Morgan-Citi favors ‘awards’ over bonuses

In a nod to today’s touchy political environment regarding executive compensation, financial advisers at the firm born out of a joint venture between Morgan Stanley and Smith Barney will not receive retention bonuses.

Instead, they will receive “retention awards.”

At least that’s the way James Gorman, Morgan Stanley’s co-president, who will lead the new entity — Morgan Stanley Smith Barney — is describing such payouts.

“There will be a retention award,” he stated in a conference call with representatives two weeks ago, attempting to assuage some anxious advisers.

However, Mr. Gorman added, “please do not call it a bonus … It is not a bonus; it is an award, and it recognizes the importance of keeping our team in place as we go through this integration.”

As Wall Street bonuses have become a target for many lawmakers, brokerage executives — whose own pay practices are coming under scrutiny — clearly are choosing their words carefully these days.

“Whatever they can do to potentially deflect some negative attention, they’ll do it,” said Steve Barth, Milwaukee-based partner in the securities practice at law firm Foley & Lardner LLP of Boston and a member of the firm’s financial-crisis response team. “Because just the mention of the word ‘bonus’ from any firm that’s taken federal funds is enough to invite some unwanted scrutiny.”

Yet while such rhetoric may be an attempt to ward off politicians or shareholder activists, these firms are following through with plans to award such payouts.

Executives at Charlotte, N.C.-based Bank of America Corp., for example, paid out reps more than $3 billion in combined retention awards after acquiring New York-based Merrill Lynch & Co. Inc. last month. And now executives at Morgan Stanley and Smith Barney, both based in New York, appear to be set to do the same.

SCANT DETAILS

It’s been reported that Morgan Stanley and Smith Barney, a unit of New York-based Citigroup Inc., have set aside $2 billion to $3 billion for retention awards. A spokeswoman for Morgan Stanley, however, declined to comment on the retention payments or any of the details discussed during Mr. Gorman’s call.

He noted in the call that reps should have the complete details of their retention awards before the end of this month. Initially, they were told to expect those details by mid-February, which prompted a slew of e-mails to Mr. Gorman from anxious reps when that deadline was not met.

But some components of the retention awards were disclosed on the call, portions of which were made public on the Huffington Post website Feb. 11.

For one, the retention awards will be determined using the exact same formula for Smith Barney and Morgan Stanley advisers. “What’s fair and equitable is to treat everybody on the same basis,” Mr. Gorman said.

These retention payments, he continued, will be based on an adviser’s production for 2008 — not 2009, as some reps had feared.

“I think I can hear you clapping from here in New York,” Mr. Gorman said during the call. “You should be clapping, because frankly, that is a very generous and thoughtful decision that we have made.

“We could easily have done it from the point of closing, which is obviously going to be somewhere in the latter half of this year or around the middle of the year. But we just decided … that it was right thing to do, to give you that certainty that it would be based off ’08.

“So that degree of anxiety, which many, many of you have e-mailed me about,” Mr. Gorman continued, “is now off the table.”

While that may be the case for reps at Morgan Stanley Smith Barney, sources said that advisers for San Francisco-based Wells Fargo & Co. — which closed its acquisition of Charlotte-based Wachovia Corp. on Jan. 1 — are still nervous about their retention payments.

“That deal closed one month ago, and [advisers] still haven’t been given any of the details about their retention,” said one source, who declined to speak for attribution. “So they’re starting to manage down their expectations.”

Wells Fargo has had internal discussions about the retention payments, but no decisions on those payments have been made, said a spokeswoman for the company.

E-mail Mark Bruno at [email protected].