Compensation last year off sharply from banner year in 2000

If top executives at major asset management companies thought 2001 was bad for their bank accounts, it is fast becoming clear that last year was only slightly better.

According to the first wave of regulatory filings in Washington, the average top executive took a 15% to 25% hit to their compensation in 2002.

That is only a slight improvement from the 20% to 30% cut that most executives took in 2001, according to an informal InvestmentNews survey of recruiters and other industry watchers.

But some executives took it on the chin even harder than that.

Realism sets in

Lawrence J. Lasser, president of Boston’s Putnam Investments LLC, earned a $7 million bonus in 2002. That was down nearly 60% from the $17 million he earned in 2001 and nearly 80% less than the $33 million he bagged in 2000, according to the latest filing with the Securities and Exchange Commission.

Mr. Lasser’s salary has held steady at $1 million the past three years, the filings show. He also received $1 million worth of restricted stock and $400,000 in “other” compensation in 2002, which includes the $200,000 he earned as a trustee for Putnam’s funds.

The Putnam executive’s other compensation also included $35,000 to pay a financial adviser.

Meanwhile, James B. Hawkes, president and chief executive of crosstown rival Eaton Vance Corp., saw his 2002 bonus fall to $2.3 million. That is a 26% drop from $3.1 million in 2001 and an 8% drop from $2.5 million in 2000, according to SEC filings.

Mr. Hawkes’ salary, meanwhile, dropped to $600,000 in 2002, from $602,000. He was paid $450,000 in 2000.

T. Rowe Price Group Inc. in Baltimore cut the bonus for chairman George Roche by 6% to about $1.6 million last year. Mr. Roche’s salary held steady at $300,000, according to SEC filings.

Total compensation at T. Rowe fell 7% to $357.6 million in 2002, from nearly $385 million a year earlier.

Franklin Resources Inc. in San Mateo, Calif., cut chairman Charles B. Johnson’s salary by nearly 7% in 2002 to $554,707.

Mr. Johnson received additional compensation of $129,386 last year to pay for his personal use of the company’s private airplane. In 2001, the executive collected $131,095 in other compensation, $126,377 of which was for the use of the airplane.

Mr. Johnson didn’t collect a bonus in 2002 or 2001.

Not all of Franklin’s executives suffered too much, however. While the salaries of co-presidents Martin L. Flanagan and Gregory E. Johnson were cut by nearly 7% in 2002 to $728,119 and $728,123, respectively, their bonuses more than doubled – to $812,500, from $400,000.

Nevertheless, executive compensation has definitely fallen back to earth.

“People are more realistic about compensation,” says Keith Macomber, a partner in New York with Heidrick & Struggles International Inc., a Chicago-based executive search firm. “I think people now understand that compensation levels got pretty extraordinary during that 1999 to 2000 period.”

`Cut to the bone’

So far, 2003 isn’t shaping up to be much better for top executives.

Fidelity Investments, the No. 1 fund company in the nation, recently told many of its employees that they are unlikely to see merit raises this year. The privately held company laid off about 5% of its work force in 2002.

This latest wave of top-level pay cuts at financial services firms, precipitated by a year of efforts to cut costs, may ignite a mass migration when the economy and stock market finally recover.

“Many of these companies have already cut to the bone,” says Alex Thomson, a managing director in the Boston investment management practice of executive search firm Russell Reynolds Associates Inc. of New York.

“Now we are starting to see them punishing some of their best performers,” Mr. Thomson adds. “You’ve got to be very careful about doing that.”

Paige Steinbock, a partner in the San Francisco-based investment management practice of Korn/Ferry International, a Los Angeles executive search firm, says many asset management companies are precariously perched between having to cut expenses and maintaining the trust and confidence of key employees.

“It’s important that companies do everything they can right now to maintain a certain trust factor with employees,” Ms. Steinbock says. “If that trust factor isn’t maintained, you are going to see an exodus of employees from those companies.”

Lean times

With the Dow Jones Industrial Average and the broader Standard & Poor’s 500 stock index down 17% and 23%, respectively, in 2002, these are lean times for most asset gatherers.

Last year, investors pulled $27.1 billion out of stock funds, while pumping a record $140.5 billion into less profitable bond funds. The amount taken out of stock funds equaled roughly 1% of average assets in those funds, according to the Investment Company Institute.

Total mutual fund assets fell 8.4% to $6.4 trillion last year, the Washington-based trade group reports.

The damage has been devastating for many asset managers.

At Putnam, for example, operating income sank 30% last year to $560 million, while revenue fell 10% to $2.4 billion. Total customer assets at the No. 5 fund shop fell 20% in 2002 to $251 billion.

Many companies, including Putnam, Fidelity, Charles Schwab Corp. in San Francisco and Goldman Sachs Group Inc. in New York, have cut jobs. Others put the kibosh on plans not absolutely crucial to their survival.

Against a backdrop like that, it is easy to see why executive paychecks are declining, says Geoffrey Bobroff, a mutual fund consultant in East Greenwich, R.I.

“It would be pretty insensitive if executives took significant salary or bonus increases for themselves when layoffs are continuing throughout the industry,” Mr. Bobroff says.

One who did: Reuters Group PLC chief executive Tom Glocer. Employees are up in arms over the nearly $1 million bonus he received after presiding over massive layoffs at the London-based media giant, parent company of New York fund tracker Lipper Inc.