John Mack, the CEO of Morgan Stanley, sent a year-end message to employees reflecting on the past year and looking ahead. He noted that while the firm has made extraordinary progress since the crisis, recovering its market leadership positions, more reforms are still needed in the financial industry. Mack recommended receiving no bonus for 2009 given the government support the industry received. He expressed confidence in James Gorman to lead the firm forward and continue executing its strategy.

1. Morgan Stanley – Memorandum
For Internal Use Only – Not for Redistribution
Date: December 18, 2009
To: All Employees
From: John Mack
Subject: An Important Year-End Message
As I look ahead to the end of my time as CEO of Morgan Stanley, I wanted to share with
you some thoughts about where we are and where I believe we need to head, both as a
Firm and as an industry.
I am as excited as I've ever been about the future of this great Firm and its critical role in
the market. The progress Morgan Stanley has made in the past year is extraordinary.
Last October, many were doubting our very survival. Fourteen months later, we have not
only come through the crisis, we have powerful momentum and market leadership across
many of our businesses – with a number-one position in global M&A, the largest wealth
management network in the world and a resurgence in our sales and trading business.
There is more to be done but I couldn't be more proud of how this Firm responded to the
market turmoil of the past year.
I also believe the scrutiny facing our industry right now ultimately can be a positive, if it
leads to constructive changes in how firms operate, promotes greater discipline and
transparency, and spurs sound regulatory reform. But our industry must first
acknowledge the extraordinary events of the past year and recognize that some old ways
of doing business cannot continue.
There is no doubt in my mind that every firm in our industry benefited from the actions
governments took last fall to stabilize the markets. Yes, Morgan Stanley has repaid
TARP and provided taxpayers with a solid return, but our Firm and our industry cannot
afford to ignore the lessons from last fall’s market crisis.
I have talked before about the need for a more robust regulatory framework and the
benefits of stronger Fed oversight. We still need a risk regulator with the tools and
authority to ensure risk-taking never again jeopardizes the entire financial system.
Regulators and investors also need a clearer picture of the risks posed by complex
financial instruments and contracts. So, derivatives should be centrally cleared or
reported to a central repository. And no firm should be considered “too big to fail.” If a

2. firm mismanages its risks, regulators need the authority to unwind it in a way that
minimizes instability to the system.
Regulatory reform is critical, but firms don’t need to wait for the government to enact
change. At Morgan Stanley, we have made many changes to how we operate, including
how we pay our people. We were the first U.S. firm to implement a clawback provision
for compensation, and we created a plan last year to more closely align senior executive
compensation with long-term performance.
We operate in a competitive market for talent – with intense competition from other
global banks, as well as hedge funds, private equity firms, and boutique advisory and
investment firms – and our pay practices must reflect that. But at Morgan Stanley, we
recognize the environment in which we are operating and the economic challenges facing
so many countries.
Given this unprecedented environment and the extraordinary financial support
governments provided to our industry, as the leader of this Firm I recommended to the
Compensation Committee of the Board last week that I receive no year-end bonus.
We also are continuing to make changes this year in how we pay our people. For
instance, we are factoring risk measures into compensation decisions for sales and trading
teams, consistent with the recent Federal Reserve and G-20 guidelines. We are
increasing the deferral rates for all employees – to further align compensation with the
long-term success of the Firm – and strengthening and clarifying provisions for the
clawback. And we are paying our most senior executives in performance units that will
make a portion of their year-end compensation directly contingent on Firm performance
over the next three years.
Morgan Stanley has a responsibility as a leading global bank to play a constructive role in
shaping the changes underway in our industry and the regulatory framework that governs
it. We must work as partners with regulators, legislators and others throughout the
industry to forge practical and workable solutions to the challenges we face. Morgan
Stanley has long played such a role in the markets, and I am confident it will continue to
do so in the months and years ahead – as we look to help drive economic growth and
sound regulatory reform.
I joined Morgan Stanley some 37 years ago, and I believe we have never been better
positioned than we are today. And in James Gorman, we have a proven leader who is
ideally suited to take this Firm forward; James has shown repeatedly the ability to build
great teams and profitable, winning businesses. He understands our clients and our
culture. He knows Morgan Stanley's business and the power of our franchise. James has
been a key architect of our strategy over the past few years and I have no doubt that he
will be executing it relentlessly – with the support of a strong senior management team
and all of you, the heart and soul of Morgan Stanley.

3. Over the years, I have played many different roles at this Firm. On January 1, my role
will change once again, but my passion for this business – and my commitment to all of
you – will not. I look forward to continuing to work alongside you – and achieving great
things with you – in the years ahead.