Danny Sarch: Bonus plan at MSSB has employees in an uproar

On Wednesday and Thursday of this week, Complex Managers at Morgan Stanley Smith Barney were told to participate in a conference call (the Wednesday call was repeated on Thursday) which was entitled: Compensation Communication Day Training. The slides, delivered by Human Resources, detailed how 2010 bonuses were being structured.
MAR 02, 2011
Betrayal: The breaking or violation of a presumptive contract, trust, or confidence that produces moral and psychological conflict within a relationship amongst individuals, between organizations or between individuals and organizations. Complex Manager 1: “I'm contacting an attorney. I've never felt more betrayed.” Complex Manager 2: “This decision will end up breaking this franchise. All trust in senior leadership is gone. I hit all my goals, did what I was asked to do. They don't value what I do.” Complex Manager 3: “My staff and I are doing our jobs every day, but make no mistake, this place sucks.” What happened? Last week, Complex Managers at Morgan Stanley Smith Barney were told to participate in a conference call (the Wednesday call was repeated on Thursday) which was entitled: Compensation Communication Day Training. The slides, delivered by Human Resources, detailed how 2010 bonuses were being structured. (Note: employees throughout the entire firm were affected the same way). As these Complex Managers watched and listened, some realized with growing trepidation and horror that this was not hypothetical and not about others on their staff, but it applied to them. All during 2010, I'm told, they were encouraged by leadership's statements that field bonuses would meet, if not exceed, their expectations. Nobody ever suggested that these end-of-year payments, which can, in some cases, represent more than 75% of their total compensation, would be in anything other than cash. They were told the specifics of these bonuses on Friday, days after they were told about a mandatory deferral. The betrayal, in managers' eyes? Most of the money is being deferred in both restricted stock, cliff-vesting in four years, and cash, to be paid in July 2011, December 2011, and July 2012. Complex Managers and all employees affected were told this after the year is over, with the labor performed under a different compensation promise, with two days notice. They were not told by their bosses, who I'm told were only informed themselves days earlier, but by Human Resources. (Read Morgan Stanley Smith Barney's official response to Mr. Sarch's info.) Let's look at a specific example: $600,000 bonus is expected by Joe Manager. Joe has worked hard all year, paid for his complex's office party out of his own pocket, and is expecting to net about $350,000 after taxes. First the stock piece: 15% of his first 250k is put into Morgan Stanley stock, 20% of the next 250k and 25% of the final 100k. That totals $112,500 in Morgan Stanley stock cliff vesting in four years. If the employee leaves for any reason before that cliff vesting date, the money is lost. (And let's not forget that these employees have gotten crushed in Citi stock and/or Morgan Stanley stock over the last few years.) That leaves $487,500. 50% of the first $250,000 of that remainder is deferred, ($125,000) and 65% of anything above $250,000 ($237,500) is also deferred ($154,375). To summarize: Joe thought he was getting a check for $600,000 pre-tax, and ends up with a check for $208,125. After taxes, Joe is walking home with $130,000 or so, about 37% of what he expected. In my opinion, it is reprehensible to change the way bonuses are paid, to any employees, in any industry, with two days notice, after the year when the services were performed was already completed. “I think they needed to dress up their quarterly numbers," said one employee. It's small consolation that everyone is affected to some extent. The way they informed us was cowardly.” With staff morale at a new low, how will this affect the Advisers in the branches? If lower morale results in management defections, lower service levels to the Adviser and increased Adviser attrition, then MSSB leadership will pay attention because Adviser attrition affects shareholder value. Short term results for shareholders are more important to MSSB than long-term employee loyalty. Will long term results for shareholders be affected by the defection of talent?

Latest News

LPL building out alts, banking services to chase wirehouse advisors, new CEO says
LPL building out alts, banking services to chase wirehouse advisors, new CEO says

New chief executive Rich Steinmeier replaced Dan Arnold on October 1.

Franklin Templeton CEO vows to "do what's right" amid record outflows
Franklin Templeton CEO vows to "do what's right" amid record outflows

The global firm is navigating a crisis of confidence as an SEC and DOJ probe into its Western Asset Management business sparked a historic $37B exodus.

For asset managers, easy experience is key to winning advisors' businesses
For asset managers, easy experience is key to winning advisors' businesses

Beyond returns, asset managers have to elevate their relationship with digital applications and a multichannel strategy, says JD Power.

Why retaining HNW clients ultimately comes down to one basic thing
Why retaining HNW clients ultimately comes down to one basic thing

New survey finds varied levels of loyalty to advisors by generation.

Stocks drop as investors digest Microsoft, Meta earnings
Stocks drop as investors digest Microsoft, Meta earnings

Busy day for results, key data give markets concerns.

SPONSORED Out with the old and in with the new: a 50% private markets portfolio

A great man died recently, but this did not make headlines. In fact, it barely even made the news. Maybe it’s because many have already mourned the departure of his greatest legacy: the 60/40 portfolio.

SPONSORED Destiny Wealth Partners: RIA Team of the Year shares keys to success

Discover the award-winning strategies behind Destiny Wealth Partners' client-centric approach.