Mellon Bank Corp.'s recent deal to buy Founders Asset Management demonstrates how tricky it can be to negotiate compensation packages with the principals of a money management firm.

This month, Pittsburgh-based Mellon agreed to buy Founders, a Denver- based fund company, for about $275 million. According to well-placed sources, some senior managers at Founders hired independent counsel to negotiate their personal interests with Mellon during the acquisition talks.

None of the Founders managers struck individual deals with Mellon, sources said. But their negotiations illustrate how portfolio managers-even those without equity in their firms-are acting to ensure that they are well-compensated when the firms agree to a buyout.

Obviously, people hired to protect a firm's interests may not be responsible for those of individuals at the firm, said Bradford I. Hearsh, an investment banker with PaineWebber Inc. It therefore makes sense for the individuals to protect themselves, he said.

For banks seeking to make purchases in the mutual fund world, negotiations with portfolio managers are just one of many cultural issues to be resolved. Executives at fund companies bought by banks sometimes bristle at the more conservative ways of the commercial banking world.

"The real challenge is maintaining the entrepreneurial culture when the bank takes over," said Burton J. Greenwald, a mutual fund analyst based in Philadelphia.

Edmund H. Nicklin, a portfolio manager with the Evergreen Fund Group for 10 years, recently left that shop to pursue a more entrepreneurial approach to equity management at Westport Asset Management Inc., a Connecticut investment boutique. Evergreen was bought by First Union Corp., Charlotte, N.C., in 1994.

"Back then there was a significant difference between a commercial bank culture and the culture of the Wall Street partnership," Mr. Nicklin said.

Nowadays many portfolio managers hammer out lucrative employee contracts for three to seven years with banks that buy their firms. Some, however, find that such golden handcuffs chafe their wrists.

"You're not at liberty to leave tomorrow and go to another attractive opportunity,"Mr. Nicklin said. "Likewise, you cannot be summarily fired tomorrow, either."

After First Union bought Evergreen, Mr. Nicklin continued to manage the Evergreen Growth and Income fund for three years, without an employee contract.

Mr. Nicklin said banks are beginning to appreciate portfolio manager talent more than they had before. But one asset management executive who asked not to be named said cultural differences persist.

"Bank ownership of mutual funds has not necessarily been a great thing," he said.

Issues like "freedom of operations, investment policies, compensation and spending on the business" can all cause disagreements, he said. In the mutual fund business, compensation is often double that of executives at commercial banks, he added.

One particular problem emerges when banks put their newly acquired fund families under existing fund subsidiaries, the asset management executive said.

This year First Union eliminated the Keystone Funds name when it rolled the newly acquired Keystone into its Evergreen fund complex. The move did not sit well with some Keystone employees.

"I think Keystone has got to be disappointed right now that their name has been rolled into Evergreen," Mr. Greenwald said. First Union executives declined to comment.

In the case of Mellon and Founders, the bank already owns a fund company, Dreyfus Corp. Founders will be a sister company of Dreyfus'.

Change is inevitable after any full acquisition, Mr. Greenwald said. "Anybody who gets acquired at the kind of multiples being paid today, and doesn't feel that the buyer is going to make some changes no matter what the commitments are, is living in fairyland," he observed.

Perhaps the only way to circumvent such problems is to form a partnership, rather than be fully acquired, said Paul D. Tobias, chief operating officer at Munder Capital Management, Birmingham, Mich. Mr. Tobias' firm has had a partnership with Comerica Inc. since 1995, when the Detroit-based bank bought less than 50% of it.

"Both the bank and ourselves felt that the independence and the employees having ownership was very, very important," Mr. Tobias said. In fact, the experience has been so positive for Munder that it is looking at forming partnerships with other banks, he said.

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