SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT

EXHIBIT 10.3

SECOND AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

This SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”) by and between Morgan Stanley (the “Company”), and John J. Mack (the “Executive”) dated as of December 16, 2008 amends and restates the original employment agreement entered into by and between the Company and the Executive on June 30, 2005 and amended as of September 20, 2005, December 13, 2005 and February 13, 2006.

WHEREAS, the Board of Directors of the Company (the “Board”) has determined that it is in the best interests of the Company and its shareholders to employ the Executive as the Company’s Chief Executive Officer and to have the Executive become Chairman and a member of the Board;

WHEREAS, the Company desires to enter into an agreement embodying the terms of such employment and service; and

WHEREAS, the Executive desires to enter into this Agreement and to accept such employment and service, subject to the terms and provisions of this Agreement;

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the receipt of which is mutually acknowledged, the Company and the Executive (individually a “Party” and together the “Parties”) agree as follows:

1. Effective Date . The “Effective Date” shall mean June 30, 2005.

2. Employment Period . The Company hereby agrees to employ the Executive, and the Executive hereby agrees to be employed by the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the fifth anniversary thereof (the “Employment Period”).

3. Terms of Employment . (a)  Position and Duties . (i) During the Employment Period, (A) the Executive shall serve as the Chairman of the Board and Chief Executive Officer of the Company, with such authority, duties and responsibilities as are commensurate with such positions, reporting directly to the Board, and (B) the Executive’s principal location of employment shall be at the principal headquarters of the Company; provided , that the Executive may be required under reasonable business circumstances to travel outside of such location in connection with performing his duties under this Agreement. In addition, the Company shall cause the Executive to be appointed as a member of the Board as of the Effective Date, and following such date, the Executive shall remain on the Board, subject to Section 4(g), and shall perform his duties as a director of the Company conscientiously and faithfully.

(ii) The Executive agrees that during the Employment Period, he shall devote substantially all of his business time, energies and talents to serving as the Company’s Chairman of the Board and Chief Executive Officer, perform his duties conscientiously and faithfully subject to the reasonable and lawful directions of the Board, and in accordance with each of the Company’s corporate governance and ethics guidelines, conflict of interests policies and code of conduct (collectively, the “Company Policies”) applicable to all Company employees or senior executives generally. During the Employment Period, it shall not be a violation of this Agreement for the Executive, subject to the requirements of Section 8, to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures or fulfill speaking engagements and (C) manage personal investments, so long as such activities do not materially interfere with the performance of the Executive’s responsibilities as the Chief Executive Officer or as Chairman or a director of the Board in accordance with this Agreement.

(b) Compensation . (i)  Base Salary . During the Employment Period, the Executive shall receive an annualized base salary (“Annual Base Salary”) of not less than the individual who served as Chief Executive Officer of the Company immediately prior to the Executive (the “Prior CEO”), payable pursuant to the Company’s normal payroll practices. During the Employment Period, the current Annual Base Salary shall be reviewed for increase only (and once increased shall never be decreased) at such time as the salaries of senior executives of the Company are reviewed generally, provided that, the Executive’s first such review shall occur no earlier than fiscal year 2006.

(ii) Annual Bonus . For each fiscal year completed during the Employment Period, the Executive shall be eligible to receive an annual bonus (“Annual Bonus”) on terms and conditions and based upon performance targets that are established by the Compensation, Management Development and Succession Committee of the Board or its successor (the “Committee”), provided that in no event shall such terms and conditions or performance targets be less favorable to the Executive than to senior executives of the Company generally.

