GLOBAL – Merrill Lynch employees will have to work longer and retire later if they want to cash out their company shares.

The change in compensation policy follows the investment bank’s switch to the new US accounting rules, which compel companies to recognize stock compensation costs immediately rather than when the shares vest.

According to a review by the Merrill Lynch board of directors’ compensation committee, “more stringent provisions” should be implemented.

A filing with the US Securities and Exchange Commission (SEC) stated: “…To fulfill the objective of retaining high quality personnel, future stocks grants should contain more stringent provisions that include a combination of increased age and length of service requirements for employees to be eligible to retire from Merrill Lynch while their stock awards continue to vest…”

Furthermore, the terms of most outstanding stock awards granted previously to employees and some executive officers were modified on March 31 to facilitate the transition to the more stringent future requirements, said the firm said.

Merrill Lynch did not respond to further questions from IPE.

The switch to the new accounting rules is expected to cost the firm as much as $1.2bn (€981m) - $850m higher than the estimated $350m. Part of the reason for the jump in amount is the fact that Merrill Lynch employees can still get awards under the old terms if they retire immediately.

The one-off post-tax first quarter charge could all but clean out Merrill Lynch’s expected first quarter earnings – pegged at $1.4bn, according to some industry analysts.

However, the report stated the cost of the switch “is currently not expected to be material to Merrill Lynch aside from the one-time charges”.

News reports today state that Morgan Stanley and Goldman Sachs have also initially estimated that the switch would cost around $395m and $237m respectively.

Topics