The excellent business site Footnoted, run by Michelle Leder, makes a nice catch today on executive compensation.

Leder’s m.o. is digging through securities filings to come up with the good parts, and she gets that here. She finds Legg Mason twisting this way and that to justify paying its CEO a bonus—even though the company posted a whopping loss for the year:

Equally interesting is that while the board set Fetting’s bonus at 21% of the bonus pool in June 2008, Legg Mason’s loss of $1.9 billion last year meant that there was no bonus pool. But that didn’t stop the bonus because as the comp committee writes in the proxy the net loss was due to just two items and without those two items, the company “would have had net income, and the plan would have produced a total bonus pool large enough to accommodate the annual incentive awards made.”

Yeah, it was just two little things that caused them to lose two billion dollars. Never mind those.

Twenty-one percent of nothing would have sounded about right to me. Instead, he got $3.1 million.

Leder also sarcastically notes that Legg Mason’s report also justified the bonus by calling the downturn “one of the worst financial crises of the last 100 years,” something no other company has done in its filings.

And on and on.