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AFL-CIO PayWatch: Mortgage Company CEOs Fueled Crisis |
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Millions of American families are losing their homes through foreclosures—and the financial turmoil set off by the collapse of the mortgage market could total nearly $1 trillion, according to the International Monetary Fund. Meanwhile, CEOs of companies at the center of the crisis are walking away with big pay.
According to the AFL-CIO 2008 Executive PayWatch released today, the CEO of a Standard & Poor’s 500 company made, on average, $14.2 million in total compensation in 2007, according to early estimates. In comparison, the median pay for workers rose only 3.5 percent, to $36,140 in 2007, from $34,892 the previous year, according to the U.S. Bureau of Labor Statistics.
This year, PayWatch features case studies of CEOs whose push for short-term financial gains helped spawn the mortgage crisis. The case studies highlight the need for reform to protect companies and their investors—and the PayWatch site makes it easy for users to contact members of Congress to urge new rules on mortgage protection and executive pay. (Click here to urge your senators to support a Say on Pay, requiring publicly traded companies to submit executive pay plans to nonbinding shareholder votes each year, and here to tell Congress to confront the mortgage meltdown.)
What makes the excessive pay for the CEOs of mortgage-related companies so egregious is that for many Americans, their home is their most valuable asset and an important source of financial security for their retirement. And for a growing number of working families, the American Dream of homeownership has become a nightmare. American workers are being hit by a double-whammy as they lose not only their homes, but also their retirement savings, as pension funds bear the brunt of overwhelming losses faced by financial institutions.
Excessive CEO pay takes money out of the pockets of shareholders—including the retirement savings of America’s working families. Moreover, a poorly designed executive compensation package can reward decisions that are not in the long-term interests of a company, its shareholders and employees.
In his online column, AFL-CIO President John Sweeney says, “Out-of-control CEO pay is a symptom of a disease that is sweeping America,” a disease of greed “that makes corporations and the rich richer by stomping out the middle class.”
It disgusts me to see the heads of companies rewarded after causing so much pain and suffering—and in some cases destroying workers’ investments and jobs by overseeing practices that drove their companies into the ground.
Click here to read Sweeney’s full column.
Among the PayWatch case studies is that of Angelo Mozilo, chairman and CEO of Countrywide Financial Corp., the nation’s largest mortgage company. After a consultant said his pay package was too large, Mozilo brought in another consultant to renegotiate his package in 2006. In an e-mail message, Mozilo complained to John England of Towers Perrin, who helped redo his pay package:
Boards have been placed under enormous pressure by the left-wing anti-business press and the envious leaders of unions and other so-called “C.E.O. Comp Watchers.”
Mozilo’s renegotiated contract with Countrywide included an annual salary of $1.9 million, an incentive bonus of between $4 million and $10 million and fringe benefits, as well as $37.5 million in severance benefits. After the mortgage market collapsed, public pressure forced Mozilo to give up the severance package.
In seven case studies, including Mozilo, PayWatch shows the strong need for new laws to reign in CEO pay and to tie pay to real performance.
- The Bear Stearns case study shows how former CEO James Cayne, who held nearly 6 percent of the investment bank’s total outstanding shares, was one of the biggest beneficiaries of the bailout of his Wall Street firm. He pocketed more than $40 million. A day after Bear Stearns’ directors agreed to the increased offer from JPMorgan Chase, Cayne unloaded his entire holdings at $10.84 a share, creating a $61.3 million profit.
- Although Citigroup’s third quarter profits dropped 57 percent, Charles Prince, who resigned as chairman and CEO last November, walked away with a king’s ransom of at least $25 million.
- At Merrill Lynch, CEO Stanley O’Neal lost his job last October after the firm posted a $2.24 billion third-quarter loss due to a staggering $8.4 billion write-down on investments in junk mortgages and risky debt securities. Yet O’Neal, who left with stock options and other compensation worth more than $160 million, told a congressional hearing he received no severance package, no bonus for 2007, no severance package and no “golden parachute.”
- John Mack, chairman and CEO of Morgan Stanley, received $41.7 million in compensation in 2007, a year in which the Wall Street firm reported the first loss in its 72-year history because of a $9.4 billion charge on subprime related investments. Mack, who kept his job, did not receive a bonus in 2007, but he did receive stock awards valued at $40.1 million and $399,153 of other compensation on top of his $800,000 salary, according to the company’s 2008 proxy.
