BOSTON - Putnam Investments has asked employees to sign a dramatically strengthened non-solicitation agreement that includes hefty monetary penalties, sources say.
The agreement, distributed shortly before bonuses were issued, was accompanied by a memo from Chief Executive Officer Lawrence Lasser that sources say threatened reduced bonuses if the document wasn't signed.
Putnam officials won't confirm any details about the new agreement, but employees who were asked to sign it said it is much stricter than the industry-standard agreement they signed several years ago. One person said penalties of $500,000 or $250,000 were included, to be assessed depending on the violation.
Sources also said the new agreement mentions the repayment of a portion of compensation bonuses in the event of certain violations.
Putnam spokeswoman Janet Tosi said: "Things may have been reworded, but fundamentally, the agreement hasn't changed."
The addition of monetary penalties to such agreements is far from common for the industry at this time, said Michael Martinolich, president of Tennyson Advisors, New York, an executive recruiting firm specializing in investment management.
"Putnam is doing what a lot of firms would like to do: restrict and control the turnover of talent, but this may not be the appropriate tool for that. It has yet to be tested in the courts, and potential new talent may find it too restrictive. But Putnam's goal is understandable," Mr. Martinolich said.
One former Putnam employee called this a "tender time"for Putnam. The company sued three executives in February after the three moved to Liberty Financial Cos. and its subsidiary, Colonial Management Associates Inc., both of Boston. Among the issues is alleged violation of non-solicitation agreements with Putnam. A court hearing is scheduled for Aug. 13.
A few months ago, Putnam attempted to get a preliminary injunction against two of the executives named in the Liberty lawsuit, James Tambone and Louis Tasiopoulos, as well as a third former Putnam employee, Kevin O'Shea, who also left the firm to join Colonial.
The injunction could have kept the men from starting their new jobs, but it was denied by Middlesex Superior Court Judge James McHugh.
(Mr. McHugh also recently heard the case of Wellington Management Co. L.L.P. against Arnold Schneider, the former Wellington partner that started his own firm. Several significant Wellington accounts followed Mr. Schneider. Mr. Schneider countersued, and the cases were heard together. Mr. McHugh's decision is expected any day.)
The focus of most non-solicitation agreements has been to prevent money management professionals from leaving firms and taking clients or co-workers with them.
"We value our relationships with clients and shareholders and believe that this helps us with the continuity of those teams to provide services and investment management to our clients and shareholders," Ms. Tosi said.
The Putnam agreement calls for violations of the agreement to go before an arbitration panel rather than a civil court, which allows the parties to save attorney fees and avoid press coverage.
Ms. Tosi said the Putnam agreement also contains a separate clause regarding non-disparagement.
Industry watchers say non-disparagement restrictions are more commonly a part of severance arrangements, not generally front-loaded into an employment agreement stacked with punitive damage requirements.
