Countrywide Directors' Dilemma

Countrywide's Response

Countrywide said directors review their compensation annually with the help of an independent pay consultant and look at board pay at companies deemed to be similar.

Countrywide rewards board members so well that "at some point, you cross the line between paying for services provided and a very lucrative thing where board members aren't going to challenge management," says Mark Reilly, a partner at 3C, Compensation Consulting Consortium. "I do think they have crossed the line."

Harley Snyder, Countrywide's 75-year-old lead director, said that the board "has been actively engaged in every significant issue facing the company" and that Countrywide has a long history of success. The board has held 31 meetings this year, not including committee sessions, he said. Mr. Snyder said the directors' shareholdings in the company keep it aligned with the interests of other shareholders.

Is Big Pay Bad?

Generous pay for directors isn't necessarily bad, says Paul Hodgson, senior research associate at Corporate Library, a corporate-governance research firm. "Generally, investors would rather see a well-paid, attentive director," he says. But Corporate Library has long argued that Countrywide's board has done a poor job of designing Mr. Mozilo's pay package, guaranteeing him too much compensation regardless of performance.

Mr. Mozilo's compensation totaled about $120 million in 2006, including gains from the exercise of stock options. That was the highest among the 16 financial-services companies whose shares are included in the S&P 500-stock index, according to Corporate Library.

Mr. Mozilo has long argued that the excellent performance of the company's share price, until this year, justified the company's compensation policies.

Pearl Meyer & Partners, a New York compensation consulting firm, was the independent adviser to the board's compensation committee during the board's 2004 contract-renewal talks with Mr. Mozilo. The consultants urged directors to slim his hefty contract, partly by revamping his annual bonus formula, one person familiar with those talks says. Under that formula, the CEO collected the same bonus as the prior year even when earnings-per-share growth remained flat. Directors kept the formula and decided to replace the consultancy, this person adds. In late 2006, Countrywide reached a new contract with Mr. Mozilo that it said would reduce his base salary, performance-based bonus and equity-incentive pay this year by between 48% and 62%.

Directors' Sales

Several Countrywide directors have sold large amounts of stock over the past couple of years. Jeffrey Cunningham sold 20,000 shares in early February for a total of $898,000, or about $45 each. (The stock Friday closed at $14.35 in New York Stock Exchange composite trading.)

Mr. Snyder last year sold 170,000 shares for a total of about $6.5 million.

Oscar Robertson sold a total of 72,000 shares in November 2006 and July 2007, for proceeds of $2.7 million. Robert S. Brown, a lawyer for Mr. Robertson, says he recommended the share sales as a way to avoid too much concentration on Countrywide stock in Mr. Robertson's portfolio.

Robert Donato had proceeds of $2.1 million for sales of 54,142 shares in October and December 2006. Three other outside directors -- Martin Melone, Robert Parry and Keith Russell -- haven't sold any shares in the past year.

Countrywide says that its guidelines call for directors to own at least 10,000 common shares in the company and that all of them exceeded the minimum as of April.

So far this year, three directors have resigned: Michael Dougherty, a Minneapolis investment banker who was the lead director; Kathleen Brown, an executive at Goldman Sachs, and Henry Cisneros, a former U.S. Secretary of Housing and Urban Development.

Of the remaining seven outside directors, only one -- Mr. Cunningham -- is under 60 years old. None of the outside directors has headed a major, publicly owned company, though one, Mr. Parry, was CEO of the Federal Reserve Bank of San Francisco. Countrywide has hired an executive-search firm, Heidrick & Struggles International Inc., to find two new directors, and a company official says Countrywide hopes to attract at least one director who has been CEO or chief operating officer of a large public company.

Board Veterans

One concern about the board, says Mr. Hodgson of Corporate Library, is that two of the directors, Mr. Snyder and Mr. Donato, have both been members since the early 1990s.

"If you have been to board meetings with the CEO for 14, 15, 16 years, then your ability to act entirely independently is becoming compromised," Mr. Hodgson says. "It's too cozy a relationship."

A Countrywide official says long service on the board can provide "continuity in board leadership" and perspective on how the company dealt with past business cycles.

Write to James R. Hagerty at bob.hagerty@wsj.com¹ and Joann S. Lublin at joann.lublin@wsj.com²