Merrill Lynch brokers will begin the New Year with major compensation changes.
The centerpiece of the new compensation plan is the push to capture wealthy households through a complicated "Priority/Premier Household Incentive Program." According to a booklet distributed to reps in September, the plan enables reps to earn a bonus of up to 6% of production for net new growth in three types of accounts: Priority Households (minimum of $250,000 in combined assets and credit products); Premier Priority Households ($1 million in assets/liabilities, and/or use of a defined set of products); and Premier-Plus Priority Households ($2.5 million in assets/ liabilities and a defined set of products).
The firm will take a baseline count of each rep's accounts at the end of 1998 and will credit brokers with one bonus point for each net new additional account in the first tier, and two bonus points with the two higher tiers. If brokers lose accounts in any of the three categories, new accounts won't count toward the bonus until the losses are offset. The bonus will be paid out at the end of 12 months, 60% in cash and 40% deferred.
Under a new "small-household grid," brokers will get nothing on transactions with households that have less than $20,000 in combined assets and liabilities. Transactions with households in the $20,000 to $50,000 range will be paid out at the lesser of 20% or Merrill's existing small-ticket policy, which pays nothing on tickets under $35 and 18% on $35 to $50 tickets. (Tickets worth $50 to $85 used to get 25%.)
However, "annuitized" business with these smaller accounts will still be paid out at the normal grid rate. Annuitized products include fee accounts, insurance, funds and credit products. Production from small households counts toward grid production only when it's from annuitized products.
"My impression is that under the new plan, essentially everything will be fee-based, whether it's a mutual fund with a 12b-1 fee, or whatever," says one Merrill rep.
Grid rate changes benefit only top producers. Reps who produce $2.5 million or more will get 41% versus the old 40%; at $1.75 million or more, the payout will be one point higher as well--40%.
Additionally, accounts that are transferred internally, such as house accounts, will in most instances be subject to a reduced payout of 25% for the first 12 months. "That, I have a problem with; I don't understand it," says another Merrill broker who felt generally favorable about the new compensation plan.
"A lot of [the lower-end] brokers are hitting the street, looking for other jobs," he adds.
Merrill's New Grid Production Payout $300,000 to $349,999 33% $350,000 to $399,999 34% $400,000 to $549,999 35% $550,000 to $849,999 36% $850,000 to $999,999 37% $1,000,000 to $1,199,999 38% $1,200,000 to $1,749,999 39% $1,750,000 to $2,499,999 40% $2,500,000 plus 41%
Merrill veterans take note: The firm's new comp plan boosts the firm's production quota for grid payout by $100,000. Once the quota is reached, the grid rate is paid retroactively.
New Penalty Box-- 25% Payout Until Quota is Made Years of Prior Year's Service Production 6 $260,000 7 $270,000 8 $280,000 9 $290,000 10 plus $300,000
Merrill brokers how have a strong financial incentive to get rid of small accounts.
Under the new compensation plan, Merrill reps won't get paid on some small accounts, face reduced payouts on others, and won't get credit on small-account transactional business for purposes of calculating grid production. Hence the incentive to turn these accounts over to a newly established Investors Services center in Somerset, N.J. The center is a pilot program the firm has set up to handle small accounts with specially trained representatives, according to a booklet sent to brokers announcing the new compensation plan. Reps will still get paid on eligible business handled by the service center, and assets in the accounts will be counted toward deferred compensation and recognition club awards.
A Merrill spokesperson says it will be "absolutely up to the client" as to whether the client remains with his or her rep or transfers to the new service center. But the firm clearly wants its sales force focusing on higher-net-worth clients. Doing business with smaller households does not contribute to the "growth and penetration of our most valued client segments, " the booklet states.