(July 20) – “The golden handcuffs tying many of PaineWebber Group Inc.’s 8,554 brokers to the firm suddenly have been unlocked, and the brokerage powerhouse is scrambling to prevent losing some of its biggest producers.” Writes Charles Gasparino in today’s Wall Street Journal.

“One little-noticed aspect of PaineWebber’s sale last week to Swiss financial giant UBS AG has been its effect on restricted stock, options and other shares held by many of PaineWebber’s brokers. These shares typically take years to ‘vest’; that is, brokers can cash in the shares only if they stay at the firm for an extended period of time.”

“But under the terms of the UBS-PaineWebber deal, the shares vest when the deal closes in November (such vesting is common in mergers). This means PaineWebber risks having its brokers bolt to rivals if firm officials can’t provide additional incentives for them to stay.”

” ‘If brokers want to leave, there’s nothing in this deal to make them stay unless they see in the next few months that the new firm is a much better investment firm-and that has yet to be answered,’ says Rick Peterson, a brokerage recruiter in Houston. ‘There’s an awful lot of anxiety there.’ “

“So PaineWebber officials plan to act quickly. As early as Thursday, PaineWebber President Joseph Grano and Mark Sutton, its brokerage chief, plan to unveil a retention package in a bid to persuade brokers to stay. UBS has set aside a $875 million retention pool to help keep talent from fleeing to other firms.”

“A PaineWebber spokesman declined to comment on specifics of the retention plan; neither Mr. Grano nor Mr. Sutton would comment on the matter. But PaineWebber brokers say they have heard the firm will offer a package in which they will receive as much as 40% of their total production for a year in stock, payable over around three years.”

“This would ‘lock in’ brokers for long enough to make the deal a success, a PaineWebber official says. And it mirrors the move PaineWebber made when it bought Kidder, Peabody & Co. in 1994; then, it offered some brokers a retention package of stock and cash totaling about 40% of their trailing 12-month production, according to people familiar with the matter.”

“To be sure, there are reasons why PaineWebber brokers might want to stick around as the UBS deal takes shape. In the past, the firm has had a small investment-banking unit, so brokers largely were deprived of selling initial public offerings of stock to their clients. UBS has a much bigger investment-banking presence. And UBS’s global reach could allow PaineWebber brokers to sell a broader variety of investments, including derivatives.”

“Nevertheless, the threat of brokers leaving the newly combined firm presents a major challenge to executives in their efforts to make the $10 billion deal work. For UBS, PaineWebber’s massive brokerage sales force was the most valuable asset PaineWebber had to offer.”