US lawmakers confronted corporate executives on Friday on how they managed to take home hundreds of millions of dollars in compensation while their companies were taking a financial nosedive from the subprime mortgage crisis.
"It seems that CEOs hit the lottery when their companies collapse," House Oversight and Government Reform Committee Chairman Henry Waxman said at the opening of the hearing. "Any reasonable relation between their compensation and the interests of their shareholders appears to have broken down."
Appearing before the panel were Angelo Mozilo of Countrywide Financial Corp, the largest US mortgage lender; Stanley O'Neal, formerly of Merrill Lynch & Co; and Charles Prince, formerly of Citigroup Inc. All three companies have been major losers in the mortgage crisis.
Waxman said Mozilo received more than US$120 million in compensation and sales of Countrywide stock last year while that company recorded losses of US$1.6 billion. Merrill Lynch lost US$10 billion last year, but O'Neal got a US$161 million retirement package.
The House Government Reform Committee in December also looked at large, publicly traded companies that hire compensation consultants who receive millions of dollars from corporate executives whose compensation they were supposed to assess.
Republicans on the committee questioned the need for the hearing, saying it falls outside the panel's primary role of investigating waste, fraud and abuse in the federal government.
"The impact of corporate executive compensation is debatable," said Republican Tom Davis, the top Republican on the committee. "Fine, but that debate ... should not degenerate into a sanctimonious search for scapegoats."
According to the committee, Mozilo received US$250 million in compensation from Countrywide from 1998, when he became CEO, through the end of last year.
It said Countrywide announced a US$1.2 billion loss in the third quarter of last year and then lost another US$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 US$1.9 million salary, US$20 million in stock awards contingent upon performance and sold US$121 million in stock.
O'Neal received a retirement package of US$161 million when he left Merrill Lynch 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 US$131 million of that in unvested stock and options. The firm reported US$18 billion in writedowns related to subprime and other risky mortgages last year.
Similarly, Prince of Citigroup received a bonus of US$10.4 million for last year's performance and was allowed to retain almost US$28 million in unvested stock and stock options because Citigroup let him retire rather than terminating him for cause.
Mozilo, in his prepared remarks, told how he had started Countrywide in 1969, sitting in the kitchen of his small New York 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 last year and this year.
Mozilo also said he would give up some US$36.4 million in severance pay if Bank of America proceeds with plans to acquire Countrywide.
O'Neal disputed reports of his "so-called" severance package.
"I received no bonus for 2007, no severance pay, no `golden parachute.' The amount discussed in the press consisted mainly of deferred compensation, stock and options that I had earned during the years prior to 2007," he said.
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