In what is becoming an almost weekly ritual, bonuses were back in the news. This time the issue was retention bonuses and the target was brokers at Morgan Stanley’s (MS) Smith Barney unit.
As reported in the Wall St. Journal, about one-third of the combined firm’s 18,000 brokers received a bonus. The one-time payment was structured as a multi-year loan that is forgiven if the broker stays put.
While bonuses have become a taboo for traders, investment bankers and top executives, brokers seem to be immune.
The payments reflect the growing appeal of brokerage operations, which churn out a generally reliable stream of profits and didn’t blow up during the financial crisis – unlike many trading desks and mortgage units.
Securities firms are also feeling more vulnerable following recent defections by some star brokers who took big chunks of their business to other firms.
Brokerage firms “have little choice bu to throw money at these brokers,” says Alois Pirker, research director at consulting firm Aite Group LLC.
According to the Journal, one of the biggest generators of commissions for Morgan Stanley Smith Barney, got a payout estimated at $10 million or more. Sources familiar with the firm said that top brokers, such as Mr. Curtis were promised 75% of certain fees and commissions generated in 2008 as a way of enticing top brokers to stick around after the merger.
A team of brokers, led by Mr. Curtis, has brought in over $15 million in annual fees and commissions in recent years.
“It’s like hitting the jackpot,” says one broker who got a retention bonus, adding that anyone who left the firm before retention bonuses took off is “kicking themselves.”
Although Morgan Stanley grabbed the headlines, they are far from the only bank that has announced bonus payments. Merrill Lynch & Co.’s top brokers received similar retention bonuses after they were acquired by Bank of America Corp. (BAC).
At Merrill, 2009 payments approached $10 million for a handful of brokers.
Top Merrill brokers were promised a one-time payment equal to 75% of certain fees and commissions in 2008, plus three smaller payments through 2012, if they remain at Merrill.
The retention bonuses are separate from signing bonuses, which are routinely paid out to lure away top brokers.
To illustrate that point, in 2009, about 4,000 registered brokers at large firms moved to rivals, according to Discovery, a research firm in Shrewsbury, N.J.
