Prudential Securities is revising branch manager compensation to encourage fee-based business.
With a targeted July rollout, the new pay plan will move some expenses down to the branch level that were previously absorbed by the corporate office. The firm describes the changeas "revenue neutral," according to managers who heard about the plan at regional meetings in January. However, branches that do more transaction business will generate higher expenses than more fee-focused branches, and managers will be compensated accordingly.
With the old plan, Prudential did not deduct anything for corporate expenses, and BOMs had a target profit margin of 40 percent. Bonuses were based 60 percent on branch profitability.
Under the new deal, 75 percent of a manager's bonus is based on branch profits and 25 percent on other criteria, which have not been released. To calculate profitability, the plan subtracts certain allocated expenses for running the branch. A manager's new profit goal is a 15 percent pretax margin.
Of particular note, branches will be charged more for trading stocks, bonds, options and commodities than for managed money products. Fee business will produce "lower costs or no costs" on the balance sheets, says one Prudential branch manager in the Northeast. Boosting recurring fee-based revenue is the ultimate goal, the BOM says.
"It's another declaration of the type of business they want," confirms a manager in the Midwest.
The new pay plan also requires a portion of a manager's bonus to go into MasterShare, the firm's deferred comp plan. How much of the bonus must be deferred depends on the branch's profit margin, according to a firm spokesperson. Managers have heard from 15 percent to 25 percent will be deferred.
MasterShare contributions go into a Prudential index fund that tracks the S&P 500. Participants get a 25 percent discount to market value on the fund, and it vests after three years.
"It's golden handcuffs for managers," says a third Prudential manager. This BOM calls the new plan "heavy handed." He adds, "Those who can figure it out are upset about it."
Others are more positive. "Managers are getting paid for managing the business," says a Mid-Atlantic manager. "It's wholly appropriate. It gives us more control over expenses."
"It's not a compensation change that's detrimental," agrees another BOM. "It's more of a realistic plan [to operate with] a true P&L."