Broker Retention Pay Under Fire
After feasting on the masses' hatred of bonuses for bankers and traders, Washington now smells blood in the water in relation to retention payments for brokers in merged institutions.
Public perception helped convince Wachovia, now part of Wells Fargo, to cancel payouts it had expected to make to induce brokers to stay on post-merger.
Wachovia spokesman Tony Mattera told the Washington Post that the decision to forgo awards this time around was reached after executives considered "various factors, including the public's attitude toward pay in the industry." Two years ago, when Wachovia acquired A.G. Edwards' large broker network, the firm paid what it called the industry's most generous retention package ever.
Retention payments from pending joint venture between Morgan Stanley and Citigroup's respective wealth management businesses and from Bank of America to top producers among Merrill Lynch's 17,000 brokers are drawing lawmakers' attention too. Observes the Post: "The powerful House Committee on Oversight and Government Reform, which has the authority to investigate federal programs, is looking at a wide range of compensation at financial firms, including retention awards for brokers, said Ronald Stroman, the committee's staff director."
Morgan Stanley and Citi plan to offer a retention package to about one-third of the 20,000 brokers at the two firms. Top producers will get a maximum of 105 percent of their annual revenue. There will be strings attached: the award would have to be repaid if the broker leaves within nine years, the Post says.
Rivals Dangle Still Larger Awards
Meanwhile, rivals like UBS are seeking to poach top brokers by dangling recruiting packages "recently broaching nearly three times a broker's annual production," the Post says, citing "those familiar with the terms."
The vanguard of opposition to such awards comes from the likes of the Institute for Policy Studies, a leftist think tank whose director is quoted in the Post story. The Washington-based IPS, which bills itself as "a policy and research resource for visionary social justice movements," is best known for its 1970s association with the Marxist Allende government in Chile.
However, it isn't just Marxists who question Wall Street's rationale that the payments are needed to safeguard critical revenue streams. The Post quotes one unnamed broker who received a payout but says retention packages were also being handed to those "who likely did not need to be convinced to stay."
And noted corporate governance expert Charles Elson of University of Delaware told the paper that companies "have to be mindful of the fact that if you're going to pay someone to stay, you better really need them."