The Director Compensation Project: Morgan Stanley

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation.  We are including companies from 2010’s Fortune 500 and using information found in their 2010 proxy statements.  In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence.  While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting. 

Under NYSE Rule 303A.01, all listed companies must have a majority of independent directors sitting on their boards.  Directors are not independent if they received over $120,000 in direct compensation, other than director’s fees, in any one year period over the last three years pursuant to Rule 303A.02(b)(ii).  This is a looser restriction than the equivalent NASDAQ Rule, 5605(a)(2), which includes all compensation.  Rule 303A.06 requires that, in addition to the general independence standards, audit committee members must comport with the requirements of Exchange Act Rule 10A-3 (C.F.R. §240.10A-3), also know as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from Morgan Stanley's (NYSE:MS) 2010 proxy statement.  According to the proxy statement, the company paid the directors the following amounts:

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
Roy J. Bostock	85,000	250,000	0	0	335,000
Erskine B. Bowles	85,000	250,000	0	0	335,000
Howard J. Davies	90,000	250,000	0	0	340,000
James H. Hance, Jr.	62,500	208,333	0	0	270,833
C. Robert Kidder	125,000	250,000	0	0	375,000
Donald T. Nicolaisen	100,000	250,000	0	0	350,000
Charles H. Noski	105,000	250,000	0	0	355,000
Hutham S. Olayan	85,000	250,000	0	0	335,000
Charles E. Phillips, Jr.	85,000	250,000	0	0	335,000
O. Griffith Sexton	90,000	250,000	0	0	340,000
Laura D. Tyson	95,000	250,000	0	0	345,000

Director Compensation.  During the December 2008 transition period and the 2009 fiscal year, Morgan Stanley held 26 Board of Directors meetings.  Each director attended at least 75% of the Board meetings and Board Committees on which he or she served. Additionally, each director also participated in informal communications with the Chairman, CEO, and members of senior management regarding particular matters of interest. In 2008, Morgan Stanley entered into an Investor Agreement with Mitsubishi UFJ Financial Group, Inc. ("MUFG"), whereby Morgan Stanley agreed to elect one of MUFG’s senior officers to be on Morgan Stanley’s Board of Directors. In light of this agreement, Mr. Hance, was unanimously elected July 1, 2009. Mr. Phillips did not stand for reelection at the annual meeting in 2009.  The annual retainer for directors is $75,000 plus additional compensation for those who are lead directors or sit on Board Committees.

Director Tenure.  In 2009, Morgan Stanley had 14 directors sit on its board; 11 of these 14 are independent. Several of the Board of Directors also sit on other Boards. Mr. Kidder has been a director for Morgan Stanley since 1993 and also sits on the Board of Merck & Co., Inc. and Chrysler Group LLC as a Non-Executive Chairman. Ms. Tyson has provided economic and policy expertise to the Morgan Stanley Board since 1997 and also sits on the Board of Directors at AT&T Inc., CB Richard Ellis Group, Inc. and Eastman Kodak Company.

CEO Compensation.  Mr. John Mack served as Morgan Stanley’s Chief Executive Officer through the end of 2009 and he recommended that he not receive a bonus for the third year in a row. Mr. Mack also worked diligently with the Board of Directors to make a seamless transition to the successor CEO, Mr. James Gorman, in 2010. Mr. Mack’s base salary was $800,000 and due to his election to not receive a bonus, he also did not receive any incentive based compensation in 2009. Mr. Mack has provided Morgan Stanley with over 35 years of service and provides perspective of the business and as respected leader. Mr. Walid Chammah, Co-President, received a base salary of $719,347 and a cash bonus of $3,834,922 all of which was paid in British pounds.

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The annual retainer for directors is $75,000 plus additional compensation for those who are lead directors or sit on Board Committees.
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