Jimmy Levin's rise to the top of Sculptor Capital Management Inc. was accompanied by eye-popping pay packages. For one director, the sums became too much.

J. Morgan Rutman quit the hedge fund firm's board, decrying governance failures at Dan Och's former company, which include what he said could be an annual payout of almost $200 million to Levin. He also claimed that he was frozen out of the compensation process, suggesting it was because he opposed Levin's package.

But Rutman wasn't a typical board member: he was the sole representative chosen by Och, who is still Sculptor's largest shareholder. The billionaire, who stepped away in 2019, passed over his former protege Levin when he left, instead handing his company to an outsider.

Och now runs his own family office, Willoughby Capital. Rutman, who's president of Willoughby, joined Sculptor's board in 2019 and served on the compensation committee.

A representative for Sculptor, formerly known as Och-Ziff, declined to comment, and a Willoughby representative couldn't be reached for comment.

The dispute comes as Levin appears to be slowly turning around Sculptor, which for years suffered outflows in the wake of a bribery investigation. Withdrawals from its main hedge fund were less than $100 million for the first time in more than five years during the most recent quarter. The company's stock price rose 40% in 2021, though it's fallen about 12% this year. Assets were $37.9 billion on Feb. 1.

In an interview with Bloomberg in July, Levin said his goal is to "grind out a slow, steady, solid return over an extended period of time."

Rutman said in his Feb. 2 letter, which was revealed in a filing late Thursday, that Levin's award was "staggering." He claimed it was given without sufficient consideration to whether it was in line with Levin's performance and comparable to the pay of other industry CEOs.

The package would cause shareholders dilution at a level that's "exceedingly rare among publicly-traded companies," Rutman said.

Sculptor said in the filing that Rutman's letter is "filled with significant factual inaccuracies, material omissions and baseless assertions that present a misleading view of board governance."

Rutman selectively quoted from the report of the independent compensation consultant, Sculptor said, including omitting the conclusion that the pay proposals were reasonable considering the "unique nature of the company's ongoing transformation." The compensation committee held dozens of meetings over four months, ending with all directors but Rutman agreeing on pay, it wrote.

Och was a longtime mentor to Levin, hiring him in 2006 as a distressed analyst. Levin thrived in the wake of the financial crisis, scooping up structured credit assets tied to the U.S. housing market and in 2013 received $119 million. He was given a 10-year pay deal in 2014 that was renegotiated into a better agreement in 2017, Rutman said in his letter.

That year, Och surprised Wall Street and many in the firm when he elevated Levin, by then the star of the firm's credit business, to co-chief investment officer and gave him an incentive package worth $280 million. He also positioned the younger man to take over as CEO.

Despite the riches being handed out, the firm was in turmoil. Assets, which had reached almost $50 billion in 2015, were declining and the stock was sinking after an Och-Ziff unit pleaded guilty to a conspiracy charge as part of a settlement of the government's long-running probe into bribes paid to gain lucrative business in Africa.

Levin's elevation was seen as a way to reverse the position.

Yet just months after anointing Levin as his heir apparent, Och sent a letter to clients saying Levin would not be getting the top job and instead he would seek an external successor. In January 2018, the firm said Robert Shafir, the former chairman of the Americas at Credit Suisse Group AG, would take the role.

Levin was given another renegotiated pay package and the board voted to make Levin CEO in 2020. He took over from Shafir the next year, despite concerns Rutman said he voiced over his pay, and the repeated decisions to raise it.

Levin will have 20.7% of outstanding shares in Sculptor, Rutman said, a ratio exceeding that of the founders of "significantly larger" firms such as Apollo Global Management Inc., Blackstone Inc. and KKR & Co.

"Of course, Mr. Levin is not a founder of Sculptor and his significant equity stake is the result of compensation awards, not his creation of the firm," Rutman said in the filing.

Hema Parmar and Annie Massa report for Bloomberg News.

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