Glass, Lewis & Co., which provides guidance on proxy proposals, gave Legg a "D" grade in pay for performance, saying the Baltimore asset manager's compensation package is out of line with its results.
"In light of the company's track record of overpaying its executives and failing to promote a long-term focus among [its top paid executives], we believe shareholders should vote against this proposal to signal their dissatisfaction with the company's executive pay practices," the San Francisco firm wrote in its report.
Legg defended its compensation practices, saying in a statement Monday that Fetting's incentive pay is "justified by, and in line with our improved results during the fiscal year and is supported by comparisons of our compensation to that of our competitors."
The company cited improvements in net income, earnings and operating margin, and said total stockholder return during the fiscal year was nearly 27 percent, second among nine publicly traded asset managers.
Glass, Lewis also is recommending that Legg shareholders withhold their votes to re-elect director Harold L. Adams because he was a member of the company's compensation committee during the past two fiscal years, when the company was "deficient in linking pay with performance."
Adams declined to comment Monday.
Another shareholder advisory group, Institutional Shareholder Services in Rockville, is recommending that Legg investors vote in favor of the company's executive pay packages.
Legg is scheduled to announce the results of its "say on pay" vote at its annual meeting on July 26.
In a year when shareholders at most publicly traded companies in the United States are getting their first chance to weigh in on executive compensation, most are voting in favor of pay packages.
Compensation plans at Under Armour, McCormick & Co. and T. Rowe Price all have won investor support.
The pay package approved for executives at Baltimore's Constellation Energy Group failed to win support. ISS and Glass, Lewis both recommended shareholders vote against the plan.
While the so-called say on pay vote is not binding, analyst Jon Weinstein says companies are taking them seriously.
Weinstein, a partner at the Philadelphia consulting firm Pay Governance, said the two shareholder guidance firms are gaining influence in the process.
"I'm finding that companies are paying attention to what these organizations are saying much more and are taking very seriously their comments and criticisms," Weinstein said. He said ISS in particular is developing clout.
Fetting's total compensation rose 28 percent in a year when the company's profit increased nearly as much. Net income for the fiscal year that ended March 31 was $253.9 million, up 24 percent from the previous year.
Fetting's pay was boosted by an incentive-based cash bonus of $2.9 million, up from $950,000 the previous year. Stock awards and options granted to Fetting during the past fiscal year were valued at almost $1.9 million and $625,000, respectively.
Glass, Lewis said Legg performed worse than its peers but paid more. It's the third year in a row that the proxy firm gave the asset manager a "D" in pay for performance.
Glass, Lewis also took issue with the structure and disclosure of Legg's compensation practices, including what the firm characterized as an "excessive executive focus on short-term performance."
The proxy firm also noted that Legg did not provide a "clear description" of performance goals under its short-term incentive plan.
"We believe clearly defined performance targets are essential for shareholders to fully understand and evaluate the company's procedures for quantifying performance into payouts for its executives," Glass, Lewis said.
Legg has weathered criticism over its executive pay in recent years. In 2009, ISS and Glass, Lewis recommended that shareholders withhold votes for three directors who sit on the compensation committee.
The committee had awarded bonuses to top executives even though the money manager reported a net loss. Legg investors withheld about 40 percent of the vote for their re-election. But the three directors garnered enough votes to retain their seats on the board.