A Golden Ball and Chain?
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Wednesday, April 03, 2002

A Golden Ball and Chain?

Steve Bailey takes aim at Putnam CEO Larry Lasser in his column today in The Boston Globe, and he makes some good points. Lasser, he reports, has pulled down some $64 million in compensation, including $50 million of bonuses, the past two years making him the highest paid fund executive. This windfall comes at the same time Putnam has fallen to the bottom of the ranks of large fund complexes in terms of returns for shareholders and started the inevitable cost-cutting moves that senior management so fervently believe are the answer.

That Marsh's board has failed to grasp, read or even open the email warning that the profligate nineties are over and taken steps to rectify this dichotomy can't be a good omen for the future of the firm. What stood out, for us, is the contrast between Lasser's compensation and that of another high profile CEO, Ted Waitt of Gateway (NYSE: GTW), the computer maker. Waitt is the CEO who handed the reigns of his company to an MBA when the bubble was inflating, only to see his company gutted through the cult of the executive. Waitt got the email, read it, and returned last year to restore his firm before it was too late.

O.K. Let's give Lasser his due. He did take a whopping 50 percent cut in compensation from 2000 to 2001 (to $17 million, here's a hanky, we are sure you are crying too). In this case, though, percentages seem a little irrelevant. Lasser still took home $17 million in a year that his firm turned in a dismal operational showing, cut it workforce, and retreated in markets such as 401(k) plans that are likely the key to its long-term success. Not only is Putnam eating its seed corn under Lasser, it is even turning in woeful day-to-day performance.

Our bet is that its performance will not please the advisors recommending its funds to clients or the institutional clients seeking service on par with what Fidelity and Vanguard offer.

Since 2000, Putnam ranks 18th of the 20 largest fund families, according to Kanon Bloch Carre as quoted in the Globe. Long term Putnam stock pickers are doing even worse as the average Putnam fund shows returns ranking 19th out of 20 among the largest fund complexes for five years. Perhaps that explains the bonus: Putnam fund managers are getting relatively less incompetent under Lasser. Putnam did rank second during the tech mania of 1998-99, but as we said earlier, that era is dead and buried and will not return. Worse yet, Putnam failed to turn its good fortune then into anything long-lasting as it has used the recession as an excuse to let experienced hands go. Meanwhile, cross-town rival Fidelity has used the downturn to dig deeper and reshape the firm into an employer services company.

So how does Lasser compare to Ted Waitt over at Gateway? Even as Marsh released Lasser's compensation on Good Friday (betting, perhaps, that most reporters were not in and would just miss it), the folks at Gateway were readying SEC filings (yes, they released theirs this week when the reporters were back from vacation) that showed Ted Waitt took in just $20,033 in 2001.

No, that number is not rounded to the nearest thousand like the figures in some financial statements. You read it right, Ted Waitt took home pay in line with the lowest paid in the firm, an annual check in the five figures. Waitt took home less in a year than Lasser took home in a day at Putnam.

And his options? They are so deep underwater that Waitt can't cash in unless the firm pulls off a genuine turn around. Bonus? Don't ask, there was none. In fact, his pay check was supposed to be $200,000, but he set aside ninety percent of it to pay bonuses to other Gateway workers.

It is probably too much to ask Lasser to behave like Waitt. Unlike the CEO in the bespoke suits, the pony-tailed CEO remains the largest shareholder in his firm and understands that long-term, his financial well-being and his personal legacy rests more on the success of his business than on his compensation package. Lasser, meanwhile, was reared in financial services where one's compensation package is the barometer of ones' success and legacy.

One other noteworthy ceo compensation question was raised in the past week. One that marks the era that we are now in. One that may also be relevant to Marsh's board. Sitting in front of Congress a former ceo of Global Crossing, the failed telecommunications firm, was asked how many people earning $79,000 per year his bonus would have kept employed. That ceo testified that he could not do the math in public. We hope Larry can do sums. We hope his bosses ask.

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