Wachovia's pending acquisition of Prudential Securities is a good news/bad news story for Pru brokers.

First the good: As the closing of the transaction approaches, the most seasoned of Pru's brokers may be in the catbird seat. With demand for their services sky-high, they have the leverage they need to demand significant retention bonuses. And if these Pru vets don't like the retention package (see related article on page 24), they're likely to be able to find the compensation they seek at another firm.

The downsides to the merger involves reps who aren't top producers. Junior brokers are likely to find their services in lower demand, both within the merged company and out on the street. Meanwhile, the mobility of the more experienced brokers might be hindered by restrictive employment contracts and loan agreements with aggressive termination penalties. A close examination of these agreements is required in order to determine whether the restrictions are enforceable by Wachovia.

Further, brokers leaving Pru now might find the cost of doing so costly, due to a benefit called MasterShare.

In abbreviated terms, MasterShare is a deferred compensation plan in which brokers authorize Pru to deduct between 5 percent and 25 percent of their pay. The money is gathered in an account and invested quarterly in plan assets that are discounted by 25 percent.

But because MasterShare has a three-year vesting period, brokers who leave the company with less than three years of tenure forfeit both their deductions and Pru's matching funds. For this reason, the plan is known as a “golden handcuff.” Since broker contributions continue on a rolling, year-to-year basis, a broker who quits Prudential's employ usually leaves three years of unvested, deducted commissions behind.

The merger with Wachovia raises many questions about how MasterShare will be administered. Will all of Pru brokers' account holdings immediately vest upon the merger's completion? What happens if a broker decides not to stay on with Wachovia and goes to work for a competitor — either before or after the acquisition closes? Will current Wachovia brokers be invited to participate in this plan?

Even before the Wachovia announcement, Prudential brokers expressed consternation over the structure of MasterShare. To brokers, the company seems to be holding money hostage, and some have gone to court in an effort to recover funds they feel rightfully belong to them.

Such legal challenges have not fared particularly well. Pru, for its part, contends that participation in MasterShare is voluntary, and that the employee-retention feature of the plan is a benefit the company pays for in the form of matching funds.

But there is still plenty of disagreement over these issues, and courts and arbitrators might yet come to see brokers' points: that MasterShare is rooted in money earned by the broker, and that money should not be forfeited to Pru simply because a broker decides to take a position at another firm.

There could be light at the end of the tunnel on this issue. I have agreed to represent a number of Prudential broker-claimants, mainly because I am optimistic that we can establish that MasterShare violates the legal rights of Prudential brokers. The central issue is whether Pru strong-arms brokers into agreements that violate the most basic business principle: What you earn belongs to you. If we can prove this, we would establish a broad basis for brokers who decide to leave Prudential — either because of the Wachovia transaction or independent of it — to unchain their “golden handcuffs” and get their rightful due. Thus, Prudential brokers who have the opportunity to leave and receive a sizable sign-on or upfront loan, might be able to eat their cake and have it too.

If the pending litigation with Prudential is successful, they might well recover the money and assets forfeited by them when they left Prudential, while still being free to enjoy the fruits of a new relationship.

To Wachovia brokers who might be introduced to a MasterShare-style plan after the merger: Those handcuffs might appear to be solid gold, but many Pru brokers will tell you they're just gold plated.