Former Salomon Smith Barney brokers fighting to get deferred compensation they forfeited when they left the New York securities firm won the first step in their legal battle Wednesday.
The Superior Court of New Jersey in Essex County certified the case as a class action, which is important because it essentially gives any former Solly broker in the state the right to file into that action. Salomon Smith Barney is the securities arm of
A Salomon Smith Barney spokesman says the firm "respectfully disagrees with the ruling and will appeal at the appropriate time."
The plan at issue, called the
, allows Salomon employees to use a pretax portion of their compensation to purchase the firm's stock at a discount. The popular program includes a rolling two-year vesting period, meaning that brokers don't get all their stock until the end of that period. If a broker leaves, Salomon keeps the stock that hasn't vested, which means that it also keeps the money used to purchase the stock. Whether that practice fair is the issue at the center of this suit, which was filed last October. (
wrote about the class action then.)
The CAP Plan has been a longtime staple in the firm's ability to retain quality brokers, who have built tremendous wealth through the firm's various incarnations. Whether with
or Citigroup shares, firms run by Sanford Weill have been strong performers.
New York brokerage recruiter Michael King, of
Michael King Associates
, says the existence of the CAP plan has hampered competitors' attempts to lure away Salomon Smith Barney brokers.
If the current case leaves a chink in Solly's retention armor, it could lead to defections.
"There are several cases on this issue around the country and this is the first to get certified," says Bruce Nagel, the attorney representing the class. "It's a significant victory for the brokers." Nagel says there are CAP Plan cases pending in Florida, Massachusetts, Connecticut and Mississippi. The firm recently had to pay a $750,000 arbitration award to a former branch manager in Massachusetts because of the same issue.
Nagel Rice Dreifuss and Mazie
in Livingston, N.J., estimates there could be $50 million worth of claims against Salomon in New Jersey alone.
The case is likely to come to trial within a year. There haven't been any settlement discussions up to this point, Nagel says.