by D. Cupples | Yesterday, Congressman Henry Waxman and his Oversight Committee held a hearing, at which it became public knowledge that CEOs from three companies hit hard by the subprime mortgage crisis took home fat compensation packages despite huge losses for their companies. Reuters reports:
"In the last two quarters of 2007 alone, the three executives' firms lost more than $20 billion on investments in subprime and other risky mortgages...
"Yet the three took home fortunes in 2007 -- $120 million for Countrywide Financial Corp CEO Angelo Mozilo; a $161 million retirement package for ex-Merrill Lynch CEO Stanley O'Neal; and $39.5 million in stock, options, bonus and perks for former Citigroup CEO Charles Prince."
This is something that should concern ordinary investors and the congressmen who are elected and paid to represent them. Obviously, that a hearing was held, suggests that some congressmen are concerned.
Rep. Waxman said, "I have no problem with paying for success. But it looks like when you're a CEO you get paid for failure." Precisely, and the payment comes at shareholders' expense.
Not all committee members seemed concerned about the possible bilking of ordinary shareholders. As I've seen repeatedly when watching House Oversight Committee hearings on C-SPAN, there's usually at least one Republican congressman who makes irrelevant comments when knee-jerk defending witnesses. In yesterday's hearing, it was Rep. Tom Davis (R-VA), who said:
"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.... But in the end, it won't answer the questions ... about corporate responsibility and economic stability."
Due respect, Rep. Davis is wrong. For the most part, the buck stops with a corporation's CEO. If the three CEOs at yesterday's hearing had done their job diligently, they would have been cautious about investing in risky mortgages whose value was directly tied to artificially inflated home values. The artificial price inflation didn't take anyone by surprise: the media has been discussing for several years now.
If those CEOs weren't as diligent as they could (or should) have been, did they really earn the $320 million they took from shareholders in the last half of 2007?
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