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When putting together a big merger, it's not easy keeping employees on board. Often, the strategy is to extend retention bonuses. If not, there could be a significant revenue drain.
Take a look at Morgan Stanley's (NYSE: MS) joint venture with Citigroup (NYSE: C) to form a massive brokerage organization. To keep key brokers on board, Morgan is willing to pay as much as $3 billion in retention bonuses.
Yes, in today's harsh environment – where Wall Street is considered a pariah (if not worse) – this seems out-of-whack. After all, Morgan Stanley was the recipient of lush federal bailout funds, although the bonuses will not come out of TARP funds, the company says.
Also, keep in mind that the bonuses are for the mega producers. For example, those brokers who generate more than $1.75 million, will get a bonus of 105% of compensation. In all, about 6,500 brokers will be eligible for bonuses.
But not everyone is following this playbook. Wells Fargo & Co. (NYSE: WFC), which purchased Wachovia Securities, is not handing out any bonuses. Instead, it is looking at providing incentives over time.
All in all, these are tough decisions. On the one hand, it's important to be sensitive to politics. Still, the fact remains that Wall Street needs to find ways to survive and this may mean going against the political grain.
Tom Taulli is the author of various books, including The Complete M&A Handbook
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