Firms Air Concern About Legg Bonuses

July 28, 2009|By Hanah Cho | Hanah Cho,

Two proxy advisory firms are recommending Legg Mason shareholders withhold votes for three directors who sit on the compensation committee because it awarded bonuses to top executives even though the Baltimore money managers reported a net loss for the fiscal year ended March 31.

RiskMetrics Group and Glass Lewis & Co., which provide guidance on proxy proposals and corporate governance issues, said shareholders should hold back votes for John E. Koerner III, Cheryl Gordon Krongard and Scott C. Nuttall.

The American Federation of State, County and Municipal Employees (AFSCME) is also asking shareholders to follow the same action.

All three groups objected to the committee's rationale for granting bonuses to executives, including chief executive Mark R. Fetting, whose total incentive pay is valued at $1.36 million.

FOR THE RECORD - Because of an editing error, an article about Legg Mason's executive bonuses in Tuesday's editions used an incorrect pronoun to identify Pearl Meyer. She is senior managing director of Steven Hall & Partners.
The Baltimore Sun regrets the error.

A third proxy firm, PROXY Governance, recommended voting for the three directors. It concluded that Legg's overall pay practices appear reasonable, while also noting it will "take the cautionary measure of closely monitoring" the company's practices going forward in light of the bonuses.

While not commenting directly on Legg's situation, Pearl Meyer, senior managing director of executive-pay consulting firm Steven Hall & Partners, said similar proxy recommendations on pay practices are not unusual, especially as executive compensation has become the source of shareholder concern in recent years. He also said such moves are largely symbolic and directors are generally re-elected. The annual meeting starts at 10 a.m. today at its Light Street headquarters for the last time. The company is in the process of moving to a new building in Harbor East.

Because the company had a net loss of $1.9 billion for the year, there was no bonus pool under the Executive Incentive Compensation Plan. But the committee noted that the loss resulted primarily from two charges related to propping up its money market funds that were invested in toxic investments and write-downs for impairment of goodwill and intangible assets, according to Legg's proxy.

The committee reasoned that without those charges, Legg would have had a net income and the company's compensation plan would have produced a bonus pool large enough to accommodate the awards.

"The committee elected to make the awards as it believed that management did a good job of managing through the difficult markets and resolving the issues the company faced," Legg said in a statement. "In keeping with its focus on pay for performance, however, the committee reduced continuing officer's compensation."

Fetting's cash bonus, for instance, was reduced from $1.9 million to $950,000.

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