Congressional lawmakers Friday, three prominent financial executives
defended the multimillion-dollar pay packages they received even as
their companies were brought to their knees by the spreading credit
The executives, Charles O. Prince III, the former chief executive of Citigroup; E. Stanley O'Neal, the former chief executive of Merrill Lynch; and Angelo Mozilo, the founder and chief executive of Countrywide Financial, dismissed suggestions that they had reaped lavish compensation while fostering the spread of risky subprime lending.
The tone was captured in a testy exchange between Elijah E. Cummings, Democrat of Maryland, and Mr. Mozilo.
Cummings asked why the executive had urged Countrywide to pay taxes on
his wife's travel on the company's private jet. "I have some
constituents who are losing their houses; you are upset about your
wife," Mr. Cummings said.
Mr. Mozilo responded, "It sounds out
of whack today because it is out of whack, but in 2006, the company was
doing great." Mr. Mozilo said he would not have made such a request
today and apologized for complaining about his compensation in an
internal e-mail message. "It was an emotional time," he said. "I
apologize for that memo."
The questioning mainly fell along
party lines, with Republicans apologizing for bringing distinguished
corporate officials before the panel, and Democrats questioning
everything from the income gap in America to the particular bonuses,
stock sales and compensation the executives were awarded.
O'Neal and Mr. Prince lost their jobs last fall after the collapse of
the subprime market but left the companies with sizable pay packages.
Mr. Mozilo's once highflying company is now being acquired by Bank of America.
with the three executives, the chairmen of the compensation committees
at all three companies also testified, along with a panel of academics,
corporate governance advocates and state and municipal officials.
Republicans on the committee fought the very premise of the hearing.
"This is a hearing in search of bad guys," said Darrell E. Issa,
Republican of California. "Are there bad guys in front of me? I'm not
Thomas M. Davis III
of Virginia, the ranking minority member, said that even if the
executives had been paid nothing, there would still be a housing
crisis. And Mr. Issa emphasized that all of the executives were
primarily rewarded with stock, meaning they have suffered alongside
shareholders as the value of financial stocks has plummeted.
But the Democrats homed in on why executives who oversaw such vast losses were so well compensated.
"There seem to be two economic realities operating in our country today," Representative Henry A. Waxman,
Democrat of California, the chairman of the House Committee on
Oversight and Investigations, said as the hearing opened. "Most
Americans live in a world where economic security is precarious and
there are real economic consequences for failure. But our nation's top
executives seem to live by a different set of rules."
question before the committee, he said, was this: "When companies fail
to perform, should they give millions of dollars to their senior
John D. Finnegan, chairman of Merrill's
compensation committee, was asked why Mr. O'Neal was permitted to
retire rather than being forced out for cause. If Mr. O'Neal had been
fired, he would have forfeited the $131 million in stock and options he
had earned in prior years.
Mr. Finnegan said cause involved
unethical behavior, not bad judgment. Mr. Waxman retorted: "To say you
don't have the tools, it means that even if someone performs badly
there are no consequences."
Executive compensation has emerged
as a hot topic in Washington in recent years. Surveys show that
Americans, regardless of their income or political leanings,
overwhelmingly believe that business leaders are overpaid. The hearing
shed some light on how Wall Street's compensation philosophy may have
contributed to the mortgage boom. Corporate boards and compensation
committees agreed to lucrative bonus plans that gave executives strong
incentives to take big risks.
Mr. Mozilo's pay drew the most
scrutiny from the House committee. He has taken home more than $410
million since becoming chief executive in 1999, including several stock
sales made under an automatic plan while the company was buying back
Federal securities regulators have been scrutinizing
those trades. And in a report released Thursday, Congressional
investigators found that the use of a flawed peer group and easy bonus
targets helped inflate his pay. He also was entitled to a $37.5 million
severance package, though he forfeited that in January, after Congress
requested that he testify.
Mr. O'Neal and Mr. Prince each landed big payouts when they resigned.
O'Neal retained more than $161 million after he was ousted in October
on top of the $70 million he took home during his four-year tenure. The
bulk of the exit pay was linked to previously earned benefits and stock
since his departure was deemed a retirement; he did not receive any
severance pay. Merrill Lynch, meanwhile, has announced write-offs
totaling more than $10.3 billion, and its stock price has fallen
Mr. Prince collected $110 million while presiding over
the evaporation of roughly $64 billion in market value. He left
Citigroup in November with an exit package worth $68 million, including
$29.5 million in accumulated stock, a $1.7 million pension, an office
and assistant, and a car and a driver. Citigroup's board also awarded
him a cash bonus for 2007 worth about $10 million, largely based on his
performance in 2006 when the bank's results were better. Citigroup has
announced write-offs worth roughly $20 billion and its share has
plummeted over 60 percent from last year's high.
prepared testimony, Mr. Prince focused on his humble beginnings, as the
first member of his family to go to college, and the plaudits that
Citigroup received for improving corporate governance on his watch.
his resignation, he said, "some have raised questions about my
compensation, and much of the information reported in the media is
incomplete or inaccurate."
Mr. O'Neal, too, said reports about
his compensation package were inaccurate. "The reality is that I
received no severance package," he said in prepared testimony.
Mr. Mozilo, noting that "our stock price appreciated over 23,000
percent" from 1982 to 2007, said he received performance-based bonuses
approved by shareholders and exercised options as he prepared for
retirement. "In short, as our company did well, I did well," he said.
Waxman ended the hearing by complimenting the witnesses on their
extraordinary individual tales and for their service to their firms.
But he added, "It seems like everyone is hurting except for you."
Eric Dash contributed reporting from New York.