As banks that sell mutual funds fine-tune their sale programs, many are still grappling with how to compensate their mutual fund sales representatives.

And consultants who advise banks on compensation offer conflicting advice, further befuddling bankers.

Some banks have chosen to pay salespeople a straight salary, while others are offering a base salary plus commission.

"A lot of these pay issues are a reflection of banks trying to work through strategy issues," said Michael Garelick, a director of the financial services compensation practice in the Chicago office of Towers Perrin, a consulting firm.

A Narrow Path

The question for banks is how to develop a sales culture without creating a climate where sales representatives are so commission-driven that they are tempted to push products that may be inappropriate for customers.

Many banks have had trouble deciding how to proceed, flip-flopping between salaries and commissions, said Michael Corrigan, president of Protective Financial, a marketing firm based in Santa Barbara, Calif.

Mr. Corrigan is firmly in the commission camp, arguing that reducing payouts is a sure way to drive out good brokers and retain mediocre ones.

But some consultants maintain that paying bank-based salespeople mostly by commission is a mistake.

Commissions Called Wasteful

Mr. Garelick, for instance, maintains that banks are wasting money if they pay their employees the high commissions that brokerage firms generally use.

He said brokerage commissions are usually structured to help compensate brokers for the time they spend finding new clients. But brokers at banks have a ready-made clientele, and thus don't do much cold-calling.

"It does not make sense economically to have brokers wait around for referrals and get paid like they do in brokerage firms," Mr. Garelick said.

The banking industry's ability to attract sales talent will depend largely on its compensation practices, Mr. Garelick said. Seasoned brokers have little incentive to leave high-paying jobs with brokerage firms for less lucrative positions in banks, he said.

Banks also have to compete with brokerage firms, mutual fund companies, and other banks to attract quality salespeople, he pointed out.

With the need for brokers growing rapidly over the past few year, banks found that they had three choices: 1.) Offer large pay packages to get top talent; 2.) train and license existing employees; or 3.) settle for brokers who couldn't make the grade in brokerage firms or who had little experience.

Banks that copied the compensation model used by brokerage firms did so to make as much money as they could, Mr. Garelick said. "This kind of bank used commission because they were interested in fees, not relationships," he maintained.

Commissions Supported

But some industry consultants insist that banks should not stray from the traditional way brokers have paid their salespeople.

"It's an incentive-based industry," said Kenneth R. Hoffman, president of Optima Group, a consulting firm in Milford, Conn.

"We have told clients not to raise their base [salary] and lower their incentives. Those structures have never worked," he said.

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