Investors Urged to Reject Morgan Stanley’s (MS) Equity Incentive Expansion

Institutional Shareholder Services urged investors to reject Morgan Stanley’s (MS) proposal to add 50 million common shares to its equity incentive plan and extend the program by three years. ISS argued that the bank has granted excessive shares over the past three years and that its disclosures were incomplete, even as it acknowledged that equity incentives can align employee and shareholder interests and mitigate imprudent risk-taking.

Equity compensation is prevalent across major banks, and this proxy season has seen ISS oppose retention bonuses at Goldman Sachs (GS) and pay plans at BlackRock (BLK). While ISS recommended voting for Morgan Stanley’s executive compensation framework, its stance against the equity incentive expansion underscores heightened scrutiny of pay practices on Wall Street.

• ISS recommends rejecting Morgan Stanley’s plan to add 50 million shares to its equity incentive program.
• Proxy adviser cites historic over-granting and incomplete disclosure by the bank.
• Similar pushbacks have targeted Goldman Sachs’ retention bonuses and BlackRock’s compensation plans.

• The proposal would extend the incentive plan by three years, a duration ISS deems excessive.
• Morgan Stanley’s board received support for base executive pay despite ISS’s broader criticisms.
• Lazard (LAZ) challenged an ISS recommendation against its own compensation plan, highlighting adviser influence.

• Investor votes will gauge sentiment on equity dilution and compensation governance.
• Congressional hearings on proxy advisors may spur regulatory reforms.
• Banks will reassess incentive structures amid intensifying proxy adviser scrutiny.

• Equity incentives are a fundamental part of Morgan Stanley’s pay-for-performance culture, aligning employee and shareholder interests and discouraging imprudent risk-taking.
• The proposed addition of 50 million shares and a three-year extension is consistent with industry practices, supporting talent retention and recruitment in a highly competitive financial sector.
• Morgan Stanley’s board has a strong track record of shareholder engagement, incorporating feedback to improve compensation transparency and limiting special equity awards to rare, extraordinary circumstances.
• Share repurchase programs and careful plan management help minimize dilution, and the firm’s historical burn rate and overhang metrics are within reasonable industry ranges.
• Broad use of equity-based awards is viewed as a best practice for governance and shareholder alignment, and the plan’s features are designed to comply with regulatory requirements and discourage excessive risk-taking.
• Shareholder support for the firm’s compensation philosophy has been strong in recent years, indicating confidence in management’s approach to long-term value creation.

• ISS’s opposition highlights concerns over historic over-granting of equity and incomplete disclosure, suggesting that the proposed share increase could lead to excessive dilution for existing shareholders.
• The three-year extension of the plan is deemed excessive by ISS, raising questions about whether management is seeking too much flexibility at the expense of shareholder interests.
• Proxy advisors have escalated scrutiny of equity compensation across Wall Street, with similar pushbacks at Goldman Sachs and BlackRock, reflecting broader investor unease about pay practices in the sector.
• The dominance of ISS and Glass Lewis in proxy advisory means their recommendations can significantly influence voting outcomes, and their criticism may sway institutional investors against the proposal.
• Some investors and governance experts argue that equity plans should have tighter controls and more robust disclosure to ensure true alignment with performance and to prevent unnecessary dilution.
• Ongoing Congressional scrutiny of proxy advisory firms and compensation governance could lead to regulatory reforms, increasing uncertainty around future equity incentive plan approvals and pay practices.

ISS and rival Glass Lewis face criticism for their sway over shareholder votes, culminating in a Congressional subcommittee hearing on alleged “proxy advisory cartel” behavior. Lawmakers and market participants are debating whether these firms hold disproportionate power in corporate governance decisions.

As Morgan Stanley approaches its shareholder meeting, the outcome will signal how much weight investors place on ISS’s detailed critiques versus management’s rationale for incentive-based retention and performance alignment. The decision may also influence future proposals across the financial sector.