Two years after leaving Fidelity Investments to run Putnam Investments, Bob Reynolds isn’t sitting on his laurels.

“Leaving Fidelity was a very difficult decision,” he told Don Phillips at a Morningstar Investment Conference general session on Friday, June 24, in Chicago. “I spent 24 years there, and I knew I wanted to do something different–a challenge. I love this business, and knew that if you could execute, you could create something special.”

After getting much press and various awards over these past two years, Reynolds said he’s not finished. “We as a company know that if you’re going to do something great in this business, you have to do it over time,” he told attendees at the 22d annual conference.

Reynolds said he knew that he should highlight Putnam’s expertise in fixed income and global asset allocation when he moved to the Boston-based firm, and that to succeed you had to “have a presence in the 401(k) program and a worldwide reach.”

When asked by Phillips why having a strong 401(K) program was important, Reynolds was blunt: “Because it is America’s retirement system, and it will get even bigger from here.”

Reynolds famously changed the compensation model for his fund managers and analysts, with bonuses being awarded based on the manager’s ability to put his or her fund in the top quartile over a rolling three-year period, since “what clients are looking for is top-quartile performance.” If accomplished, the manager is eligible for a bonus that Reynolds said was in the top quartile of bonuses throughout the industry: “If you perform in the top quartile, you could get 150% of that number, but if you were in the second quartile, you got 50% of that number. Below that, you got nothing.”

“You tell me how someone’s getting paid,” he said, “and I’ll tell you how people are going to behave.”

Beyond changing the compensation scheme, Reynolds also moved to change the culture at Putnam. “In Boston,” he recalled, many people dressed casually at work, including at Putnam, “but there’s nothing casual about managing other people’s money.” Now, he says, “when people see us well dressed, they know we are from Putnam.”

As for what’s next, Reynolds said that fixing the retirement system “will be on the front burner in 2011.” Surveys, he said, showed that Americans want to fix Social Security, but he pointed out that “401(k)s now cover half of working America; we have to extend them to the rest of Americans.” He suggested that a National Insurance Charter, being discussed as part of financial services regulatory reform, “would allow an annuity to have an FDIC-like insurance paid for by the industry.” One other initiative that “we’re working on with Congress is that once retirees hit age 78, they start drawing down tax free.”

As for the financial reform bill, Reynolds got a laugh from the audience when he said that “anyone who would sit here and say we don’t need financial reform needs to have some work done on them.” He worries, however, that the thrust has been to “punish those responsible” while “the real problems haven’t been addressed.” One area that also concerns him is derivatives: “to lump all derivatives in as if they’re all bad is a huge mistake.”

Read Investment Advisor Washington Bureau Chief Melanie Waddell’s exclusive interview with Bob Reynolds on target date funds from the archives of Investment Advisor.