18. Deferred Compensation Plans

Stock-Based Compensation Plans

• Net of cancellations.
• Relates to stock-based compensation anticipated to be awarded in January of the following year that does not contain a future service requirement.  

1. Excludes income tax consequences related to employee share-based award conversions.

1. Amounts do not include forfeitures, cancellations, accelerations or 2018 performance year compensation awarded in January 2019, which will begin to be amortized in 2019 (see the Annual Compensation Cost for 2018 Performance Year Awards table herein).  

In connection with awards under its stock-based compensation plans, the Firm is authorized to issue shares of common stock held in treasury or newly issued shares.

The Firm generally uses treasury shares, if available, to deliver shares to employees or employee stock trusts, and has an ongoing repurchase authorization that includes repurchases in connection with awards under its stock-based compensation plans. Share repurchases by the Firm are subject to regulatory approval.

See Note 15 for additional information on the Firm’s Share Repurchase Program.

Restricted Stock Units    

RSUs are subject to vesting over time, generally one to four years from the date of award, contingent upon continued employment and subject to restrictions on sale, transfer or assignment until conversion to common stock. All or a portion of an award may be canceled if employment is terminated before the end of the relevant vesting period and after the relevant vesting period in certain situations. Recipients of RSUs may have voting rights, at the Firm’s discretion, and generally receive dividend equivalents if the awards vest.

1. At December 31, 2018, the weighted average remaining term until delivery for the outstanding RSUs was approximately 1.0 year.  

1. Unvested RSUs represent awards where recipients have yet to satisfy either the explicit vesting terms or retirement-eligible requirements.

Performance-Based Stock Units

PSUs will vest and convert to shares of common stock only if the Firm satisfies predetermined performance and market-based conditions over a three-year performance period. The number of PSUs that will actually vest ranges from 0% to 150% of the target award, based on the extent to which the Firm achieves the specified performance goals. One-half of the award will be earned based on the Firm’s average return on equity, excluding certain adjustments specified in the plan terms (“MS Adjusted ROE”). The other half of the award will be earned based on the Firm’s total shareholder return, relative to the total shareholder return of the S&P 500 Financials Sector Index (“Relative MS TSR”). PSUs have vesting, restriction and cancellation provisions that are generally similar to those of RSUs. At December 31, 2018, approximately three million PSUs were outstanding.

The Relative MS TSR fair values on the award date were estimated using a Monte Carlo simulation and the following assumptions.

The risk-free interest rate was determined based on the yields available on U.S. Treasury zero-coupon issues. The expected stock price volatility was determined using historical volatility. The correlation coefficient was developed based on historical price data of the Firm and the S&P 500 Financials Sector Index. The model also uses an expected dividend yield which is calibrated to be equivalent to reinvesting dividends.

Deferred Cash-Based Compensation Plans    

Deferred cash-based compensation plans generally provide a return to the plan participants based upon the performance of each participant’s referenced investments.

1. Net of cancellations.

2. Relates to deferred cash-based compensation anticipated to be awarded in January of the following year that does not contain a future service requirement.

• Amounts do not include forfeitures, cancellations, accelerations, future return on referenced investments or 2018 performance year compensation awarded in January 2019, which will begin to be amortized in 2019 (see below).

1. Awarded in January 2019 and contain a future service requirement. Amounts do not include forfeitures, cancellations, accelerations, or future return on referenced investments.