Morgan Stanley 2010 Annual Report Download - page 230

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
One-half of the award will be earned based on the Company’s return on average common shareholders’ equity,
excluding the impact of revenues related to the Company’s debt-related credit spreads (“Average ROE”). A
multiplier of zero will be applied in the event of a three-year Average ROE of less than 7.5% and a maximum
multiplier of 2 will be applied in the event of a three-year Average ROE of 18% or greater. The fair value per
share of this portion of the award was $29.32.
One-half of the award will be earned based on the Company’s total shareholder return, relative to the members of
a comparison peer group. A maximum multiplier of 2 can be applied for achieving the highest ranking within the
comparison group, with multipliers diminishing for lower rankings. The fair value per share of this portion of the
award was $41.52, estimated on the date of grant using a Monte Carlo simulation and the following assumptions.
Grant Year
Risk-Free Interest
Rate
Expected Stock
Price Volatility
Expected Dividend
Yield
2010 ............................................. 1.5% 89.9% 0.7%
Because the payout depends on the Company’s total shareholder return relative to a comparison group, the
valuation also depended on the performance of the stocks in the comparison group as well as estimates of the
correlations among their performance. The expected stock price volatility assumption was determined using
historical volatility because correlation coefficients can be developed only through historical volatility. The
expected dividend yield was based on historical dividend payments. The risk-free interest rate was determined
based on the yields available on U.S. Treasury zero-coupon issues.
At December 31, 2010, two million PSUs were outstanding.
21. Employee Benefit Plans.
The Company sponsors various pension plans for the majority of its U.S. and non-U.S. employees. The Company
provides certain other postretirement benefits, primarily health care and life insurance, to eligible U.S.
employees. The Company also provides certain postemployment benefits to certain former employees or inactive
employees prior to retirement.
For fiscal 2008, the Company adopted the measurement date provision as required under current accounting
guidance under the alternative transition method, which requires the measurement date to coincide with the fiscal
year-end date. The Company recorded an after-tax charge of approximately $13 million to equity ($21 million
before tax) upon adoption of this requirement.
Pension and Other Postretirement Plans. Substantially all of the U.S. employees of the Company and its U.S.
affiliates who were hired before July 1, 2007 are covered by the U.S. Qualified Plan, a non-contributory, defined
benefit pension plan that is qualified under Section 401(a) of the Internal Revenue Code (the “U.S. Qualified
Plan”). Unfunded supplementary plans (the “Supplemental Plans”) cover certain executives. In addition, certain
of the Company’s non-U.S. subsidiaries also have defined benefit pension plans covering substantially all of their
employees. These pension plans generally provide pension benefits that are based on each employee’s years of
credited service and on compensation levels specified in the plans. The Company’s policy is to fund at least the
amounts sufficient to meet minimum funding requirements under applicable employee benefit and tax laws.
Liabilities for benefits payable under the Supplemental Plans are accrued by the Company and are funded when
paid to the beneficiaries. The Company’s U.S. Qualified Plan was closed to new hires effective July 1, 2007. In
lieu of a defined benefit pension plan, eligible employees (excluding legacy Smith Barney employees) who were
first hired, rehired or transferred to a U.S. benefits eligible position on or after July 1, 2007 receive a
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