Merrill Lynch Your Turn

What will be the result of the bidding war for top brokers? Will most firms benefit? Who will be the winners and losers? What about the brokers?

The result of the bidding war between firms for top brokers is that it will drive up the compensation packages that the firms will have to offer in order to attract high performing brokers. Because wealthy clients are loyal to brokers, rather than the firm itself, firms will have no choice but to offer extremely high compensation packages in order to maintain their competitive advantage amongst other firms. Firms that can afford to compete in the bidding war will benefit because they will attract high performing brokers and who will bring their wealthy clients with them. However, smaller boutique firms that cannot afford to compete in the bidding war will certainly lose out. If a firm that can afford to offer 2-3 times a broker’s current pay from a smaller firm, the small firm will undoubtedly be unable to match that and will lose the employee eventually resulting in a loss in competitive advantage. Overall, it is the brokers who are winning as a result of the bidding wars. They have the opportunity to earn enormous amounts of money up front, based on the premise that they will be able to produce great results in the future for the firm. However, this is all coming at the expense of the smaller firms and at a risk to large firms who are investing in the broker who, for any unforeseen circumstance, may not produce in the manner expected.

Explain why there is such a strong relationship between pay and performance for brokers. Why isn’t this true of many other jobs?

I think there is such a strong relationship between pay and performance for brokers, as opposed to other jobs, because the results of high performing brokers has direct bearing on the profits earned and competitive advantage of the firm. In other industries, there are several other factors that contribute to the organization’s success. For example, in an...