Morgan Stanley 1998 Annual Report Download - page 78

85% of the fair value on the date of purchase. Employees of the
Company purchased 0.6 million shares of common stock in fiscal
1998, 0.5 million shares in fiscal 1997 and 0.7 million shares in
fiscal 1996.
The discount to fair value was $6 million for fiscal
1998 and $3 million for both fiscal 1997 and fiscal 1996. The plan
is “non-compensatory” under APB No. 25, and, accordingly, no
charge to earnings has been recorded for the amount of the discount
to fair value.
Non-Employee Director Awards
The Company sponsors an equity-based plan for non-employee
directors under which shares of the Company’s common stock have
been authorized for issuance in the form of option grants, stock
awards or deferred compensation. The effect of these grants on results
of operations was not material.
OTHER COMPENSATION PLANS
Capital Accumulation Plan
Under the Capital Accumulation Plan (“CAP”), vested units consisting
of unsecured rights to receive payments based on notional interests
in existing and future risk-capital investments made directly or indi-
rectly by the Company (“CAP Units”) are granted to key employees.
The value of the CAP Units awarded for services rendered in fiscal
1998, 1997 and 1996 was approximately $15 million, $14 million
and $7 million, respectively, all of which relate to vested units.
Carried Interest Plans
Under various Carried Interest Plans, certain key employees effectively
participate in a portion of the Company’s realized gains from certain
of its equity investments in private equity transactions. Compensation
expense for fiscal 1998, 1997 and 1996 related to these plans aggre-
gated $33 million, $38 million and $0.2 million, respectively.
Real Estate Fund Plans
Under various plans, select employees and consultants to certain part-
nerships may participate in certain gains realized by the Company’s
real estate funds. Compensation expense relating to these plans
aggregated $3 million, $8 million and $13 million for fiscal 1998,
fiscal 1997 and fiscal 1996, respectively.
Profit Sharing Plans
The Company sponsors qualified profit sharing plans covering sub-
stantially all U.S. employees and also provides cash payment of profit
sharing to employees of its international subsidiaries. Contributions
are made to eligible employees at the discretion of management
based upon the financial performance of the Company. Total profit
sharing expense for fiscal 1998, fiscal 1997 and fiscal 1996 was
$115 million, $113 million and $72 million, respectively.
Employee Stock Ownership Plan
The Company has a $140 million leveraged employee stock owner-
ship plan, funded through an independently managed trust. The
Employee Stock Ownership Plan (“ESOP”) was established to
broaden internal ownership of the Company and to provide benefits
to its employees in a cost-effective manner. Each of the 3,581,964
preferred shares outstanding at November 30, 1998 is held by the
ESOP trust, is convertible into 3.3 shares of the Company’s common
stock and is entitled to annual dividends of $2.78 per preferred share.
The ESOP trust funded its stock purchase through a loan of $140
million from the Company. The ESOP trust note, due September 19,
2005 (extendible at the option of the ESOP trust to September 19,
2010), bears a 10-3/8% interest rate per annum with principal
payable without penalty on or before the due date. The ESOP trust
expects to make principal and interest payments on the note from
funds provided by dividends on the shares of convertible preferred
stock and contributions from the Company. The note receivable
*EIGHTY-TWO *
MORGAN STANLEY DEAN WITTER *1998 ANNUAL REPORT