(iii) Long-Term Incentive Compensation . For each fiscal year completed during the Employment Period, the Executive shall be eligible to receive long-term incentive compensation (“Long-Term Incentive Compensation”, and together with Annual Base Salary and Annual Bonus, “Total Compensation”) on terms and conditions no less favorable to the Executive than (x) members of the Operating Committee of the Company (the “ Operating Committee”) generally and (y) the terms and conditions of the Equity Incentive Compensation Plan, 2004 Discretionary Retention Awards Award Certificate (the “2004 EICP”); provided that for purposes of the Long-Term Incentive Compensation (other than the Special RSU Grant (as

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defined below)), the Executive shall be treated as if the Executive had been continuously employed by the Company and had not terminated employment with the Company in January 2001; provided , further , that the Executive shall not be so treated in the event that prior to the first anniversary of the Effective Date the Executive is terminated for Cause (as defined below). The proportion of Total Compensation provided to the Executive as Annual Base Salary, Annual Bonus and Long-Term Incentive Compensation, respectively, for each of fiscal years 2005 and 2006 shall be substantially similar to the proportion of Total Compensation provided as Annual Base Salary, Annual Bonus and Long-Term Incentive Compensation, respectively, to members of the Operating Committee generally.

(iv) Special RSU Grant . As soon as practicable following the Effective Date, the Executive shall be granted a special one-time grant of 500,000 restricted stock units based on shares of the Company’s common stock (the “Special RSU Grant”). Twenty percent of the Special RSU Grant shall vest, and the underlying shares shall be delivered, on the first anniversary of the Effective Date, 20 percent of the Special RSU Grant shall vest, and the underlying shares shall be delivered, on each of the second, third, fourth and fifth anniversaries of the Effective Date. Except as specifically set forth herein, the Special RSU Grant shall have the same terms and conditions as grants of restricted stock units under the 2004 EICP. In no event shall the Special RSU Grant be considered part of the Executive’s Total Compensation.

(v) Retirement Benefits . During the Employment Period, the Executive shall be eligible to participate in any qualified or nonqualified deferred compensation, pension, and retirement plans maintained by the Company applicable to senior executives of the Company generally, in each case, as amended from time to time, provided that for all purposes of such plans, the Executive shall be treated as if the Executive had been continuously employed by the Company and had not terminated employment with the Company in January 2001, provided , further , that the Executive shall not be so treated in the event that prior to the first anniversary of the Effective Date the Executive is terminated for Cause.

(vi) Other Benefits . During the Employment Period, the Executive shall be entitled to participate in all welfare, perquisites, fringe benefit, and other benefit plans, practices, policies and programs, as may be in effect from time to time, for senior executives of the Company generally, provided that, during the Employment Period, the Executive shall receive perquisites no less favorable than those provided to the Prior CEO, including, without limitation, use of the Company’s aircraft and use of a car and driver. In addition, following the Executive’s retirement or any termination of his employment, the Executive shall be entitled to retiree health benefits pursuant to the retiree health plans, practices, programs and policies of the Company (or under programs providing the same benefits), and for purposes of determining the amount of the Executive’s contributions and benefits under such plans, practices, programs and policies, the Executive shall be treated as if the Executive had been continuously employed by the Company and had not terminated employment with the Company in January 2001 (the “Executive’s Retiree Health Benefits”), provided , that the Executive shall not be entitled to the Executive’s Retiree Health Benefits in the event that prior to the first anniversary of the Effective Date the Executive is terminated for Cause.

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(vii) Expenses . During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for business expenses incurred by the Executive in accordance with the Company’s policies, as may be in effect from time to time, for its senior executives generally.

(viii) Vacation . During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the Company’s policies, as may be in effect from time to time, for its senior executives generally, provided that for purposes of determining the Executive’s vacation benefits, the Executive shall be treated as if the Executive had been continuously employed by the Company and had not terminated employment with the Company in January 2001.

(ix) Office and Support Staff . During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and shall be provided with secretarial and administrative assistance, as is provided generally to other senior executives of the Company.

