(Adds comment from spokeswoman, details on say-on-pay vote and
LPL's closing stock price))
By Jed Horowitz
NEW YORK, March 12 LPL Financial Holdings
, one of the fastest-growing U.S. broker-dealers, has
terminated employment agreements for its top executives but
sweetened some of their benefits and paid two of them $500,000
apiece for giving up the contracts.
The disclosures were made in a regulatory filing on
Wednesday that also reported a 32 percent jump in compensation
to $6.14 million for longtime LPL Chairman and Chief Executive
Mark Casady and a 21 percent hike to $3.12 million for President
Robert Moore in 2013.
LPL's decision to eliminate employment contracts for
Casady, Moore and Chief Financial Officer Dan Arnold as of Feb.
24 had nothing to do with executive performance but was meant to
align the firm "more closely with market practices" and
eliminate compensation discrepancies with other executives, the
proxy statement said.
For agreeing to undo their contracts, Arnold and Moore were
each granted a special restricted stock grant valued at
$500,000, according to the proxy.
The moves come as so-called independent broker-dealers such
as LPL have been growing at breakneck speed even as they
stumbled in supervising sales and compliance procedures.
The Financial Industry Regulatory Authority last May imposed
$9 million in fines and customer restitution against LPL for
pervasive technology lapses that prevented it from monitoring
the emails of the almost 14,000 brokers who buy compliance,
marketing and product services from the company.
On Wednesday, FINRA fined two other independent firms that
compete with LPL - Triad Advisors and Securities America -
$650,000 and $625,000 respectively for failing to supervise
brokers who gave inaccurate account statements to customers.
LPL and the two firms settled without admitting the
allegations, and LPL has since upgraded its technology and
centralized compliance oversight for many of the single-office
advisers who use its services.
The board of directors has not held the problems against
Casady. In the preliminary proxy filing, the compensation
committee said he had exceeded his performance target "as the
company continues to transform its operating model and related
expenses." LPL's adjusted earnings of $259 million last year
were above its $250 million plan as advisers maintained
productivity levels while expenses were kept in check, it said.
An LPL spokeswoman said the 53-year-old Casady, who has been
with LPL since 2003, did not receive the same stock grants as
Arnold and Moore for releasing the company from its obligations
under the employment contract because each executive employment
agreement had different provisions. Last month, however, Casady
received $3.1 million of new stock options that vest over three
years as a performance bonus, down from the five-year vesting
period LPL used to require for such bonuses.
LPL's board also rewrote the company's severance plan so
executives get higher immediate compensation if they are
terminated for reasons such as takeovers and lowered the age at
which executives can retire with immediate access to deferred
benefits from age 65 to age 55 if they have worked at LPL for 10
As part of an effort to improve corporate governance, LPL
said shareholders at the company's annual meeting on May 6 will
consider an amendment to elect all directors annually rather
than the current system of electing them on a staggered basis to
three-year terms. It is among several changes made since two
board members from private equity firm Hellman & Friedman
resigned after the firm sold its shares in LPL last summer.
LPL shareholders also will be able to vote annually in an
advisory capacity on approving the company's compensation
practices rather than the former say-on-pay vote conducted every
three years, the proxy said.
Though little known to the public, LPL's almost 14,000
brokers make it the fourth biggest broker-dealer in the U.S.,
slightly behind Bank of America's Merrill Lynch. It and
other independent firms allow their brokers to keep much more of
the fees and commission they earn from clients than traditional
firms such as Merrill and Morgan Stanley, but the brokers
at the independent firms pay for most of their overhead.
Though independent broker-dealers have traditionally focused
on brokers who sell insurance and other products to middle-class
Americans, LPL in recent years has aimed at hiring higher-end
brokers with clients who have more than $250,000 to invest or
who service corporate retirement plans.
Since it operates on thin profit margins because so much
revenue is kept by brokers, LPL depends on continually growing
its franchise to increase fees and commissions. The company
missed its hiring target in 2013 due to "an industry-wide
slowdown" in recruiting in the first half of the year, the proxy
statement said, though it credited Casady with keeping broker
production levels high.
In a presentation last week, however, the firm said
recruiting in January and February remains below target due to
"disruptive weather" conditions this winter.
LPL, which first offered shares to the public through a
stock offering on Nasdaq in late 2010, was controlled until
March by two private equity firms. A fund owned by one of the
firms, TPG, continues to be its biggest shareholder owning 13.1
percent of its common stock.
Shares of LPL, which rose 66.5 percent over the past 12
months, rose 19 cents to $53.48 in Nasdaq trading on Wednesday.