Compensation Bonus

Week-1 Case study

On

Merrill Lynch

Submitted by:

Elina Dhungana

MBA 6th Trimester

Submitted to: Roshan Koirala sir

Compensation

Case Study Answers

1. No Answer

The brokers bonus bidding war comes at first with the bonus offered by the biggest securities companies to recruit top brokers are reaching their loftiest levels since the financial crisis for this type of bidding war, as the firms are competing for top brokers and the companies are willing to handout excessive amount of money for top brokers as they don’t want to risk losing their competitive advantage or market share. As the big companies are eager to attract big brokers and assets at a time when investors are still fearful of investing and cutting down on trades and the bonus reflects how eager big firms are to manage assets of the very wealthy, who tend to be more loyal to their advisors than to the advisers firm (HOROWITZ, 2012). To compete in bidding war buyers have to prepare financially in familiarizing themselves with property values. The brokers are the ones making out like bandits on these bidding wars, while the firms returns are not recognized until a few years after a “bidding war” hire is made, and that time frame for the firms return will just keep getting longer if they keep competing and paying higher and higher amounts of money for theses brokers. However, all firms are not   benefiting from these bidding wars, they are the  smaller firms who are end up suffering because they lack the excessive funds to compete, if smaller firms top producers are recruited by larger firms, the smaller firms can’t economically match the larger firms offer, so smaller firms should rely on their overall company culture and atmosphere to help retain top brokers. Overall, next to the brokers winning, it’s the larger firms who can shelf out more money to recruit top producing brokers, who are winning here, but at what cost? When is enough, enough for these bidding wars? I guess once they stop producing as well or don’t make the returns back from their hiring decisions. Are these bidding wars paving the way for another crash to happen? Are brokers and firms making risky investment decisions to cover their “bidding war” hire and to see faster returns?

2 No Answer

There is such a strong relationship between pay and performance for brokers because they have to go with the fact that compensation is the key in motivating people. At Merrill Lynch, there is always a lot of action and discussion in compensation strategy. Merrill introduced a plan to expanding  its number of financial advisors by 8 % (about 1,200 people). Where would they come from? Other firms? How would Merrill get them to move? By offering unusually high up-front signing bonuses and decentralizing authority to make such offers. . Top brokers from other firms can receive 150% of their pay at the firm they are leaving. Merrill is not the only firm looking to add top brokers (Milkovich, Newman, & Herhart, 2011) They need to carry on the compensation pay plan for the employee of Merrill after its acquisition by the Bank of America because of which they have to incur losses and financial crisis occurred in the company, they need to go through the compensation strategy. Under the new compensation plan, Merrill employees 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.

3 No Answer

Yes, Bank of America should change its change its compensation strategy to include more subjective assessments of performance and a greater emphasis on cross-selling because the purpose of its compensation strategy is to enhance the growth and profitability of Merill Lynch and its subsidiaries to provide the incentives of long term rewards to those employee who are supposed to have a significant impact on the performance of the company,  to attract and retain employees of outstanding competence and abilities and to encourage longterm stock ownership by employees. Some of the compensation strategy can be: