Congress, CEO Pay and the Use of Compensation Consultants

According to a recent House Committee Report, Countrywide’s board of directors resisted advice from their outside compensation consultants who sought to reduce Mozilo’s excessive pay as CEO.

Last Friday Countrywide CEO Angelo Mozilo spoke to the House Oversight and Government Reform Committee regarding the country's widening mortgage crisis and his excessive compensation. According to the Committee Report, Mozilo received nearly $250 million in direct compensation from 1998 through 2007 and an additional $406 million from the sale of Countrywide stock.

The House Report found that Countrywide’s compensation consultants (Pearl Meyer & Partners Inc. and Exequity LLP) urged the board of directors to cut back on Mozilo’s pay. Exequity found that Mozilo’s compensation package “was based on a flawed ‘peer group’ of companies that inflated his pay and inappropriately placed him at the top of his peer group in terms of salary and bonus.”

Instead of following their consultant’s advice, the board fired Pearl Meyer and Exequity and hired a third consultant, Towers Perrin, to review Mozilo’s pay. The Committee Report found that Mozilo used Towers Perrin’s representative as his personal advisor “with the goal of achieving ‘maximum opportunity’ for . . . Mozilo.” The board also gave Mozilo a $10 million bonus to remain the CEO for longer than he planned and agreed to pay any taxes imputed to gross income resulting from Mozilo’s wife joining him on business trips.

Towers Perrin defended its actions by showing its recommendations resulted in the Countrywide’s board lowering Mozilo’s pay for 2007 to $1.9 million in salary and $20 million in contingent stock awards. Accepting this reduction, Mozilo said he did not “want to be the lightning rod that casts any negativity on the company.” This came at a time when Countrywide’s stock fell 80% from its five-year high and when it recorded $1.2 billion loss in the third quarter of 2007 and another $422 million in the fourth quarter.

Committee Chair Rep. Henry Waxman led the inquiry into Mozilo’s pay. Waxman began by saying, “[t]housands of people are losing their jobs . . . [and] everybody is hurting, except for the CEO’s who had the most responsibility.” Not everyone at the hearing placed blame on the CEO. Virginia Rep. Tom Davis explained that, “punishing individual corporate executives with public floggings . . . may be a politically satisfying ritual . . . but in the end it won’t answer the questions . . . about corporate responsibility. . .”

The primary materials for this post are available on the DU Corporate Governance website.