(c) Other Entities . The Executive agrees to serve, without additional compensation, as an officer and director for each of the Company’s subsidiaries, partnerships, joint ventures, limited liability companies and other affiliates, including entities in which the Company has a significant investment (collectively, the Company and such entities, the “Affiliated Group”), as determined by the Company, provided , that such service does not materially interfere with the Executive’s performance of his duties and responsibilities as the Chairman of the Board and Chief Executive Officer of the Company. As used in this Agreement, the term “affiliates” shall include any entity controlled by, controlling, or under common control with the Company.

4. Termination of Employment . (a)  Death or Disability . The Executive’s employment shall terminate automatically upon the Executive’s death during the Employment Period. In the event a Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), the Company may provide the Executive with written notice in accordance with Section 11(b) of this Agreement of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the “Disability Effective Date”), provided that, within the 30-day period after such receipt, the Executive shall not have returned to full-time performance of the Executive’s duties. For purposes of this Agreement, “Disability” shall mean the inability of the Executive to perform his duties with the Company on a full-time basis for six consecutive months as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a licensed

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physician mutually selected by (i) the Company or its insurers and (ii) the Executive or the Executive’s legal representative. If the Parties cannot agree on a licensed physician, each Party shall select a licensed physician and the two physicians shall select a third who shall be the approved licensed physician for this purpose.

(b) Cause . The Company may terminate the Executive’s employment during the Employment Period with or without Cause. For purposes of this Agreement, “Cause” shall mean:

(i) the continued failure of the Executive to perform substantially the Executive’s duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), for a period of 10 days after a written demand for substantial performance is delivered to the Executive by the Board which specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive’s duties, or

(ii) the willful engaging by the Executive in illegal or fraudulent conduct or gross misconduct which, in each case, is materially and demonstrably injurious to the Company, or either of their respective reputations or to any clients or customers of the Company, or

(iii) conviction of a felony or guilty or nolo contendere plea by the Executive with respect thereto, or

(iv) a violation in any material respect of any Company Policies applicable to the Executive which is materially and demonstrably injurious to the Company, if such breach is not cured within 30 business days following receipt of a notice of such breach, or

(v) a material breach by the Executive of Section 8 of this Agreement, if such breach is not cured within 30 business days following receipt of a notice of such breach.

For purposes of this provision, no act or failure to act on the part of the Executive shall be considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive’s action or omission was in the best interests of the Company or was done or omitted to be done with reckless disregard to the consequences. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to

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the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that in the good faith opinion of the Board, the Executive is guilty of the conduct constituting Cause and specifying the particulars thereof in detail.

(c) Good Reason . The Executive’s employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, “Good Reason” shall mean, in the absence of a written consent of the Executive:

(i) the assignment to the Executive of any duties materially inconsistent with the Executive’s duties or responsibilities, or any other material action by the Company which is materially inconsistent with or materially reduces such duties or responsibilities; or

(ii) any diminution in Executive’s title or reporting relationship as contemplated by Section 3(a) of this Agreement; or

(iii) any failure by the Company to comply with any of the provisions of Section 3(b) of this Agreement; provided that Executive’s receipt of 100% of his Annual Bonus in respect of fiscal year 2005 in the form of equity compensation under the Equity Incentive Compensation Plan shall not constitute Good Reason; or

(iv) the Company’s requiring the Executive’s principal office to be based at any office or location other than that provided in Section 3(a) of this Agreement; or

(v) any purported termination by the Company of the Executive’s employment otherwise than as expressly permitted by this Agreement; or

(vi) any failure to elect or reelect the Executive to the Board; or

(vii) any failure by the Company to cause any successor to all or substantially all or a substantial portion of its business and/or assets to assume expressly and agree to perform this Agreement in accordance with Section 9(b).

Notwithstanding the foregoing, the Executive shall not be considered to have Good Reason to terminate this Agreement unless and until he gives the Company written notice of the circumstances constituting the Good Reason within 90 days of the initial existence of such circumstances, and the Company fails to have cured such circumstances within 30 business days of receipt of such notice.

(d) Voluntary Termination . The Executive may voluntarily terminate his employment without Good Reason.

