Smith Barney’s top executive last week told the firm's army of more than 13,000 financial advisors that she will tweak the brokerage giant’s new compensation plan in an attempt to address their repeated complaints over its complexity and, in some cases, unfairness.
In a memo sent to advisors a week ago Tuesday, Sallie Krawcheck, head of Citigroup’s global wealth management arm (which includes Smith Barney), acknowledged that Smith Barney reps have suffered from “a fair amount of change fatigue” in the last two years and frustration over various obstacles to doing business. Advisors have endured a merger with Legg Mason, a change in leadership with Todd Thomson’s departure and a recent payout overhaul. “This has impacted morale in some instances, creating pockets of higher-than-usual attrition,” Krawcheck wrote in the memo.
In December 2006, the firm announced a radical change to its grid that would effectively eliminate deductions from advisor commissions that were determined to be illegal under some states’ laws. Under the new comp plan, Smith Barney covers roughly $100 million in costs previously charged to advisors while commissions are adjusted to reflect the switch. The move came in response to class action lawsuits filed against the firm related to so-called “chargebacks” and overtime pay. Citigroup is paying $98 million to settle claims across the country.
The new comp plan also called for reps to receive a 20 percent payout on the first $5,000 of monthly gross revenue. Beyond that, all revenues generated are subject to the regular payouts. In addition, reps producing $1 million and up take a 1 percent cut to overall payout. Lower-end reps got smaller incremental cuts to payout. Advisors generating $750,000 and higher take home 41.25 percent of their annual production, down from the 41.5 percent they were getting previously.
But when reps groused that the changes to the grid were confusing and unfair, Krawcheck decided to straighten things out. “While these changes were well intentioned, they have resulted in a compensation plan that is, frankly, too complicated,” Krawcheck wrote in the memo. The amended version of the compensation package is expected to keep reps from defecting. “It will be our objective across each of our businesses to be a meaningfully competitive employer, one that develops and rewards its best, rather than depending on recruiting from competitors as the primary means to drive growth.”
For more, check out this recent Registered Rep. story.