Legg weathers protest over pay

Some shareholders withhold votes for two directors over CEO Mason's $14 million bonus and options


The Legg Mason Inc. board of directors weathered criticism over a pay package for Chairman and CEO Raymond A. "Chip" Mason that included a $14 million bonus and a half-million stock options as the Baltimore-based money-management company held its annual meeting yesterday.

Proxy Governance Inc., which advises institutional shareholders on issues put to a vote at public companies, had recommended that shareholders protest the board election by withholding votes for two Legg Mason directors, John E. Koerner III and James E. Ukrop. The directors sit on the compensation committee that sets pay for top executives.

While Legg Mason officials said Koerner and Ukrop won election to the board during the meeting held at the Center Club in downtown Baltimore, they declined to disclose vote totals until required to do so as part of the company's next quarterly filing with the Securities and Exchange Commission this fall.

"Withhold" votes are largely symbolic because the elections were uncontested. Also, Legg Mason directors are elected by a plurality of the shares voted, meaning a tally could be less than a majority and still win. As for Proxy Governance urging a protest vote, Chip Mason said, "They have a right to say what they want, and their point was duly noted."

Executive compensation has been a point of contention between shareholders and companies, and protest votes have been garnering more support in recent years. Companies that have come under fire this year for what critics call excessive pay have run the gamut from Clear Channel Communications Inc., the San Antonio-based media company, to homebuilder Ryland Group Inc., based in Calabasas, Calif.

"If pay is excessive relative to a company's performance against its peers in the same industry, and we can't see a justifiable reason, we recommend withholding votes from compensation committee members," said Shirley Westcott, managing director of policy at Proxy Governance.

The advisory firm found that during the past three years, Mason earned 126 percent more than chief executive officers at peer companies. "We fail to understand why that amount of pay is warranted," the firm said in a report.

Two other advisory firms, Institutional Shareholder Services and Glass Lewis & Co., recommended a vote in favor of all Legg Mason directors up for election, including Koerner and Ukrop. The compensation committee is composed of three members, including one who wasn't up for re-election this year.

However, ISS expressed concern over Mason's bonus, and Glass Lewis gave Legg a pay-for-performance grade of "C." A lower grade likely would have led to a recommendation that shareholders withhold votes, said Brittany Wedereit, director of proxy research at Glass Lewis.

Legg Mason "paid significantly more than its peers, and performed better than its peers," Glass Lewis said in its report.

Mason took home $14.5 million in salary, bonus and other benefits last fiscal year in addition to a stock option grant that the company valued at $21.2 million. Salary.com, in a recent survey of executive compensation for The Sun, put the future value of Mason's options at $25.5 million.

Legg Mason and Salary.com calculated the value of options using the Black-Scholes method, a formula in which assumptions assigned for interest rates and other factors can vary. Options allow executives to buy stock at a specified exercise price that is set at current market prices on the day they are granted. Their eventual value depends wholly on whether, and by how much, a stock rises subsequently.

Mason has been with the company since a brokerage he founded merged with Legg & Co. more than three decades ago.

Legg Mason's compensation committee considered Mason's tenure and the company's financial performance in awarding the bonus, which doubled from the year before, according to a statement released by the company.

The one-time stock option grant, the statement said, was intended to reward Mason for his work on a $3.7 billion business swap he helped engineer last year with Citigroup Inc. and to ensure he remains at the company for at least two years to oversee the company's transformation.

The deal, in which Legg Mason traded its brokerage business for Citigroup's asset-management operations, remade Legg into the fifth-largest money manager in the world and doubled the amount it invests on behalf of clients to $868 billion.

The company also announced yesterday that its board increased the quarterly cash dividend to 21 cents per common share from 18 cents. The dividend will be paid Oct. 16 to shareholders as of Sept. 28. Legg stock rose 14 cents, or less than 1 percent, to $94.55 in trading yesterday on the New York Stock Exchange.


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