Pay-disclosure fighters may be right

November 22, 2006|By Jay Hancock | Jay Hancock,Sun Columnist

Legg Mason really, really, really doesn't want to reveal the pay of Bill Miller and other star investment managers.

Many financial companies oppose a government proposal to require pay disclosure for highly compensated employees who aren't top officers, but Baltimore-based Legg is leading the fight.

Top Legg lawyer Thomas Lemke has met twice since late October with members of the Securities and Exchange Commission to discuss the issue, SEC records show. In early October, he got together with SEC staffers on the same matter.

Legg boss Chip Mason wrote the commission last month to complain that, if implemented, the rule would lead to "predictable unintended costs" and violate the "bedrock principles" that regulatory side effects should not be worse than the benefits.

Through a spokeswoman, Mason and other Legg executives declined to be interviewed. But Legg's allergy to the potential rule is not hard to figure out. On this particular anti-regulation campaign by this particular big business, big business may have a point.

One of the largest money managers on the planet, Legg is surrounded by rivals that would avoid similar disclosure because they are not publicly traded or not registered in the United States.

Compensation revelation, Legg fears, could cause top talent to avoid Baltimore or give New York hedge funds the exact information they need to poach employees.

Miller, whose Legg Mason Value Trust has beaten the S&P 500 index 15 years in a row, probably also worries about public reaction to his pay, which is likely to be king-sized.

Most financial companies have relied on trade groups such as the Investment Company Institute to bombard the proposal. Lawyers at Baltimore's T. Rowe Price, the mutual-fund giant, sent a letter a month ago saying that they "strongly urge the commission not to pursue it."

But Legg has gone further. It first opposed the measure early this year when it was part of a broader SEC initiative to shine a beam on executive pay.

In addition to requiring "plain English" to describe big-shot pay and making companies fess up better on golf memberships and other perks, the measure would have obligated pay disclosure for up to three additional highly paid employees.

Dubbed the "Katie Couric rule," this last bit would have unveiled packages for entertainers, athletes and others who never go near a boardroom but earn more than a company's CEO or other top executives. Hollywood hated it and got the SEC to relent. The agency approved other truth-in-pay measures but revised the proposed rule applying to non-senior-executives, saying entertainers were exempt.

Legg Mason still hates it. It may not be the Katie Couric rule anymore, but it's still the Bill Miller rule because it would apply to highly paid people who aren't top bosses but may have a say in corporate management, as he does. Even though the rule wouldn't name the three highly paid employees, figuring out their identities would be easy.

Since the SEC launched the revised rules for public comment in late July, commissioners and staffers have held four personal meetings with industry officials expressing opinions, records show. Three of them were with Legg, most recently on Oct. 31, when Commissioner Paul S. Atkins met with Lemke and other Legg lawyers, and Nov. 3, when Commissioner Kathy L. Casey met with the same group.

Some things can be said in favor of a Bill Miller rule. Sunlight is a good standard, especially when executive pay at publicly traded corporations has left the galaxy and the United States seems bent on re-enacting the Gilded Age. Showing big clots of previously confidential pay would give public shareholders a better look at personnel and resource-deployment practices.

But non-senior-executive employees, no matter how highly paid, are not central to corporate governance. The rule would pile new burdens on public companies struggling under Sarbanes-Oxley requirements designed to prevent another Enron. Not paperwork burdens, as some firms opposing a Bill Miller rule have claimed, but burdens of competition against private firms with no SEC disclosure rules.

Making Legg and Price reveal the pay of their best players would further tilt the playground for private firms, which already are vacuuming up huge amounts of capital.

Regulating public companies is crucial, but only if gains outweigh costs. It's not clear that a Bill Miller rule qualifies. If the measure results in the best money managers getting hired by private tycoons and public shareholders - the little guys - having to settle for the farm team, the SEC might have second thoughts.

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