Retention Bonuses

Wed, 08 Apr 2009 16:04:53 EST

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

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

Often times, the retention bonus requires a broker to stay at thefirm for a long period of time. That's usually good for his or herbusiness, showing they are stable while the sign outside the buildingmay be changing.

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

This has been getting attention lately because many of these samefirms that planned retention bonuses also received TARP money from thegovernment.

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 topay 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," saidWachovia 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 ofBusiness and former Chief Economist at the U.S. International TradeCommission. "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.

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Retention Bonuses

This has been getting attention lately because many of these samefirms that planned retention bonuses also received TARP money from thegovernment.