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

Federal judge dismisses Eltek manipulation lawsuit against Morgan Stanley Smith Barney
Federal judge dismisses Eltek manipulation lawsuit against Morgan Stanley Smith Barney

Nine-month electronic trading freeze and share lending program at the center of dismissed claim.

RIA wrap: Dynamic strikes South Carolina deal to reach $7B AUM milestone
RIA wrap: Dynamic strikes South Carolina deal to reach $7B AUM milestone

Meanwhile, Rossby Financial's leadership buildout rolls on with a new COO appointment as Balefire Wealth welcomes a distinguished retirement specialist to its national network.

Rethinking diversification amid a concentrated S&P 500
Rethinking diversification amid a concentrated S&P 500

With a smaller group of companies driving stock market performance, advisors must work more intentionally to manage concentration risks within client portfolios.

Merrill pays second settlement to former Miami Dolphins player, client of ex-broker
Merrill pays second settlement to former Miami Dolphins player, client of ex-broker

Professional athletes are often targets of scam artists and are particularly vulnerable to fraud.

Schwab touts AI as its biggest growth lever at investor day
Schwab touts AI as its biggest growth lever at investor day

The brokerage giant tells Wall Street it will use artificial intelligence to reach clients it has never been able to serve — and turn the technology's perceived threat into a competitive edge.

SPONSORED Beyond wealth management: Why the future of advice is becoming more human

As technical expertise becomes increasingly commoditized, advisors who can integrate strategy, relationships, and specialized expertise into a cohesive client experience will define the next era of wealth management

SPONSORED Durability over scale: What actually defines a great advisory firm

Growth may get the headlines, but in my experience, longevity is earned through structure, culture, and discipline