Corporate Governance

From the Pages of The Pomerantz Monitor -- Mozilo Gives up Godzila-sized Pay Package; Bank of America May Lower its Bid for Countrywide

By Carolyn Moskowitz

There are some late-breaking updates to a story in the current issue of The Pomerantz Monitor regarding the Godzila-sized ?severance? package for Countrywide Financial Corporation?s CEO Robert Mozilo. As our readers know, Countrywide is the poster child for the subprime lending crisis. It is the biggest mortgage lender in the nation, and as the mortgage market collapsed its stock has followed suit, falling about 86% in 2007. Then, in the nick of time, Bank of America swooped in, announcing on January 10 that it had agreed to buy Countrywide for $4.1 billion. Make no bones about it: this was a fire sale from hell.

But it went from bad to worse. On January 11 , news reports revealed that Robert Mozilo, the CEO who founded Countrywide in 1969, could walk away with as much as $83 million in severance, even if he stays with the company. In the event of a takeover, Mozilo is entitled to three times his annual salary and three times his average bonus of the past two years. He was set to receive about $37.5 million in cash, $400,000 a year in consulting fees, plus restricted shares, deferred compensation and a lump-sum pension payment. Frank Glassner, CEO and founder of Compensation Design Group, said that "the boards of both companies are well within their right to question these arrangements," because the "circumstances are flat-out egregious." It is like "paying the captain of the Titanic buckets of money for sinking the ship."

Hefty severance packages that are triggered by an acquisition are often referred to as "golden parachutes." These devices have a proper place in corporate governance, because they encourage executives to make a sale that would be advantageous to the company, without fear that the transaction could cost them their jobs and therefore jeopardize them financially. But parachutes are an abuse if they are triggered even when the executive chooses to stay with the company after the acquisition or quits voluntarily.

On January 28, Countrywide announced that Mozilo will voluntarily give up $37.5 million in severance and consulting pay in connection with the proposed takeover. ``My primary focus today, as it has been for the past 40 years, is to do what is in the best interests of Countrywide's employees, customers and shareholders,'' Mozilo said in the statement.

The blow to his wallet will be softened by the fact that Mozilo sold almost $450 million of his Countrywide stock between April 2004 and August 2007, according to a lawsuit filed by New York's city and state comptrollers and their pension funds, alleging that Countrywide defrauded investors. Mozilo made some of the sales as the price of Countrywide shares started to tank, fed in part by speculation that the company might run short of cash.

Today Countrywide released its fourth quarter results, revealing losses in that quarter of $422 million, higher that expected. According to a report today in Bloomberg.com, investors have speculated that Bank of America may try to lower its bid for Countrywide.

Full post as published by PomTalk on January 29, 2008 (boomark / email).