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Legg Mason's (LM) CEO Package Drops 3.3% in Fiscal 2016

Zacks Equity Research

Legg Mason Inc.’s LM Chief Executive Officer (CEO) Mr. Joseph A. Sullivan’s total compensation, including a cash bonus, had been decreased to $10.2 million in fiscal 2016. This represents a fall of 3.3% from the prior fiscal, according to a regulatory filing of Jun 15.

In fiscal 2016, Sullivan’s pay package includes salary of $500,000, unchanged from 2015, a cash bonus of $3.3 million (down from $4.2 million in 2015) and stock awards of $4.2 million (up from $3.6 million in 2015). He also received stock options worth $2.1 million, up from $1.8 million in 2015.

The decline in pay was a result of factors like the company’s financial performance in fiscal 2016. The company has decreased the compensation of its CEO for the second consecutive year, following net loss of $25 million during fiscal 2016, driven by lower revenues.

For fiscal 2016, Legg Mason recorded total revenue of $2.7 billion, down 6% year over year, reflecting a less favorable AUM mix, decrease in average AUM and reduced performance fees.

As of Mar 31, 2016, Legg Mason’s AUM was $669.6 billion, down slightly sequentially from $671.5 billion, impacted by long-term outflows of $13.2 billion and liquidity outflows of $3.3 billion, partially offset by $9.7 billion in positive market performance and $4.7 billion in positive foreign exchange. On a year-over-year basis, AUM inched down 5% from $702.7 billion.

The CEO package cut reflects Legg Mason’s weak financials. Moreover, in fiscal 2016, the company recorded a negative one-year return of 36%. Notably, 60% of Sullivan's incentive compensation is reflected as equity as the CEO is responsible for the company’s future performance.

We believe Legg Mason has the potential to outperform its peers over the long haul, given its diversified product mix and leverage to the changing demographics in the market. However, overall outflows, escalating expenses and lower revenues remain concerns.

Legg Mason currently carries a Zacks Rank #3 (Hold). Some better-ranked investment managers include OM Asset Management plc OMAM, SEI Investments Co. SEIC and Eagle Point Credit Company Inc. ECC. All three carry a Zacks Rank #2 (Buy).

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