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(e) Notice of Termination . Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other Party hereto given in accordance with Section 11(b) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

(f) Date of Termination . “Date of Termination” means (i) if the Executive’s employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein within 30 days of such notice, as the case may be (but in the case of a termination by the Executive for Good Reason, the Date of Termination shall not be earlier than the last day of the Company’s cure period provided for in Section 4(c)), (ii) if the Executive’s employment is terminated by the Company other than for Cause or Disability, or if the Executive voluntarily resigns without Good Reason, the date on which the terminating Party notifies the other Party of such termination, (iii) if the Executive’s employment is terminated by reason of death, the date of death of the Executive or (iv) if the Executive’s employment is terminated by the Company due to Disability, the Disability Effective Date.

(g) Resignation from All Positions . Notwithstanding any other provision of this Agreement, upon the termination of the Executive’s employment for any reason, unless otherwise requested by the Board, the Executive shall immediately resign from all positions that he holds or has ever held with the Company and any other member of the Affiliated Group (and with any other entities with respect to which the Company has requested the Executive to perform services), including, without limitation, the Board and all boards of directors of any member of the Affiliated Group. The Executive hereby agrees to execute any and all documentation to effectuate such resignations upon request by the Company, but he shall be treated for all purposes as having so resigned upon termination of his employment, regardless of when or whether he executes any such documentation.

(h) Definitions . Notwithstanding the terms of any employee benefit plan, program or arrangement under which the Executive is a participant, the definitions of “Cause”, “Good Reason” and “Disability” set forth in this Section 4 shall apply to the Executive’s termination of employment under such plans, programs or arrangements.

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5. Obligations of the Company upon Termination . (a)  Good Reason; Other Than for Cause . If, during the Employment Period, the Company shall terminate the Executive’s employment other than for Cause, death or Disability or the Executive shall terminate employment for Good Reason:

(i) the Company shall pay to the Executive in a lump-sum cash payment as soon as practicable, and in no event later than the first regularly scheduled payroll date, after the Date of Termination the Executive’s Annual Base Salary through the Date of Termination to the extent not theretofore paid.

(ii) notwithstanding the terms of any incentive plan, program or arrangement, any and all unvested stock options, restricted stock units (including the Special RSU Grant and the Long-Term Incentive Compensation) and other equity or equity-based awards shall immediately vest as of the Date of Termination, provided that such awards shall continue to be governed by any applicable forfeiture provisions in accordance with the terms thereof.

(iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement (other than any severance plan, program, policy or practice or contract or agreement) of the Company and its affiliates in accordance with the terms and normal procedures of each such plan, program, policy or practice, as modified by this Agreement, based on accrued benefits through the Date of Termination (such amounts and benefits, the “Other Benefits”).

(iv) until the later of (x) the fifth anniversary of the Effective Date or (y) the first anniversary of the Date of Termination, in addition to the Retiree Medical Benefits, the Company shall continue to provide medical and dental benefits to Executive and his eligible dependents as if the Executive remained an active employee of the Company. The applicable period of health benefit continuation under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) shall begin on the Date of Termination. Any benefits provided to the Executive during any taxable year of the Executive pursuant to this Section 5(a)(iv) shall not affect the benefits to be provided in any other taxable year.

Except with respect to payments and benefits under Sections 5(a)(i) and 5(a)(iii), all payments and benefits to be provided under Section 5(a)(ii) shall be subject to the Executive’s execution and non-revocation of a mutual release substantially in the form attached hereto as Exhibit A , and the Company shall have no obligation to continue to pay or provide the benefits specified in Section 5(a)(iv) unless the Executive shall have executed such a mutual release and such release shall have become irrevocable within 60 days following the Date of Termination; provided, however, that the Executive’s obligation to execute such release shall be subject to the

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Company’s execution and delivery to the Executive of such release in favor of the Executive. For purposes of this Section 5, if the Date of Termination occurs prior to the date that the Committee determines the amount of the Executive’s Annual Bonus or Long-Term Incentive Compensation in respect of fiscal year 2005, the amount of the Executive’s Total Compensation (on an annualized basis) shall be determined in the discretion of the Committee, such that such Annual Bonus and Long-Term Incentive Compensation shall be consistent with the annual bonus and long-term incentive compensation in respect of fiscal year 2005 for other members of the Operating Committee generally.

