Smith Barney has been tweaking its new compensation plan a bit, since rolling it out in December 2006. “It’s generally been well received, says Kevin McManus, COO of the firm’s branch system, which includes about 13,000 advisors. “We knew after the roll out that there would be more changes to come.”

The new comp plan’s main objective is to avoid future legal entanglements related to how sales assistants are paid. This means the firm will be picking up these costs, rather than having advisors cover them.

Among the many changes in the plan is the additional $2,500 some advisors with five or more years and $350,000-$749,999 in sales can earn as a “longevity bonus.” In addition, the firm rolled out the Investment Choice Plan, which combines restricted stock, deferred production and 0.25 to 3 percent of additional new contributions.

Q: Can you review the reasons for the new compensation plan and feedback received on the plan?

Smith Barney chose to be decisive and proactive in our response to industry changes, and we are taking the necessary steps to minimize any financial impacts to our FAs and support staff. In changing the way we look at how we do business in this new environment, we carefully considered both how we could continue to set the example for industry best practices and continue to maintain our entrepreneurial culture in which FAs can have a direct say in how to grow their businesses moving forward.

We are determined to keep our compensation grid at the top end of competitive, full-size firms, to protect FA and support staff compensation during the transition to a new structure, and to set best practices that will avoid further challenges under federal and state labor laws. This is not a cost-cutting initiative.

Q: How do you get input?

As a matter of our core culture, we feel it’s important to solicit input from all our partners on issues that will impact their business. For every significant policy addition or alteration, we have a communications chain that starts with Charlie Johnston and his management team to then include the division directors, regional directors, branch office managers (BOMs) and then usually working groups of advisors. In addition, we have annual councils and teams of FAs who serve as advisors on products and policies. We have a similar process with regional administrators and operations managers to fully consider everyone’s opinion.

Q: Can you explain changes affecting the business development account or BDA?

The BDA was developed to provide FAs the flexibility to manage their practice in accordance with the law and in the entrepreneurial manner they wish. We first announced plans in December 2006. After getting feedback from the field, in February 2007, we increased the BDA to provide the flexibility for FAs to pay support staff their quarterly and annual bonuses direct from this account. This facilitated a more streamlined approach than setting up splits of gross. Feedback has been very positive with great thanks for the flexibility.

Q: Did Smith Barney make changes to commissions?

Again, we responded to field feedback. Initially we announced that the minimum commission on all trades was $75. After feedback from BOMs and FAs we reverted to our previous policy of $50 for fixed-income with a 20 percent payout. This was done so as to not have too large a credit for small trades.

Q: Can you discuss changes to the retirement plan?

The Rule of 75 was added to our Investment Choice Plan (the new deferred plan) so that as FAs retire under this rule they could receive all of their balances (both vested and unvested) one year after retirement, subject to certain provisions (non-competes). This has been very well received. About 100 to 150 FAs retire annually.

Q: Can you comment on Sallie Krawcheck and her new role as head of global wealth management?

Sally Krawcheck is sure to be a great partner and has begun an extensive round of branch visits as she intends to carefully consider all the concerns of the field and Smith Barney staff.

Smith Barney’s Investment Choice Plan

$1 million producer can receive $30,000 cash and $40,000 in deferred compensation.

$600,000 producer can receive $14,500 cash and $15,000 in deferred compensation.

$400,000 producer can receive $6,500 cash and $2,000 in deferred compensation.

Janet Levaux is the managing editor of Research; reach her at jlevaux@researchmag.com.