Director and CEO Compensation: The Case of Countrywide

The Wall Street Journal carried a brief story about the compensation paid to the CEO of Countrywide Financial Corp., the largest US home-mortgage lender. Angelo Mozilo, the CEO, received a compensation package of $48.1 million, while realizing another $72.2 million through the exercise of stock options. The package included $15,481 for country-club fees. The proxy statement for the company disclosed that, under a golden parachute, Mozilo would have received, had he been terminated on Dec. 31, 2006, a payment of almost $88 million. It was a lucrative compensation package. But that wasn’t all. The extended family also did quite well. As the proxy statement noted:

• ”During 2006, the Company employed the following relatives of the Company’s Directors and executive officers for the compensation indicated: a son of Angelo R. Mozilo, who has been an employee since June 1, 2005, was employed as a Branch Manager, for approximately $296,709 in base salary and bonus; a son-in-law of Angelo R. Mozilo, who has been an employee since 1984, was employed as Director, Fixed Income Products, for approximately $437,965 in base salary and bonus; a brother-in-law of Stanford L. Kurland, who has been an employee since 1986, was employed as Executive Vice President, Production Administration, for approximately $434,744 in base salary and bonus and a grant of 8,268 stock appreciation rights on the terms set forth below;”

But what about the directors who authorized this compensation package?  As usual, according to the proxy statement, It was a highly independent board.  One director who resigned, Kathleen Brown, was not independent because of her employment relationship with Goldman Sachs.  Likewise, the CEO, Mozilo, was not considered independent.  Otherwise, the “Board has determined that each of the current Directors . . . has no material relationship with the Company and is independent”

How well were these “independent” directors who had no "material relationship" with the company compensated?  In addition to fees, each director received “on an annual basis, shares of restricted stock with an aggregate value equal to $220,000, based on the fair market value of our Common Stock on the date of grant.”  Directors also had the right to participate in the company’s group health plans and receive reimbursement for spousal travel. They had the right to designate charitable contributions of up to $1 million “ratably over five years” and to have the company match contributions of up to $5000 a year.

What was the total compensation package for each director in 2006?  The table below is from the proxy statement, with the footnotes omitted.

Name		Fees Earned or Paid in Cash ($)			Stock Awards ($)		Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)		All Other Compensation ($)		Total ($)
Kathleen Brown		82,000			218,769		—		44,219		344,988
Henry G. Cisneros		84,250			222,754		—		51,962		358,966
Jeffrey M. Cunningham		84,250			222,754		342		61,962		369,308
Robert J. Donato		92,500			278,352		845		53,158		424,855
Michael E. Dougherty		116,000			278,352		497		44,219		439,068
Ben M. Enis		41,000			278,352		—		49,158		368,510
Edwin Heller		41,000			278,352		—		49,170		368,522
Martin R. Melone		99,000			274,368		—		54,219		427,587
Robert T. Parry		154,250			330,355		—		54,219		538,824
Oscar P. Robertson		84,250			278,352		302		44,219		407,123
Keith P. Russell		163,500			269,579		—		59,191		492,270
Harley W. Snyder		97,500			278,352		402		66,524		442,778

The compensation committee, by the way, included Snyder, Dougherty, Donato and Robertson, each of which earned over $400,000 in total compensation.

Needless to say, is it truly the case that these directors have "no material relationship with the Company" as the board apparently determined?  The problem is not with the standard but with the lack of enforcement by the self regulatory organizations.  See the posts here andhere.  The stock exchanges impose the standards (go to NYSE Manual 303A for the exact language) but do little to make sure they are applied in a meaningful fashion.  This is something that will likely get worse in the era of stock exchanges assuming for profit status.