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O’Neal, Prince and Mozilo questioned about pay

By Carol Eisenberg

March 7, 2008 at 4:14pm

Three Wall Street executives were held up by Congressional Democrats today as poster boys for executive compensation run amok.

Two of the three - E. Stanley O’Neal, chairman and chief executive of Merrill Lynch, and Charles O. Prince III, head of Citigroup - lost their jobs last fall after the collapse of the subprime mortgage market which they had once ridden to huge profits.

The third, Angelo R. Mozilo, founder and chief executive of Countrywide Financial, presided over the near-collapse of a company now being acquired by Bank of America.

But despite the ruinous losses suffered by their companies, the CEOs walked away with multi-million-dollar rewards. O’Neal left Merrill Lynch with a $161 million retirement package, according to a congressional report; Prince got a $10 million bonus, $28 million in unvested stock options, and $1.5 million in annual perquisites upon leaving Citigroup. Mozilo received over $120 million in compensation and sales of Countrywide stock.

“There seem to be two different economic realities operating in our country today,” said Rep. Henry Waxman, the California Democrat who chairs the House Committee on Oversight and Reform. “And the rules of compensation in one world are completely different from those in the other.

“When companies fail to perform, should they give millions of dollars to their senior executives?” he asked.

Waxman acknowledged there was nothing illegal about the payments to the executive, but questioned the wisdom of pushing all the risk onto shareholders, rather than CEOs.

“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.

Nell Minow, editor of the Corporate Library, an independent research firm, went further to say that making compensation “all upside and no downside,” rewarded CEOs for taking risky strategies like underwriting subprime mortgages, which could be hugely lucrative – or disastrous.

“If you make compensation all upside and no downside, that will affect the executives assessment of risk, said Minow, daughter of former SEC chairman Newton Minow. “It will make it clear to him that he can easily offload the risk onto shareholders. It’s heads they win, tails we lose.”

Minow recommended the failed CEOs return “undue compensation” to shareholders and be held liable for providing false and misleading statements to investors.

In their own testimony, O’Neal and Prince focused on their humble beginnings, and insisted that many reports of their compensation packages were inaccurate.

“It is true that top executives at public companies in the United States, especially in the financial services industry, are highly compensated,” said O’Neal. “But a great percentage of that compensation, certainly for me, was and is at risk. When the business does well, all shareholders do well. But if the business does not do well, the value of that compensation can plummet.”

Mozilo noted that Countrywide’s stock price “appreciated over 23,000 percent” from 1982 to 2007, and 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.

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