When a company's chief financial officer has an accounting problem, he or she can turn to the outside auditors for advice. But when a board's compensation committee seeks help in creating a CEO compensation package, it's not as easy.
Consider the case of Countrywide (CFC) CEO Angelo Mozilo, who fought back against his board's attempts to curtail his pay two years ago by hiring his own consultant, paid for by Countrywide. A House Oversight Committee hearing last month into Mozilo's battle with his board provided a rare behind-the-scenes look at how difficult it can be for a board to rein in a CEO's pay.
GRAPHIC, LIST: Pay packages at most S&P 250 companies
Mozilo, who founded Countrywide 40 years ago and built it into the nation's leading provider of mortgages, saw his compensation soar during the real estate bubble of 2001-06. During that period, his total compensation — including salary, bonuses, options and restricted stock — approached $200 million.
He had planned to retire in 2006 but agreed to stay on for three more years after his heir apparent left the company. Countrywide's board reached out to a compensation consultant, Ross Zimmerman of Exequity, for advice on Mozilo's compensation package.
According to documents released by the Oversight Committee, Zimmerman zeroed in on performance targets in Mozilo's contract that seemed too easy to meet and suggested ways for the board to restructure the contract.
Mozilo bristled at the attempts to curtail his pay. According to testimony at the hearing, the board allowed Mozilo to hire his own consultant, at Countrywide's expense, to counter Zimmerman's suggestions.
In an e-mail shown at the hearing, the new consultant, John England of Towers Perrin, presents himself to Zimmerman as a second set of eyes hired by the company, "not by any individual at Countrywide." England says his firm will proceed "independent of influences" from either management or the board.
But in subsequent e-mails between England and Mozilo, it's clear that England's job is to fight back against Zimmerman's suggestions. In an e-mail to Mozilo on Oct. 20, 2006, England writes: "My primary unhappiness with what the Board has put forth is that it lowers your maximum opportunity significantly. … That being said, given your desire to sign an agreement today, the Board's proposal is not unreasonable. It's a significant enhancement from what Zimmerman had the first time around."
Mozilo responds: "I appreciate your input. … Boards have been placed under enormous pressure by the left-wing anti-business press and the envious leaders of unions and other so-called CEO Comp Watchers, and therefore Boards are being forced to protect themselves irrespective of the potential negative long-term impact on public companies."
A month later, Mozilo writes to England about having to pay taxes when his wife travels with him on the corporate jet. In order "to avoid extraordinary travel expenses," Mozilo complains that his wife "would have to travel commercial or not at all, which is not right nor wise."
At last month's hearing, Mozilo testified that he had "to pay an enormous amount, a substantial amount of money, to have her on the plane." But, ultimately, he conceded that he might have been making too much of a fuss. "In today's world, I would never write that memo," he said.
Towers Perrin issued a statement to USA TODAY saying, "Countrywide Financial engaged Towers Perrin, and Towers Perrin did not represent Mr. Mozilo." Countrywide, which is being acquired by Bank of America, has not released a 2007 proxy.
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