Analysis: Janus faces pay pressure after shareholder vote

BOSTON (Reuters) - When it comes to executive pay at mutual fund manager Janus Capital Group (JNS.N), the shoe is on the other foot.

Janus, which often votes against pay proposals at companies in its portfolio, saw its own shareholders reject the compensation its board had set for top executives at the Denver asset manager.

The vote last month was only advisory, so the board can ignore it, but it does signal investor dissatisfaction.

Nearly two dozen other companies have gotten similar feedback this proxy season. But for Janus, the vote was particularly stinging; by some measures, it is more aggressive than other big asset managers on the subject of executive pay.

If Janus fails to change its own pay now, "the risk is they would be viewed as being hypocritical," said Jeff Marshall, co-founder of Moxyvote.com, which tracks corporate governance issues.

Janus says it had already begun to modify its pay system before the vote. Companies are required to hold nonbinding "say on pay" votes under the Dodd-Frank financial reform law signed last year.

TOUGH STANCES

Securities filings show Janus funds voted last year against management pay proposals at companies that include banks Wells Fargo & Co (WFC.N) and Comerica Inc (CMA.N).

A recent study by the American Federation of State, County and Municipal Employees labor union found Janus to be among the more critical asset managers in terms of how frequently it broke with company managements on compensation matters.

In a sample of 10 proxy measures that were critical of executive pay plans, Janus funds sided with shareholders 81 percent of the time -- the fifth most aggressive of 26 fund companies studied.

"It looks like someone in their company knows how to evaluate executive compensation," said Lisa Lindsley, who runs the union's corporate governance efforts. "Maybe they should tap into that" expertise, she added.

Janus faces trouble at home. Its shares have fallen 22 percent so far this year, the most of peers, as it has reported continued outflows from investors concerned about the mixed performance of some of its equity funds.

The company hired former Pimco executive Richard Weil as chief executive officer to turn things around. He arrived on February 1, 2010, and received $20.3 million for that year, including a signing bonus of $10 million in restricted stock vesting over three years, according to Janus' proxy filing.

Other executives' total pay mostly declined in 2010, the filing shows, with the compensation committee citing outflows, below-average profit growth and failure to meet certain goals.

SHAREHOLDER SETBACK

Still, stockholders were not happy. In the advisory vote at the company's annual meeting on April 28, 82.7 million shares were cast against the executive pay proposal, and 59.9 million shares were voted for it. Those results were not a surprise after ISS, the influential advisory unit of MSCI Inc (MSCI.N), recommended an "against" vote.

In a report, ISS said Weil's new-hire package "appears overly generous for a newly appointed CEO" and that the $10 million was "unacceptable to shareholders due to the lack of disclosure and rationale provided" in the proxy.

Janus board members either did not respond to requests for comment or referred questions to a company spokesman. In the proxy, Janus said a compensation redesign was under way.

The filing said the company would gradually implement a plan that would tie the aggregate bonus pool to a percentage of its profit, while individual incentive compensation will still be based on both quantitative performance metrics and qualitative assessments.

"Prior to the vote, we were aware of some shareholder concerns," spokesman James Aber said, "and we have been working with our board on implementing responsive changes."

He added that the signing bonus for Weil "will not be repeated and should not be a continuing issue."

ThomsonOne.com data show Janus' largest shareholders include Fidelity Investments, Vanguard Group Inc and T Rowe Price Group (TROW.O), none of which discussed their voting for this article.

'THE PEOPLE HAVE SPOKEN'

Others expect Janus to make adjustments, including Michael Cuggino, president and portfolio manager of Permanent Portfolio Funds in San Francisco. "The people have spoken," he said, although he declined to discuss his own votes in detail.

Another large shareholder, Ariel Investments of Chicago, voted "for" the pay proposal, portfolio manager John Miller said. He added that Weil still had his confidence and had not been on the job long enough for his performance to be measured.

Other companies that faced negative "say on pay" votes this year include Hewlett Packard Co (HPQ.N) and Stanley Black & Decker Inc (SWK.N).

(Reporting by Ross Kerber; editing by Dan Wilchins and Lisa Von Ahn)