WASHINGTON -- Suffering what one congressman called a "public flogging," corporate executives defended yesterday receiving hundreds of millions of dollars in compensation while their companies lost billions in the subprime mortgage debacle.
"The reality is that I received no severance package. I received no bonus for 2007," said E. Stanley O'Neal, who was fired as chief executive of Merrill Lynch & Co. when the firm suffered a $10 billion loss in 2007.
O'Neal did get a $161.6 million separation package, but it came from deferred stock options that he had received in compensation over 21 years at the firm and from his retirement plan, said John Finnegan, chairman of the compensation committee of the Merrill Lynch board of directors.
Angelo R. Mozilo, founder and chief executive of Countrywide Financial Corp., and Charles O. Prince III, former CEO of Citigroup Inc., offered similar explanations of their compensation packages under sharp questioning from Democrats on the House Oversight and Government Reform Committee.
"Most Americans live in a world where economic security is precarious and there are real economic consequences for failure." said committee Chairman Henry A. Waxman, a California Democrat. "But our nation's top executives seem to live by a different set of rules."
"It seems like CEOs hit the lottery even when their companies collapse," Waxman said.
But Republican Rep. Thomas M. Davis III of Virginia, ranking minority member of the committee, called the hearing a "public flogging" that did little to find real culprits in the housing crisis that threatens to lead the entire economy into recession.
"We may not like it, but markets at times produce inequities," Davis said. "A professional baseball player with a $17 million contract who hits only .200 in a season still gets paid. Jennifer Lopez and Ben Affleck didn't have to pay reparations to moviegoers after Gigli."
Even if the executives at the witness table had worked for nothing, Davis said, it would not have averted "the combined hardships of foreclosure and depressed home values" that many Americans are suffering.
Nell Minow, co-founder of the Corporate Library, which provides independent research on corporate governance, countered that the economy does suffer when there is a disconnect between executives' pay and their performance.
"That's what happened with subprime mortgages," she testified. "CEOs were guaranteed outsized exit and separation packages, regardless of how they or their firms performed."
