Legg Mason Cuts CEO Package

According to a regulatory filing on Wednesday, Legg Mason Inc.’s (LM - Analyst Report) Chairman and Chief Executive Officer (CEO) Mr. Mark R. Fetting’s total compensation had been decreased to $4.9 million in fiscal 2012 (ending March 31, 2012). This represents a 17% decrease from $5.9 million given to him in the prior fiscal year.

For fiscal 2012, Fetting’s pay package includes salary of $500,000 (unchanged) and stock awards of $1.4 million (down from $1.9 million in 2011). He had also received stock options worth $600,000, down 4% from $625,000 million in fiscal 2011. There was other compensation totaling $38,695 in fiscal 2012.

The filing states that the CEO’s pay cut is based on certain factors, including the company’s weak performance in fiscal 2012 and the decline in its share price. In fiscal 2012, Legg Mason’s net income declined 13% year over year to $220.8 million, driven by lower revenue.

For fiscal 2012, Legg Mason recorded total revenue of $2.7 billion, down 4.0% from the prior fiscal year, reflecting decreases in average AUM and performance fees. Moreover, as of March 31, 2012, the company’s stock price was $27.81, down 22% from the prior year.

Among other executives of Legg Mason, Senior Executives Vice Presidents Ronald R. Dewhurst and Joseph A. Sullivan, also received decreased compensation in fiscal 2012. Dewhurst’s compensation declined from $4.3 million in fiscal 2011 to $3.5 million, while Sullivan’s pay package reduced from $3.4 million in the prior year to $3.2 million.

Due to the economic slowdown, many of the senior banking executives had faced a pay slash. Apart from Legg Mason, some other large U.S. banks such as Bank of America Corporation (BAC - Analyst Report), Morgan Stanley (MS - Analyst Report) and Goldman Sachs Group Inc. (GS - Analyst Report) also trimmed down the compensation of their CEOs for calendar year 2011. However, the CEO of JPMorgan Chase & Co. (JPM - Analyst Report) still has the benefit of a steady pay structure.

We believe that Legg Mason has the potential to outperform its peers in the long run, given its diversified product mix and leverage to the changing demographics in the current market. However, in the near term, assets outflows will remain a significant headwind.

Legg Mason currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we also maintain a long-term Neutral recommendation on the stock.