(b) Cause; Other than for Good Reason . If the Executive’s employment shall be terminated for Cause or the Executive terminates his employment without Good Reason during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay or provide to the Executive the Executive’s Retiree Health Benefits (subject to the provisions of Section 3(b)(vi)), an amount equal to the amount set forth in Section 5(a)(i), and the timely payment or provision of the Other Benefits, in each case to the extent theretofore unpaid.

(c) Death . If the Executive’s employment is terminated by reason of the Executive’s death during the Employment Period, this Agreement shall terminate without further obligations to the Executive’s legal representatives under this Agreement, other than the obligation to pay or provide to the Executive’s beneficiaries the Executive’s Retiree Health Benefits (if applicable), the timely payment or provision of the Other Benefits, including any applicable life insurance benefits, and (i) the amount specified in Section 5(a)(i) plus (ii) the excess of (1) the product of (x) the Executive’s annualized Total Compensation for the most recently completed fiscal year and (y) a fraction, the numerator of which is the number of days in the fiscal year in which the Date of Termination occurs through the Date of Termination, and the denominator of which is 365, over (2) the Annual Base Salary to the extent paid for the year that includes the Date of Termination (the amounts in Sections 5(c)(i) and (ii), the “Accrued Obligations”). The Company shall make the payment specified in Section 5(c)(ii) as soon as practicable, and in any event within 60 days, after the Executive’s death.

For purposes of determining the Executive’s annualized Total Compensation in respect of any fiscal year for which Long-Term Incentive Compensation was awarded in a form other than restricted stock units, restricted stock or cash, the value of such award shall be determined by the Committee in its good faith discretion.

(d) Disability . If the Executive’s employment is terminated by reason of the Executive’s Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than the obligation to pay or provide to the Executive the Executive’s Retiree Health Benefits, the Accrued Obligations, and the timely payment or provision of Other Benefits, including any applicable disability benefits. The Company shall make payment of the portion of the Accrued Obligations specified in Section 5(c)(ii) as soon as practicable, and in any event within 60 days, after the Disability Effective Date.

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(e) Relationship with Restrictive Covenant Agreement . (i) Should there be any inconsistency between the provisions in this Agreement (including any provisions incorporated by reference) and the provisions in the agreement dated November 22, 2005 relating to the notice period and restrictive covenants applicable to the Executive (the “Restrictive Covenant Agreement”) ¹ as such provisions relate to the time period for the provision of advance written notice of termination by either the Company or by the Executive or the duration of any non-solicitation covenant, the provisions of the Restrictive Covenant Agreement shall prevail and, notwithstanding any provision of Section 3(b)(iii), said provisions of the Restrictive Covenant Agreement may be incorporated into equity-based awards under the Company’s equity compensation plans in respect of fiscal year 2005 or granted at any time in the future; provided , however , that if the Executive terminates his employment for Good Reason under this Agreement, then the Executive will not be required for any purpose to provide 180 days advance written notice ( provided that the Executive otherwise complies with the provisions of Sections 4(c), 4(e) and 4(f)).

(ii) Should there be any inconsistency between the provisions in this Agreement and the provisions in the Restrictive Covenant Agreement as such provisions relate to the definition of “Cause” and the consequences of the termination of the Executive’s employment without “Cause”, the provisions of this Agreement shall prevail.

6. Non-Exclusivity of Rights . Except as specifically provided otherwise, nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company, or any of its subsidiaries for which the Executive is otherwise eligible, nor, subject to Section 11(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreeme