EXPLANATION OF INCENTIVE COMPENSATION AWARDS

You will receive a one-time sign-on award comprised of:

a cash award in the amount of $1,000,000.00 (“Cash Award”), less applicable taxes and other required deductions, that will be included in your first paycheck.

a Legg Mason restricted stock award grant valued at $3,500,000.00 (“Restricted Stock Award”), subject to the vesting schedule set forth in Section 1(f) herein.

If within thirty-six (36) months of your date of hire, your employment is terminated by the Company, or by its successors or affiliates, for Cause (as defined herein), you will be responsible for repaying a pro-rated amount of the Cash Award, plus all collection costs (including attorneys’ fees) incurred in connection therewith. The pro-rated amount will be based on the number of months worked. Your signature below constitutes your acknowledgement of, and agreement with, these terms.

The expected date of the Restricted Stock Award grant is the first day of your employment at Legg Mason. The terms and conditions of the Restricted Stock Award will be in accordance with the Legg Mason, Inc. 1996 Equity Incentive Plan and other relevant plan documents.

The vesting schedule for the Restricted Stock Award will be:

April 30, 2015 - 50% of the Award will vest;

April 30, 2016 - 25% of the Award will vest; and

April 30, 2017 - 25% of the Award will vest.

As used herein, “Cause” is defined as termination of your employment by reason of any of the following: (i) a violation by you of, or an act taken by you or your failure to

For the performance year ending March 31, 2014, you will be eligible for an annual incentive award based on the portion of the fiscal year you are employed by the Company. Any incentive compensation will be awarded pursuant to the incentive and restricted stock or other deferred compensation program(s) in effect at the time of payment, and may consist of a cash bonus, or a combination of cash and shares of restricted stock or other deferred compensation. All compensation awards are subject to the approval of the Compensation Committee of the Legg Mason, Inc. Board of Directors. A general overview of incentive compensation awards is attached to this letter. The compensation package including deferred and future payments is dependent upon your continued employment at the time of payment unless State and Federal laws specifically provide otherwise.

In addition, for future performance cycles, you will have an annual incentive target of $2,400,000.00 less applicable taxes and other required deductions.  The amount of any actual incentive award is discretionary and contingent upon Legg Mason performance, the approval of the Legg Mason, Inc. Compensation Committee and, of course dependent upon your continued employment at the time of payment, as permitted by all State and Federal laws. Any incentive compensation will be awarded pursuant to the incentive and restricted stock or other deferred compensation program(s) in effect at the time of payment, and may consist of a cash bonus, or a combination of cash and shares of restricted stock or other deferred compensation. A general overview of incentive compensation awards is attached to this letter.

Legg Mason employees are paid on the 15^th and the last day of the month. If the 15^th or the last day of the month falls on a weekend day or a holiday, you will be paid on the last work day before the designated pay day.

You will be eligible for all Company benefits generally available to full-time regular employees and be subject to all policies and practices of the Company as articulated in the Legg Mason employee handbook (available electronically on the Company’s intranet site and updated from time to time, with or without notice, for which you are responsible for understanding), and other communications. One benefit includes Paid Time Off (PTO). It is important to note that there are cases where accrued but unused PTO is not paid at the time of separation. The full PTO policy is enclosed.

You have stated that you are subject to certain restrictive covenants with your current employer. You represent that your acceptance of this offer and performance of the duties of the position offered will not violate these covenants.

While you are employed by Legg Mason, its successors and affiliates, and for a twelve (12) month period following the termination of your employment for any reason, you agree that you will not directly or indirectly other than for the benefit of the Company or its Affiliates solicit the transfer of any business from any client of the Company or its affiliates. During this period, you further agree that you will not directly or indirectly encourage the termination or reduction of any business that the Company or its affiliates has with any such client. Your agreement not to solicit means that for twelve (12) months following your termination date, you will not initiate contact or communication of any kind for the purpose of inviting, encouraging or requesting any such client to (a) transfer an existing account from the Company or its affiliates to you or any third party, (b) surrender, redeem or terminate any product, service or relationship with the Company or its affiliates. You further agree that, following your termination of employment with the Company, you will not disparage the Company or its affiliates and any investment products of the Company and affiliates with any client or source of business. Additionally, while you are employed by Legg Mason, its successors and/or affiliates, and for a twelve (12) month period following the termination of your employment for any reason, you agree that you will not directly or indirectly solicit or encourage any employee of the Company or its affiliates to terminate his/her employment and become employed elsewhere. Your signature below constitutes your acknowledgement of, and agreement with, these terms.

It is important to note that due to regulatory considerations, Legg Mason monitors the personal trading activities of its employees to ensure that all such employees act in a manner consistent with the best interests of the clients of Legg Mason and its affiliates. As a Legg Mason employee, you will receive training during Orientation regarding the requirements applicable to you under Legg Mason Code of Ethics. In particular, one requirement of which you should be aware before accepting employment with Legg Mason is that, with few exceptions, any brokerage accounts through which you trade must be maintained with one of the following firms: Ameriprise Financial, Charles Schwab, E*Trade, Fidelity Investments, Janney Montgomery Scott, Merrill Lynch, Morgan Stanley Smith Barney, Robert W. Baird & Co., Scottrade, T. Rowe Price, TD Ameritrade, UBS, Wells Fargo, or directly held Legg Mason Funds and Legg Mason Partner Fund Accounts. These firms have established the required electronic trade feeds into the Legg Mason Compliance Department needed for monitoring purposes under the Legg Mason Code of Ethics.

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