Morgan Stanley 2014 Annual Report Download - page 70

Commissions and Fees. Commission and fee revenues primarily arise from agency transactions in listed and
over-the-counter (“OTC”) equity securities, services related to sales and trading activities, and sales of mutual
funds, futures, insurance products and options.
Asset Management, Distribution and Administration Fees. Asset management, distribution and administration
fees include fees associated with the management and supervision of assets, account services and administration,
performance-based fees relating to certain funds, separately managed accounts, shareholder servicing and the
distribution of certain open-ended mutual funds.
Asset management, distribution and administration fees in the Company’s Wealth Management business segment
also include revenues from individual investors electing a fee-based pricing arrangement and fees for investment
management. Mutual fund distribution fees in the Company’s Wealth Management business segment are based
on either the average daily fund net asset balances or average daily aggregate net fund sales and are affected by
changes in the overall level and mix of assets under management or supervision.
Asset management fees in the Company’s Investment Management business segment arise from investment
management services the Company provides to investment vehicles pursuant to various contractual
arrangements. The Company receives fees primarily based upon mutual fund daily average net assets or based on
monthly or quarterly invested equity for other vehicles. Performance-based fees in the Company’s Investment
Management business segment are earned on certain funds as a percentage of appreciation earned by those funds
and, in certain cases, are based upon the achievement of performance criteria. These fees are normally earned
annually and are recognized on a monthly or quarterly basis.
Net Interest. Interest income and Interest expense are a function of the level and mix of total assets and
liabilities, including Trading assets and Trading liabilities; investment securities, which include available for sale
(“AFS”) securities and held to maturity (“HTM”) securities; securities borrowed or purchased under agreements
to resell; securities loaned or sold under agreements to repurchase; loans; deposits; commercial paper and other
short-term borrowings; long-term borrowings; trading strategies; customer activity in the Company’s prime
brokerage business; and the prevailing level, term structure and volatility of interest rates. Certain Securities
purchased under agreements to resell (“reverse repurchase agreements”) and Securities sold under agreements to
repurchase (“repurchase agreements”) and Securities borrowed and Securities loaned transactions may be entered
into with different customers using the same underlying securities, thereby generating a spread between the
interest income on the reverse repurchase agreements or securities borrowed transactions and the interest expense
on the repurchase agreements or securities loaned transactions.
Compensation Expense.
The Company’s compensation and benefits expense includes accruals for base salaries and fixed allowances,
formulaic programs, discretionary incentive compensation, amortization of deferred cash and equity awards,
changes in fair value of deferred compensation plan referenced investments, and other items such as health and
welfare benefits. The factors that drive compensation for the Company’s employees vary from quarter to quarter,
segment to segment and within a segment. For certain revenue-producing employees in the Company’s Wealth
Management and Investment Management business segments, their compensation is largely paid on the basis of
formulaic payouts that link their compensation to revenues. Compensation for certain employees, including
revenue-producing employees in the Company’s Institutional Securities business segment, may also include
incentive compensation that is determined following the assessment of the Company, business unit and
individual performance. Compensation for the Company’s remaining employees is largely fixed in nature
(e.g., base salary, benefits, etc.).
Discretionary Incentive Compensation. On December 1, 2014, the Compensation, Management Development
and Succession Committee (“CMDS Committee”) of the Company’s Board of Directors approved an approach
for awards of discretionary incentive compensation for the 2014 performance year to be granted in 2015 that
would reduce the average deferral of such awards to an approximate baseline of 50%. Additionally, the CMDS
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