Retention bonuses are often paid to keep brokers from defecting after a company is bought. Financial companies, however, are facing strong criticism from Congress and regulators to limit pay in the wake of heavy credit-related losses and large taxpayer-funded infusions into the sector.
Brokers at Morgan Stanley and Citigroup's Smith Barney unit who produce at least $1.75 million of revenue may be eligible for a payment equal to 105 percent of their annual production, according to a person familiar with the plan.
About 6,500 of the combined entity's 20,000 brokers are expected to be eligible for the retention package, with the first payment in January 2010 and the second in 2012, the person said. Overall retention bonuses could total $2 billion to $3 billion, the person said.
Citigroup and Morgan Stanley together received $55 billion of capital infusions from the government's Troubled Asset Relief Program.
Morgan Stanley is paying Citigroup $2.7 billion for a 51 percent stake in the joint venture and has an option to take full control after five years. The venture is expected to close this summer. Morgan Stanley declined to comment.
Wells Fargo, which bought Wachovia for about $12.7 billion on December 31, is not paying retention bonuses to the roughly 14,600 brokers from the former Wachovia Securities, or Wells Fargo's own 1,000 brokers, spokesman Tony Mattera said.
Compensation practices in the securities industry are under tremendous scrutiny and being widely criticized, he said. Moreover, our clients have also suffered tremendous losses. The convention in the brokerage industry is to pay retention, but the rationale for retention -- where a broker needs to learn a new system -- is not happening in this merger.
Mattera said San Francisco-based Wells Fargo is taking other steps to retain brokers, including higher payouts through Wachovia Securities' 4front client loyalty program.
He also said Wells Fargo plans in May to change Wachovia Securities' name to Wells Fargo Advisors.
Prudential Financial Inc
(Editing by Andre Grenon)