Retention Bonuses Being Handed Out to Brokerage Executives

by | Feb 21, 2009 | Asset Management

There have been several articles written recently regarding stockbrokers and retention bonuses.

If you are outside the industry you may not know when brokerage firms are merged or acquired, the brokers (the salesforce) are sometimes awarded bonuses merely for staying.  The reason behind the bonus is the broker/salesperson may face a drop-off in business, the bonus may help smooth the transition period.

Often times, the retention bonus requires a broker to stay at the firm for a long period of time.  That’s usually good for his or her business, showing they are stable while the sign outside the building may be changing.

Larger producers may get these retention bonuses, while lower-end producers may see a significantly smaller bonus, or perhaps nothing. Some of these deals, in my opinion, carry staggering, eye-popping numbers.

This has been getting attention lately because many of these same firms that planned retention bonuses also received TARP money from the government.

It’s hard to justify (in my opinion) handing out retention bonuses as a worthwhile use of taxpayer bailout money.

Others apparently agree.

On February 20, 2009, it was reported Wells Fargo has decided NOT to pay retention bonuses to the Wachovia brokers they recently acquired.  “With the environment we’re in, with all the attention we’re under — all the firms are under — and with clients down 20%, 30% and 40 % … a [retention] bonus didn’t seem to be the appropriate approach,” said Wachovia Securities spokesman Tony Mattera.  You can read more about it here.

And also here.

Also, on February 11, 2009, retention bonuses were also picked up by the Huffington Post (and other news outlets).  In that article, it discusses how some brokers were informed “There will be a retention award.  Please do not call it a bonus The Huffington Post article also contains an audio clip from the conference call for Smith Barney and Morgan Stanley.

The article also cites some comments describing the retention bonuses/awards as a “gratuitous expense” and even quotes a former chief economist at the U.S. International Trade Commission as saying “They are putting lipstick on a pig,” said Peter Morici, a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission. “Very often, retention bonuses are paid to undeserving executives who helped drive their enterprises into the ground…”

You can read the entire article (along with the audio portion) here.

And also here.