Two former Merrill brokers won $1.167 million in an arbitration award from Merrill Lynch for deferred compensation benefits that, according to certain clauses in their employment contracts, were supposed to vest if they left for “Good Reason” following a change of ownership at the firm. The brokers left after the Bank of America takeover of Merrill Lynch in late 2008. It's the first case nationally of its kind for Merrill brokers.

The attorney for the two brokers, Michael Taaffe, with Shumaker, Loop & Kendrick, has filed similar claims against the firm for other brokers totaling around $5 million, he says. He also says he has numerous brokers lined up to file additional claims.

“Any broker who left Merrill Lynch after the September 15, 2008 merger announcement, through the present day, could benefit through our Award finding that Merrill Lynch was in breach of contract by failing to vest stock and cash upon departure after the change of control,” said Taaffe.

A Merrill spokesman said the firm does not think the impact or import of the decision is as significant as Taafe makes it out to be, “given that the basis of the decision wasn't detailed.” Further, the spokesman noted that the arbitration panel awarded these individuals only a portion of the amount they sought. It denied the claimants' request for punitive damages and attorneys fees.

Good Reason?

Under Merrill's various deferred comp plans (including FACAAP, LTICP, Growth Award, Wealthbuilder) if a broker resigned for “Good Reason” Merrill Lynch was required to immediately vest and pay the awards to its departed brokers in cash, according to Taaffe. Good Reason was defined differently in the different plans, but essentially applies to anything that was “detrimental to compensation, benefits or position subsequent to the change in ownership or control,” says Taafe.

Taaffe estimates that the value of Merrill stock and cash retained by Merrill Lynch that should have vested to brokers resigning for “Good Reason” ranges from $100 to $300 million. Plan documents show such awards had to vest at around $37 per share, according to Taafe. At the time of the BofA deal, Merrill stock was trading around $11.

Approximately 2,000 to 3,000 brokers left the firm between September 2008 and now, according to Taaffe’s data. Merrill did not pay out deferred comp benefits to many of the brokers who left, and many of them may have had “Good Reason” to get them, says Taafe, since the compensation plan changed for the worse for certain brokers after the Bank of America takeover.

“Internal emails from that time suggested that brokers with less than $600,000 [in production] were not going to be happy with the new comp plans,” he says.

Only those brokers who did not sign the retention agreement that Bank of America offered were—or are—eligible for vesting of deferred comp for “Good Reason.” That’s because those who signed the agreement waived their right to claim “Good Reason.”

Many brokers did sign the retention agreement, in part because they faced “threats of removal from the account redistribution list if the Retention Agreement was not executed,” according to Taafe, and such accounts were expected to be a major source of business growth for many brokers at the time “because they were going to be cutting so many lower-end brokers.” In addition, Merrill delayed releasing its new compensation agreement until December, after the Nov. 14 deadline for signing the retention agreement had passed. The retention agreement was only offered to brokers with $600,000 in production or more.