- Wachovia’s CEO G. Kennedy Thompson hasn’t suffered as much financially as the company’s shareholders. Thompson didn’t receive a $5 million cash bonus in 2007 that he got in 2006, but Wachovia granted him stock options and restricted stock with a combined value of $14.3 million. Meanwhile, the fourth largest bank’s net income in the fourth quarter of 2007 plunged to $51 million or three cents a share, from $2.3 billion or $1.20 a share a year earlier, and its revenue fell 17 percent to $7.2 billion.
- Washington Mutual, the nation’s largest savings and loan institution, was so badly burnt by the mortgage meltdown that it needed a $7 billion infusion of capital from a private equity firm and other investors to stay independent. But CEO Kerry Killinger was paid more than $14 million in compensation in 2006. Although he refused a bonus in 2007 because of the company’s poor performance, the 2008 proxy reveals that Washington Mutual more than made up for that by giving Killinger a hefty grant of stock and options awards valued at close to $13 million. This was on top of a base salary of $1 million.
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And the list goes on…only in America are celebrities, athletes and CEOs “rewarded” for atrocious behavior and it has become so common that now it is considered “normal and accepted behavior” for those people. Companies say they owe the CEOs that money because their salaries and bonuses are covered by contracts and therefore are guaranteed, no matter how egregious the behavior. Huh???? And to top that off, the golden parachutes and other severance packages are secret until they are triggered by company buyout, firing, or the CEO just decides to walk out the door, leaving the company in shambles or bankruptcy……and employees and stockholders holding an empty bag.
Dear Granny,
First, thos celebrities, athletes and CEOs are all employees of someone, just like YOU. They are rewarded for making money for their employers and the ancillary businesses (and employees) that feed off them. They are penalized if they no longer make money for that base. They are either paid less or fired, just like YOU.
It is your choice as a consumer to not pay for a movie ticket, “People Magazine”, basketball tickets or jerseys or to be a customer of Bank of America, or CitiGroup. As long as you go to the movies, buy tabloids, watch television, or buy cars from those you deem to be “atrocious”, you are one of those who is supporting the reward. It actually isn’t just in America, but we’ll leave that alone.
Next, HAVE YOU EVER HEARD OF A PROXY STATEMENT? AN 8-K? THE SEC? Have you ever read one? All CEO compensation is publicly disclosed and is required to be by law. There are no secret golden parachutes or severance packages. As an example, Charles Prince’s salary in 2007 was $1 million, with a bonus added. Much of his compensation was deferred pension, which stopped accruing in 1993 and 2001. I found that in the Citigroup Proxy, online for EVERYONE to read.
As long as you have a mutual fund, a 401(k), a low interest rate on your home and were excited at the increase in value of those, you were benefitting from the management and performance of that actress, that athlete and/or that CEO.
Where is the inequity in that?
Hmmm - and what exactly is your salary. You are simplifying the matter in a way that blames the consumer not only for their losses, but for the exorbitant pay that CEOs, athletes and celebrities receive, as though the average American really has a say in the matter. I’m sure you’ve heard of the concept of “trickle down economics”. Well, that simply does not work today, because the people that make most of the money do not give it back in the way of paying their fair share of taxes, putting money back into their corporations, or advocating that the people that work for them should receive at least a decent salary. After all, do not they make billions at some one else’s expense. These people that are fortunate enough to be paid such enormous salaries should at least realize that being in a position of power in which one amasses tremendous wealth, one must also be socially and ethically responsible. For CEOs to make such large sums of money when most of the people below them are not only poorly paid, but treated like dirt - with no benefits, no health care, no promise for a better future for them or their families, it is easy to see why so many people believe they are treated unfairly in this capitalistic game that we play. Many people are stuck in the quagmire of realizing they are in “the other” America, and have no hope of getting out. Maybe on the surface, one can argue that the upper echelon of wealth are merely playing by the rules and are entitled to whatever the benefit packages they receive, and I won’t argue with that, but they are stockholders, and they do vote for their salaries and entitlements. Seeing, however, just how much they do earn is a clear example of egomaniacal greed, plain and simple.
In all fairness I would have hoped there was a link to see how much President Sweeney makes per year since his salary is drawn from our members contributions.
Good question, ME2.
President Sweeney is paid just over $200,000/year. FYI: Salaries of all union staff are available through the Department of Labor.
200,000 a yr.?
That is why he is out of touch with many issues we front-line workers are dealing with.
That seems within reason. I doubt there are any Union/worker reps that get even over $500,000 in total compensation.
As for being out of touch, no one person can be all things to all people.