CEO's Get Grilled On The Hill
Friday, March 07, 2008PAUL KANGAS: Three CEOs at the center of the mortgage market meltdown defended their compensation packages before a congressional panel today. Countrywide CEO Angelo Mozilo and the former CEOs of Citigroup and Merrill Lynch all said they deserved to profit, even as their companies lost billions of dollars. But as Darren Gersh reports, some members of Congress were not convinced.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Former Merrill Lynch CEO Stanley O'Neal (ph) was forced out last fall after the company wrote down $7.9 billion in sub-prime losses. Representative Henry Waxman, a leading congressional critic of executive pay practices, wanted to know why the board of directors didn't dock O'Neal's pay after he presided over a record $2.4 billion quarterly loss.
REP. HENRY WAXMAN, CHAIRMAN, OVERSIGHT & GOV'T. REFORM CMTE:. What was the rationale for letting Mr. O'Neal retire with $131 million in unvested stock instead of terminating him and recouping this money for the shareholders?
GERSH: John Finnegan, chair of Merrill's compensation committee, said O'Neal had taken a hit, losing his job and his bonus, but the company still had to honor its contract.
JOHN D. FINNEGAN, CHAIR, MANAGEMENT DEVELOPMENT & COMPENSATION COMMITTEE, MERRILL LYNCH: Mr. O'Neal has sufficient points in terms of age and years of service to leave the company and take those stock awards with him, unless we could terminate him for cause. The provisions related to cause covered misconduct; they did not cover unsatisfactory financial results.
GERSH: Waxman also took aim at a $2.5 billion stock buyback launched by Countrywide Financial, calling it a disaster for shareholders. He added it did not look good that CEO Angelo Mozilo began selling six million shares just after the company announced the program in 2006. Mozilo said he was diversifying his investments as he prepared to retire. As Countrywide's founder and a major shareholder, Mozilo argued as the company did well, he did well.
ANGELO MOZILO, FOUNDER AND CEO, COUNTRYWIDE FINANCIAL: The investors, who are mostly institutions, made the decision whether to buy or sell the stock based upon the information we provided. I never asked anybody to buy the stock, nor did I ask anybody to sell the stock.
GERSH: Earlier in the hearing, shareholder activist Nell Minow pointed out the real problem was not the size of these pay packages, but the returns investors got from them.
NELL MINOW, EDITOR, THE CORPORATE LIBRARY: What is the return on investment of the pay? The return on investment for these pay packages is less than a piggy bank.
GERSH: How much less? Over the last 12 months, the stocks of Citigroup, Merrill and Countrywide are down between 50 and 90 percent. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
