Congress Shines Spotlight on Exec Comp

After Prince's departure, Citigroup has continued to struggle because of the decisions made by the bank on his watch. Its stock recently made nine-year lows, and a Wall Street analyst is predicting that the company will report another $15 billion in mortgage-related writedowns in the first quarter, along with a loss of $1.66 a share.

At Merrill, O'Neal was awarded a retirement package worth $161 billion when he retired in October. That came in a year when the finance giant wound up with $18 billion in writedowns related to subprime and other risky mortgage investments. The company's stock dropped 45% from its five-year peak in January.

The biggest slice of O'Neal's farewell payout was the award of $131 million in unvested stock and options.

"If the Merrill Lynch board had terminated Mr. O'Neal for cause, he would have forfeited these stock and options because they had not yet vested," said the report. "Allowing Mr. O'Neal to retire instead of terminating his employment for poor performance significantly inflated the value of Mr. O'Neal's retirement package. It is unclear why this decision was in the interests of Merrill Lynch shareholders."

Moreover, the report notes that Merrill's board made a last-minute decision to cut the duration of O'Neal's non-competition clause, which he signed in 2004, in half and to shorten the list of companies to which it applied.

"Only one board member raised an objection to this revision in the agreement," said the report.

'Maximum Opportunity' at Countrywide

Mozilo's case is particularly egregious, because he sold almost $150 million in Countrywide stock from November 2006 through the end of 2007 at a time the company was taking on $1.5 billion in fresh debt to repurchase its overpriced shares. During that period, Mozilo made three revisions to his stock trading plan, increasing the amount of stock he was authorized to sell each time.

"The Countrywide board knew of the changes to Mozilo's stock trading plan but did not act to prevent Mr. Mozilo's sales," said the report. "Several board members also made large stock sales during this period."

In 2007, Countrywide announced a $1.2 billion loss in the third quarter and an additional loss of $422 million in the fourth quarter. By the end of the year, its stock had plummeted 80% from its five-year peak in February. During the same period, Mozilo was paid $1.9 million in salary, and he received $20 million in stock awards that were contingent on performance.

But the questions don't end there. In Mozilo's 2001 compensation contract governing his pay from 2002 through 2006, Mozilo received total compensation of $185 million in cash, stock and stock options. In 2004, the company hired a compensation consultant, Pearl Meyer, who raised concerns about payments Mozilo stood to receive after his planned retirement as CEO at the end of 2006.

"The board appears to have accepted some of Pearl Meyer's recommendations and rejected others," said the report. "It then ended its relationship with the consultant."

In 2006, a new compensation consultant, Exequity, raised new questions about Mozilo's compensation. The firm said his contract was based on a flawed "peer group" of companies that inflated his pay and inappropriately placed him at the top of the peer group in terms of salary and bonus.

In response, Countrywide's board reduced Mozilo's compensation when it renegotiated and extended his contract in the end of the year, but it came nowhere near the reductions recommended by Exequity. For that contract, Countrywide's management hired a second compensation consultant, Towers Perrin, to review Exequity's proposal.

"Although the company retained Towers Perrin, internal emails show that the consultant appeared to serve as Mr. Mozilo's personal advisor with the goal of achieving 'maximum opportunity' for Mr. Mozilo. The final contract was significantly more generous to Mr. Mozilo than Exequity originally recommended," according to the report.