After two frustrating months of worry and speculation, Smith Barney advisors have gotten the final details on their new compensation plan, and many are pleasantly surprised. The outlines of the plan were announced last December, but the firm released a written plan, with some improvements, just last week.
“They’ve improved what was originally talked about,” says one Smith Barney rep. Smith Barney decided to overhaul the way it pays its advisors and their support staff in part due to a $98 million settlement it agreed to in May 2006 regarding overtime pay and chargeback rules. Morgan Stanley, Merrill Lynch and UBS also settled for millions, but Smith Barney is the first firm to implement changes to its compensation arrangement in the wake of the settlements.
Judging from initial reports from reps, the written version of the new plan is an improvement from the prior version—a plan many reps equated to a pay cut despite the firm’s insistence that it was “revenue neutral (for more information, click here). While all reps will still receive a reduced 20 percent payout on their first $5,000 gross monthly production revenue in the new version—which will hurt low-end producers the most—more money has been put back into rep pockets.
“The biggest and best surprise is that they doubled my expense account from $3,000 to $6,000,” says one $600,000 producer. Even reps producing $250,000 to $350,000 in annual revenue, which is roughly half of the firm-wide average per rep, will get a $1,000 expense account.
“This was never intended to be a land grab,” says Citigroup spokesperson Alex Samuelson, who adds that the firm has been listening to feedback from reps and branch managers since the original announcement. Originally, the firm said the changes would cost Citigroup $100 million, but, according to Samuelson, the new plan raises the cost to $126 million.
In addition to doubling many reps’ expense accounts, the written plan raises the maximum subsidy given to reps to pay for support staff, plus two years worth of transition costs, to $80,000. For reps employing staff with salary needs beyond that, the rep is now allowed to dip into his expense account, another pleasant surprise for reps would otherwise have had to split commissions with their sales assistants.