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Manuel Balce Ceneta/Associated Press Henry Waxman, who will lead the hearing on compensation, has held hearings on pay before and is expected to give close attention to the use of compensation consultants. |
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Chief executives of three financial companies who received outsize pay packages even as their shareholders lost billions in the spreading credit crisis are scheduled to testify before Congress on Friday, and if a memorandum released ahead of the hearing is any guide, they can expect quite a grilling.
After combing through thousands of documents, members of the House Oversight and Government Reform Committee, led by Henry A. Waxman, Democrat of California, will pose pay questions to Angelo Mozilo, the head of Countrywide Financial, E. Stanley O’Neal, the former chairman of Merrill Lynch, and Charles O. Prince III, the former chief executive of Citigroup.
Members of the companies’ boards will also testify about practices they used to devise the executives’ pay and exit packages.
Documents uncovered by the committee’s investigation included minutes of board meetings and internal e-mail messages discussing pay practices. Among them were documents that showed Countrywide seeking out a second opinion after a compensation consultant hired by its board said Mr. Mozilo’s compensation was inflated.
The second consultant, John England at Towers Perrin, appeared to serve as “Mr. Mozilo’s personal adviser, with the goal of achieving ‘maximum opportunity’ for him,” the committee’s memo said. Towers Perrin created a more lucrative package for Mr. Mozilo than the previous consultant had recommended, committee documents show.
Countrywide declined to comment on the memo.
Joseph P. Conway, a spokesman for Towers Perrin said, in a statement: “Countrywide Financial engaged Towers Perrin and Towers Perrin neither represented nor acted as a personal advocate for Mr. Mozilo.” Mr. Conway added that Countrywide’s board made the final determination on Mr. Mozilo’s pay.
Mr. Waxman has held hearings on executive pay before. Last December the committee heard testimony about the potential for conflicts of interest among compensation consultants that are hired by company boards even as they receive lucrative contracts from the executives whose pay they help design.
Mr. Waxman convened the hearing on financial company pay after mortgage-related losses began ballooning last year. In the final six months of 2007, the committee’s memo said, the companies run by Mr. Mozilo, Mr. O’Neal and Mr. Prince lost more than $20 billion as a result of investments in subprime and other risky mortgages. Their stocks also plummeted.
Nevertheless, the top executives at Merrill Lynch, Citigroup and Countrywide received lush pay and retirement packages. Mr. Mozilo received about $120 million in compensation and proceeds from sales of Countrywide in 2007, while Mr. O’Neal walked away from Merrill Lynch with a $161 million retirement package.
Mr. Prince’s receipt of a $10 million bonus, $28 million in unvested stock and options, and $1.5 million in annual perquisites upon his departure from Citigroup is also an indication that the alignment between pay and performance bas broken down, the committee’s memo noted.
“The way these severance packages are constructed, the executive can’t lose,” said James Reda, an independent compensation consultant in New York City. “That has to change. There has to be more risk involved.”
Countrywide’s compensation dominated the discussion in the memo, which was made public by the committee on Thursday. One e-mail message cited by the investigators was from Mr. Mozilo to his Towers Perrin consultant, Mr. England.
“Boards have been placed under enormous pressure by the left-wing antibusiness press and the envious leaders of unions and other so-called ‘C.E.O. Comp Watchers,’ ” Mr. Mozilo complained, “and therefore boards are being forced to protect themselves irrespective of the potential negative long-term impact on public companies.”
Countrywide Financial, which Mr. Mozilo founded, thrived during the easy lending real estate boom in recent years. But as delinquencies and defaults soared, Countrywide’s shares have crashed; it agreed to sell itself to Bank of America in January.
Later that month,
after being invited to testify before the oversight committee, Mr.
Mozilo agreed to give up $37.5 million in severance pay, consulting fees
and perquisites such as use of the company jet. Mr. Mozilo said his
decision was “in the best interests of Countrywide’s employees,
customers and shareholders.” He is expected to retire when Countrywide
is absorbed by Bank of America.