The New Jersey Supreme Court heard arguments Wednesday on whether a financial firm’s incentive-compensation plan that penalizes participants who leave the company before they’re vested violates the public policy of state wage-and-hour law.

Smith Barney Inc. instituted the plan in 1989 to combat stockbroker turnover, which was then rampant in the industry. Brokers could elect to have part of their compensation diverted to purchase restricted shares of stock in Smith Barney’s parent company, Citigroup Inc., at 25 percent below market price.

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