lower underwriting revenues were partially offset by increased advisory revenues, yet the Company maintained its leading positions in several important areas. Net revenues in Equity Sales and Trading were $6.8 billion, up 40% from 2010 reflecting, among other things, strength in derivatives, our electronic platform and positive revenue of $619 million related to the impact of the widening of the Company’s Debt-Related Credit Spreads on borrowings that are accounted for at fair value. Fixed Income and commodities sales and trading net revenues were $7.5 billion, up 27% from 2010 reflecting, among other things, high levels of market volatility and client activity in interest rate and currency products and positive revenues of $3.1 billion related to the impact of the widening of the Company’s Debt-Related Credit Spreads on borrowings that are accounted for at fair value, partly offset by the impact of a stressed credit environment and the loss related to the MBIA settlement.

The Global Wealth Management Group delivered net revenues of $13.4 billion, up 6% from 2010 – driven by higher asset management and net interest revenues. Pre-tax profit margin increased modestly to 10% from 9% a year earlier. Net fee-based asset flows were $42.5 billion, up 30% from 2010, and net new assets increased by $36 billion.

The Asset Management business had net revenues of $1.9 billion, down from $2.7 billion in 2010, as higher results in Traditional Asset Management were offset by lower gains on principal investments in the Merchant Banking and Real Estate Investing business. Assets under management or supervision were $287 billion, up 6% from 2010, and 75% of our Long-Only strategies outperformed their benchmarks on a 3-, 5- and 10-year basis.

The Company’s return on average common equity from continuing operations was 3.9%, which was below the ROE performance priority for 2011 and was an important performance measure considered by the CMDS Committee.

Chief Executive Officer Performance.    In addition to the Company’s financial performance outlined above as well as progress against the other performance priorities identified in Section IV.A, the CMDS Committee’s evaluation of Mr. Gorman’s performance as Chief Executive Officer included his 2011 accomplishments, which consisted of the following:

Strengthening the Institutional Securities Business:    Mr. Gorman’s focus on reinforcing the Company’s leadership in Investment Banking was evidenced by revenue share gains and top-tier positions on industry league tables in global completed and announced M&A, global IPOs and global Equity underwriting. Mr. Gorman also continued to execute on the Company’s strategic plan to build out the Sales and Trading business by realizing revenue share gains in both Equity and Fixed Income. In addition, Mr. Gorman continued to focus on internal initiatives to strengthen relationships and services for clients.

Driving Final Stages of the Integration of MSSB:    Under Mr. Gorman’s leadership, the Company continued to advance the integration of MSSB, which included the initial rollout of a new technology platform. The integration of all 17,000 U.S. financial advisors onto a single operating platform is an important step in our plan to ensure that all clients are offered our full range of capabilities, improve margins, increase productivity and reduce costs. Additionally, the Global Wealth Management Group realized the highest net managed money flows since the inception of the MSSB joint venture.

Continued Repositioning and Revitalization of Asset Management to Drive Performance:     Mr. Gorman continued to refocus Asset Management on realizing the competitive advantages within its institutional businesses. During 2011 Asset Management attracted positive net flows of $25.8 billion and delivered solid investment performance to its clients.

Executing key strategic actions to strengthen capital and liquidity and position the Company for Basel III:    Under Mr. Gorman’s leadership, the Company effected a conversion of MUFG’s Series B preferred stock to common shares, which resulted in an increase in the Company’s Tier 1 common ratio. Mr. Gorman also fulfilled a key priority through a comprehensive settlement with MBIA, which terminated outstanding credit default swap protection purchased from MBIA on commercial mortgage backed securities – thereby reducing risk-weighted assets and increasing the Company’s 2012 pro forma Tier 1 common ratio under the proposed Basel III capital framework. The Company also increased its global liquidity reserve to $182 billion at year-end.

Deepening the Company’s Strategic Alliance with MUFG:    Mr. Gorman strengthened the Company’s relationship with MUFG, negotiating the conversion of MUFG’s preferred stake into common equity and enhancing the loan marketing joint venture.

Fostering Employee Engagement and Affirming Company Values:    Mr. Gorman communicated with employees at all levels of the organization on a regular basis to discuss the Company’s views and strategy on a variety of business matters. Under Mr. Gorman’s leadership, the Company redoubled its commitment to expressing a cohesive vision of the Company’s values and culture to the global workforce. Mr. Gorman also completed a successful transition to Chairman of the Board of Directors upon the retirement of John Mack.

Positioning the Company’s Businesses for Regulatory Developments:    Mr. Gorman continued to pursue a strategy of positioning the Company for financial regulatory developments. Mr. Gorman continued to pursue a model consistent with the legislative changes emanating from the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), including reallocating capital and the balance sheet away from proprietary businesses and reinvesting in client businesses, which will help position the Company to deliver more predictable, higher-quality revenues in the new regulatory environment.

Other Executive Performance.    In determining the compensation of other NEOs, the CMDS Committee weighed the Company’s overall financial performance and, as applicable, business unit performance, and evaluated each NEO’s individual contributions to the Company’s progress against the other performance priorities identified in Section IV.A, as described below:

Ms. Porat, Executive Vice President and Chief Financial Officer:    The CMDS Committee evaluated Ms. Porat’s role in improving financial controls and managing related operational risk. The Committee also assessed Ms. Porat’s leadership in further enhancing the Company’s liquidity position, diversifying funding, advancing its strong capital position and driving expense management through the Office of Re-engineering. Additionally, the CMDS Committee evaluated Ms. Porat’s regular communications with investors, regulators and analysts throughout the year to explain the Company’s business initiatives and strategy.

Mr. Fleming, Executive Vice President and President of Asset Management and Global Wealth Management:    The Committee considered progress made on the continuing integration of the MSSB joint venture, which is on track for completion in 2012. Under Mr. Fleming, the business proceeded on pace with the integration of a new technology platform for financial advisors, and increased fee-based asset flows and net new assets – both the highest since the inception of the joint venture. Within Asset Management, the CMDS Committee assessed Mr. Fleming’s role in delivering solid investment performance and increasing flows while repositioning the business around key strengths.

Mr. Kelleher, Executive Vice President and Co-President of Institutional Securities:    The CMDS Committee evaluated Mr. Kelleher’s role in building a strong management team in the Sales and Trading business, as well as expanding client relationship initiatives. Additionally, the Committee considered Mr. Kelleher’s role in increasing the Company’s presence in Europe and the business’s efficient use of capital and balance sheet. Under Mr. Kelleher’s leadership, Equity Sales and Trading had a very strong year, driven by revenue share gains in cash financing and derivatives; Fixed Income Sales and Trading also increased revenue share (excluding DVA and the impact of the MBIA settlement), with contributions from focus areas such as interest rates and currencies.

Mr. Taubman, Executive Vice President and Co-President of Institutional Securities:    The CMDS Committee considered the strong performance of the Investment Banking business under Mr. Taubman’s leadership, including gains in revenue share and continued strength of the Investment Banking franchise, as evidenced by the Company ranking #1 in global completed M&A, #2 in global IPOs, global Equity and global announced M&A in 2011.* The Company continues to be the underwriter of choice for equity and initial public offerings and has established a leading market position in acquisition finance. The Committee also considered Mr. Taubman’s leadership role in the joint venture with MUFG and his continuing efforts to strengthen client relationships.

Fixed cash compensation:

Base salary

Annual incentive award:

Cash bonus

Long-term incentive award:⁽²⁾

PSUs⁽³⁾⁽⁴⁾

RSUs⁽⁴⁾⁽⁵⁾