Lehman formula

Definition

A sliding broker fee: a falling percentage on each million of price.

Why It Matters

Sell-side fees below the middle market are quoted this way as often as a flat percentage, and the sliding scale means the rate you hear first applies only to the opening slice of the price. Doubled and tripled versions are common on smaller deals, so read which one an engagement letter names rather than assuming. It also matters less than it looks on a small deal, because almost every engagement carries a minimum fee that governs until the price is large enough for the scale to beat it.

In numbers: A double Lehman on a $3M price charges 10% of the first million, 8% of the second and 6% of the third, which is $240k against $150k at a flat 5%.