The spectre of rewards for failure returned to haunt the City yesterday as it emerged that Gartmore chief executive Jeffrey Meyer will depart from the company with a £5m pay-off after its rescue by rival Henderson for £335m – £465m less than the company was worth when it floated on the London Stock Exchange.
A Gartmore spokeswoman said Mr Meyer would, "receive his contractual entitlements" after seeing through the deal. According to Gartmore's annual report they amount to twice his "target" bonus of £2.325m, plus twice his salary of £175,000.
The £5m total pay-off stands in clear violation of best corporate governance practice, which holds that executives of quoted companies should receive no more than a year's money in lieu of notice when they depart.
Gartmore floated at the end of 2009, with the shares initially priced 220p compared with yesterday's takeover price of 92.1p a share. Henderson is paying for the business entirely in shares. The golden handshake enjoyed by Mr Meyer is even worse because of the role fund managers are supposed to have in stewarding the companies in which they invest, thereby ensuring that they meet best corporate governance practice. The industry has faced sharp criticism over its role, or lack of role, in the financial crisis with City grandee Sir David Walker accusing fund management institutions such as Gartmore - and Henderson – of behaving like "absentee landlords" over the banks in which they invested in a review sponsored by the last government.
TUC General Secretary Brendan Barber said: "This is the ultimate reward for failure. Ordinary people will be shocked to learn that the financial guardians of our pensions are offering such high rewards for such poor performance. Fund managers are supposed to scrutinise executive pay, not mimic its worst excesses."
Gartmore effectively put itself up for sale at the in November after star fund manager Roger Guy said he planned to quit the company. That resulted in a string of major financial advisors and other investors either saying they would withdraw funds or putting the firm "on watch".
It followed a horrible 12 months in which the company had been rocked by a series of other high-profile departures and problems with City regulators. The troubles started in the spring when Guillaume Rambourg, who worked with Mr Guy on the company's flagship European Large Cap fund, was suspended in the wake of an internal inquiry and subsequent investigation into his conduct by the Financial Services Authority. A few months after Mr Rambourg's departure, Gervais Williams, who ran Gartmore's Growth Opportunities Fund, followed him out of the door.
Gartmore is the second "rescue" deal pulled off by Henderson, which earlier bought New Star, the fund management company set up by the founder of Jupiter Fund Management John Duffield. While most of Gartmore's remaining fund managers have agreed to join the newly enlarged Henderson, such deals are notoriously difficult to pull off, not least because fund managers are heavily reliant on the abilities and goodwill of staff.