CEOs defend their high pay on Hill
By Jim Abrams, Associated Press Writer
Saturday, March 8, 2008
WASHINGTON—Three corporate executives called in for a shaming by
Democratic lawmakers Friday defended raking in hundreds of
millions of dollars despite contributing to the subprime
mortgage crisis that has their companies reeling from losses and
the nation on the edge of recession. "There's a complete
disconnect with reality," said Rep. Henry Waxman, D-Calif.,
chairman of the House Oversight and Government Reform Committee.
But the CEOs testifying before the committee, Angelo Mozilo of
Countrywide Financial Corp.; Stanley O'Neal, formerly of Merrill
Lynch & Co; and Charles Prince, formerly of Citigroup Inc.;
defended their pay as appropriate.
"As our company did well, I did well," said Mozilo, founder of
Countrywide, the nation's largest mortgage lender and a key
player in the subprime problem. "But when our company did
not do well, as in 2007, my direct compensation and the value of
my holdings declined materially, which is as it should be."
Republicans on the committee generally agreed. "This is a
hearing in search of bad guys," said Rep. Darrell Issa, R-Calif.
"All of you complied with the transparency rules and the best
The hearing was the second held by Waxman on the issue of
executive pay, which Forbes magazine said averaged $15.2 million
for the CEOs in the largest 500 U.S. companies
in 2006, an increase of 38 percent in one year.
He questioned how all three CEOs could profit handsomely at a
time when their companies were losing billions of dollars and
stock values were plunging.
"You're in the middle of an enormous debacle," Waxman said.
"It seems like everyone is hurting except for you."
"It's only in the wacky world of CEOs where you get severance
for failing," said Nell Minow, editor of The Corporate Library
and one of the economic experts testifying.
Committee figures showed that Countrywide suffered a $1.2
billion loss in the third quarter of 2007 and then lost another
$422 million in the fourth quarter. By the end of the
year, the company's stock had fallen 80 percent from its
five-year peak in February. During the same period, Mozilo
received a $1.9 million salary, $20 million in stock awards
contingent upon performance and sold $121 million in stock.
Some of those stock sales occurred at the same time the company
was borrowing $1.5 billion to repurchase its shares.
Rep. Elijah Cummings, D-Md., questioned Mozilo's
insistence—documented in a November 2006 e-mail—that he be
reimbursed for taxes owed when his wife traveled on
Countrywide's corporate jet.
Mozilo related how he had started Countrywide in 1969, sitting
in the kitchen of his small
apartment. He said his direct compensation and the value
of his stock holdings declined substantially last year and he
had not received, and will not receive, a bonus for 2007 and
Mozilo also said he would give up some $37 million in severance
pay if Bank of America proceeds with plans to acquire
O'Neal received a retirement package of $161 million when he was
pushed out as Merrill Lynch CEO last October. But the
committee said that if the company had terminated O'Neal for
cause rather than letting him retire, he would not have been
entitled to $131 million of that in unvested stock and options.
During 2007, the firm reported $18 billion in writedowns related
to subprime and other risky mortgages.
O'Neal countered that he had received no bonus in 2007 and no
He was defended by John Finnegan, chairman of Merrill Lynch's
compensation committee. "All of the $161 million related
to prior-period performance and all were amounts to which Mr.
O'Neal was entitled as a retirement-eligible employee."
The lawmakers also asked why Citigroup, which saw its stock fall
48 percent at the end of 2007 compared with a year earlier,
would award Prince a cash bonus worth $10.4 million after he
stepped down as CEO last November. He also received $28
million in unvested stock and options and $1.5 million in annual
perquisites upon his departure.
"I'm proud of my accomplishments," Prince said, speaking of his
contributions over almost three decades to Citigroup's growth
and the company's efforts to assist homeowners facing
Rep. Tom Davis of Virginia, top Republican on the committee,
noted that Mozilo's total compensation package in 2007 was about
$22 million, half that of 2006, while Prince also saw his
compensation halved in 2007 to about $12 million. Linking
executive pay to the subprime crisis "only seems to muddle the
issue further," he said.
Several of the executives did acknowledge public resentment over
the fact that large company CEOs now receive about 600 times
what the average worker earns, compared to about 40 times in
The question, said Richard Parsons, chairman of Citigroup's
personnel and compensation committee, is "how do we remain
competitive without contributing to something that could be
tearing at the fabric of society."