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 2007’s Fortune 100 and using information disclosed in each company’s 2008 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges have each adopted their own standards for director independence. Meeting stock exchange requirements is mandatory for most listed companies.

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 $100,000 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, 4200(a)(15), 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 known as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from Morgan Stanley’s (MS-NYSE) 2008 proxy statement:

Director	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings	All Other Compensation ($)	Total ($)
Roy J. Bostock	85,000	250,000	—	—	—	335,000
Erskine B. Bowles	85,000	250,000	—	—	—	335,000
Howard J. Davies	90,000	250,000	—	—	—	340,000
C. Robert Kidder	125,000	250,000	1,733	—	—	376,733
Donald T. Nicolaisen	100,000	250,000	—	—	—	350,000
Charles H. Noski	105,000	250,000	—	—	—	355,000
Hutham S. Olayan	85,000	250,000	—	—	—	335,000
Charles E. Phillips, Jr.	90,000	250,000	—	—	—	340,000
O. Griffith Sexton	75,000	250,000	—	—	—	325,000
Laura D. Tyson	95,000	250,000	1,733	—	—	346,733
Klaus Zumwinkel	85,000	250,000	—	—	—	335,000

Director Compensation. Last year the board of directors met 15 times, each director attended at least 75% of the meetings. Three directors received more than $100,000 in director’s fees paid in cash and the non-employee directors as a group averaged $343,042 in total compensation for their services. As can be seen in the table, much of the directors’ compensation came in the form of stock awards, which are considered director’s fees for purposes of complying with exchange rules.

Director Tenure. The average director tenure is 4.5 years, the longest tenure is 15. Most of the directors also serve on other boards such as Northwest Airlines, Yahoo, General Motors, Verizon, Zurich Financial Services, Microsoft, Viacom, Oracle, and others.

CEO Compensation. The CEO, Mr. Mack, was paid $1,602,458 last year, about half of which came in the form of direct salary ($800,000). The remaining $802,458 came from nonqualified deferred compensation earnings and change in pension value of $391,844 and perquisites of $399,153. Mr. Mack’s perquisites included use of the corporate aircraft, a company car, and personal meals. Mr. Mack elected not to receive an annual bonus in 2007 due to poor fourth quarter results.