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A Putnam Sale Would Be Golden for CEO

The ailing fund company's chief could walk away with a package worth $50 million.

Charles "Ed" Haldeman, the chief executive of the ailing Boston fund giant

Putnam Investments

, could make as much as $50 million personally if the company is sold.

That's even though Putnam has lost billions of dollars in assets during his three years in charge, while three of its key funds have underperformed.

Putnam was put on the block by its parent company, New York insurance giant

Marsh & McLennan

(MMC) - Get Marsh & McLennan Companies Inc. Report

, earlier this fall. While a sale isn't certain, at least four asset-management companies have been reported to be taking an interest.

Speculation suggests that bidding for one of America's oldest mutual fund companies could go as high as $4 billion. That would be great news for Haldeman, thanks to a remarkable new contract he signed just 10 months ago.

In February of this year, Haldeman got a new four-year deal that included a grant of $12 million worth of internal Putnam stock. That's on top of the $7.9 million in Putnam stock he had already accumulated during his first two years on the job, Marsh Mac's regulatory filings show.

Putnam stock is not traded publicly but is available as an incentive and bonus for management and staff.

Total value of Haldeman's stake so far: $20.1 million. And in a sale, that would certainly be worth more. How much more? Maybe another $8 million.

Regulatory filings show that Putnam stock was valued at less than $29 a year ago, shortly before Haldeman began receiving his latest tranches.

But a $4 billion takeover, if that happens, would be worth around $40 a share. Cash. (Sources say that there are, in total, about 100 million Putnam sharesin existence.)

It doesn't end there. Haldeman's new contract also gives him a generous annual salary and target bonus package of $10.9 million a year. And if he is let go before the end of the four-year term -- say if the company is bought and a new owner wants to install its own CEO -- he will get a generous golden handshake. Value: twice his annual salary and "average bonus" for the past three years.

So, depending on how they calculate it, any new owner could find itself paying him another $22 million or so.

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Total windfall: about $50 million.

Yes, these figures are provisional. No sale or price has been confirmed. And we won't get the exact details unless and until that happens. By then, of course, you can expect the company's spin doctors to dismiss the story as an "old" one because "now it's been taken over."

Haldeman's windfall, incidentally, is in addition to the millions he has been paid in salary, bonuses and goodies over the past three years. Those goodies range from more than $3 million in Marsh & McLennan stock to $105,000 worth of personal travel aboard Marsh Mac's corporate jets last year alone. That's



The fact that Haldeman signed this marvelous new contract just months before Marsh & McLennan put Putnam up for sale is, of course, pure coincidence.

What has he done for all this money? Since Haldeman took over in November 2003, Putnam's assets under management have collapsed from $263 billion to just $191 billion. That has taken it down the rankings of U.S. mutual fund companies by assets from fifth to 12th, according to data compiled by Financial Research Corp. (The figures exclude money market funds). And revenue has fallen by a third.

You can't say all of this is Haldeman's fault. As a Putnam spokesman notes, Ed took over a company in crisis. He stepped into the CEO's role when the market-timing scandal cost his predecessor, Larry Lasser, his job. Managers at Putnam, as at several other fund firms, had been caught unethically trading in and out of their own funds to take advantage of short-term price anomalies. The practice cost their long-term investors money.

It should also be noted that Haldeman's early steps were the right ones. He tackled a dysfunctional corporate culture that had been built up around Lasser's oversized ego. He kicked out all the managers who had been implicated in the scandal. And he threw himself into the task of shoring up Putnam's battered reputation among institutional money managers, winning back customers from CalPERS to Massachusetts Treasurer Tim Cahill, and stemming the massive outflow of institutional cash.

But then his reforms all seemed to ... slow ... down. For most of the last three years, retail clients have withdrawn their money at the rate of $1 billion a month. Not until this past summer did the outflows seem to stabilize. And financial advisers say the problem hasn't been the scandal, which quickly became old news, but investment performance.

Look at three of Putnam's biggest and most important funds during the Haldeman era.


Growth & Income has badly underperformed its Lipper peer group over the period.

(POVSX) - Get Putnam International Equity A Report

International Equity has lagged its own international benchmarks. And


Putnam Voyager has managed to produce less than half the profits of a simple stock market index fund.

Haldeman's allies within the company say he has worked hard, against plenty of internal resistance, to get Lasser's old go-go "growth" managers to invest with greater financial discipline. He's been pushing them to screen equities systematically for everything from cash-flow yields and an improving balance sheet to rising earning estimates and share-price trends. The fact that such rudimentary analyses still need to be adopted more widely at Putnam gives you an idea of the problems he inherited.

But even some of Haldeman's biggest supporters within the company will admit privately that he has taken far too long to change the culture and, where necessary, the personnel. "That's certainly a fair criticism," said one.

There has been good progress at some of the company's smaller funds. The problem: He has allowed the process to take much longer at some of the biggest funds. And those are the ones that Putnam uses to sell its full range of products to investment advisers. When they don't perform, the whole company suffers.

This is not why you get paid the big bucks.

Haldeman is a likable guy. But it is hard to see how his performance, to date, is worth $50 million.