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."
Waxman pointed out that the mortgage crisis is having devastating effects on ordinary American homeowners and workers in the housing industry.
"Almost 9 million families now owe more on their mortgages than their homes are worth," he said. "Banks in the United States have written off more than $120 million in assets."
The witnesses' companies have suffered some of the worst losses, Waxman said. "Countrywide lost $1.6 billion in 2007 and its stock lost 80 percent of its value. Merrill Lynch lost $10 billion and its stock lost 45 percent of its value. Citigroup also lost $10 billion and its stock lost 48 percent of its value."
Yet O'Neal left Merrill Lynch with a $161 million retirement package, Prince got a total of nearly $30 million when he left Citigroup, and Mozilo has received $120 million in compensation from sales of Countrywide stock, Waxman said. Countrywide is in negotiations to be taken over by Bank of America.
The executives adamantly defended their compensation.
Describing himself as the grandson of a slave, O'Neal described working at a General Motors Corp. assembly plant in Atlanta to earn money for college. He joined Merrill Lynch in 1987 and became CEO in 2002.
But in 2007, O'Neal lost his job and his bonus and received no severance pay, said Finnegan. His payout was "earned over his long career in an industry in which executives and top producers are well-paid," Finnegan explained.
Mozilo said he began Countrywide 40 years ago in the kitchen of his New York apartment with $100,000, including his total assets of $25,000. He said that as part of his retirement plan, he began selling stock that he had accumulated as compensation over the four decades.
Democrats on the committee questioned his selling his stock at a time when Countrywide was buying back stock companywide. But Mozilo said there was no "relationship between my stock sales and the buyback" of stock by Countrywide.
Prince defended receiving a $10 million bonus for 2007 and said he was proud of his performance during the 30 years he spent at Citigroup.
"Last fall, it became apparent that the risk models which Citigroup, the various rating agencies, and the rest of the financial community used to assess certain mortgage-backed securities were wrong," he said. "As CEO, I was ultimately responsible."
When Prince resigned, Waxman said, he "was awarded a $10 million bonus, $28 million in unvested stock options and $1.5 million in annual perquisites."