The recipients of the ire were three current and former financial executives who Democrats believe earned too much while Americans defaulted on risky mortgage products developed by their firms.
Charles Prince, former chairman and CEO of Citigroup, E. Stanley O’Neal, former chairman and CEO of Merrill Lynch, and Angelo Mozilo, founder and CEO of Countrywide Financial Corp., testified before the House Oversight and Government Reform Committee.
Committee Democrats criticized the trio’s compensation packages. O’Neal and Prince stepped down as the leaders of Merrill Lynch and Citigroup in 2007 when their companies each lost $10 billion and suffered a stock price drop of almost 50 percent. Countrywide lost $1.6 billion.
But O’Neal received a $161 million retirement package and Prince a $10 million bonus as they walked out the door. Mozilo, who still runs Countrywide, made more than $120 million in pay and the sale of the firm’s stock.
Rep. Henry Waxman, D-California and chairman of the committee, asserted that the executives were paid far in excess of their performance while millions of homeowners fell behind on their mortgages or had their property foreclosed.
“It seems to me like everyone is hurting except for you,” Waxman said to the executives. “CEOs hit the lottery even when their companies collapse.”
Committee Republicans said it was unfair to blame the housing debacle on the executives when a number of factors and institutions—including Congress—contributed to the problem.
“If you CEOs had made nothing during this time … [it] would not have saved one home,” said Rep. Tom Davis, R-Virginia and ranking member of the committee. “Punishing individual corporate executives with public floggings like this may be a politically satisfying ritual—like an island tribe sacrificing a virgin to a grumbling volcano.”
Company board members from Merrill Lynch and Citigroup defended the executive pay packages, which they said were based on past high performance and market rates for CEO talent. They also said that they align executive and shareholder interests by making executives retain the vast majority of their company stock while leading the firm.
John Finnegan, chairman of the management development and compensation committee at Merrill Lynch, said that O’Neal did not receive a bonus or severance payment. He said that O’Neal was allowed to retire rather than being dismissed because he could only be fired for misconduct, not poor financial performance.
Harley Snyder, chair of the compensation committee at Countrywide, said that the board reduced Mozilo’s base pay from $2.9 million to $1.9 million and required that certain financial targets be attained before he would qualify for a bonus.
Mozilo, who said the stock sale was part of a planned retirement process, has vowed to forgo $37.5 million in severance payments and other earnings if Bank of America takes over Countrywide.
In making their defense, each of the executives relied in part on personal narratives that showed them overcoming significant obstacles to rise to the top of corporate America.
Prince was the first in his family to go to college. Mozilo started his company from scratch in New York City.
O’Neal, whose grandfather was born into slavery, lived in a boyhood home that lacked indoor plumbing or running water. He financed his college education by working at a General Motors factory. He stressed that his hardscrabble upbringing gave him empathy for people who are facing foreclosure.
“I understand as well as anyone the importance of homeownership, not only financially but also socially and emotionally, and I would never do anything knowingly that would deny anybody that privilege,” O’Neal said.
Richard Parsons, chairman of Time Warner and chairman of the personnel and compensation committee at Citigroup, cited the executives’ backgrounds in arguing that compensation has to be set based on competitive factors rather than a desire to close the gap between C-suite and cubicle or shop floor remuneration.
“These are the American stories because the market works,” he said.
That provided little comfort to Rep. Elijah Cummings, D-Maryland, who related the stories of constituents who have lost their homes.
“I worry about this whole culture where the little guy gets squeezed and the next thing all he has is a debt, not a house, and the golden parachute drifts up the golf course,” he said.
Mozilo offered to assign staff to work with each House member’s office to address housing concerns in their districts.