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Countrywide critics slam board's pay

COMPENSATION

Union groups also say the directors failed to oversee CEO Mozilo.

November 09, 2007|Kathy M. Kristof and E. Scott Reckard | Times Staff Writers

Two groups representing union pension funds turned their sights on Countrywide Financial Corp.'s directors Thursday, saying board members failed to curb what they called excessive compensation for Chairman and Chief Executive Angelo Mozilo.

One group -- the American Federation of State, County and Municipal Employees -- said Countrywide directors had become conflicted by their own "excessive pay" and stock options that had allowed five members of the board to cash out more than $20 million in stock gains over the last two years.

"Directors who are making as much as CEOs make at other companies may lose the perspective of shareholder advocate, and instead blur their self-interest with that of the executive," said Gerald W. McEntee, president of the federation, which represents union pensions holding 3.5% of Calabasas-based mortgage lender Countrywide's stock.

Separately, CtW Investment Group, which represents the pension funds for the Teamsters, United Farmworkers and other unions that hold Countrywide shares, also criticized the board for excessive compensation for its directors.

"Current and historic director pay is both unjustified and a likely source of the board's passivity in the face of the company's current crisis," CtW Executive Director William Patterson wrote in a letter to Harley Snyder, Countrywide's lead director.

The letter says Snyder bears "central responsibility for Countrywide's egregious compensation."

"Your excessive compensation, together with your aggressive divestment of your own Countrywide stock at the peak of the housing bubble, militates powerfully against any inclination you might have to lead your fellow independent directors or hold Mr. Mozilo accountable," Patterson wrote.

Countrywide officials did not return calls seeking comment on the claims of excessive pay and inadequate board oversight.

The company has previously defended Mozilo's compensation, saying that it was justified by Mozilo's pivotal role in founding Countrywide and contributing to historical performance that soundly beat the market as a whole. A good portion of his pay was composed of stock and options, which became valuable only because Countrywide's share price had appreciated rapidly until this year.

As the mortgage industry went into a nose dive in late 2006 and 2007, Mozilo cashed out about $140 million in stock options, becoming one of the highest-paid executives in the country.

The Countrywide board is also well-paid, according to a study released Wednesday by the Corporate Library, which studies executive pay.

Countrywide's directors each earned $344,988 to $538,824, according to the company's most recent proxy statement, compared with just over $200,000 for a director serving on a company on the Standard & Poor's 500 index of blue-chip companies, according to the study.

What is of concern to shareholders, however, is that directors were unloading Countrywide shares as the real estate market peaked, according to both groups representing union pensions.

A review of stock-trading activity "for the last two years shows directors enriching themselves by unloading Countrywide stock at a time when the CEO was suggesting a positive outlook to shareholders," McEntee said in his letter. "We think these pay practices may have influenced directors so that they crossed the line from independent to captive directors."

Mozilo has already come under fire for his stock sales. The company has previously defended its chairman, saying he sold under automatic stock trading plans that allow executives to systematically buy or sell shares without coming into conflict with insider-trading laws.

As previously reported in The Times, however, Mozilo launched one trading plan Oct. 27, 2006; launched a second Dec. 12; then revised his December plan six weeks later, boosting the number of shares sold from 350,000 to 580,000 per month in the process.

Experts said such fast-paced changes are unusual and belie the arms-length nature of the transactions. The Securities and Exchange Commission has since launched an informal inquiry.

Several of Countrywide's directors were selling at the same time as Mozilo, reaping hundreds of thousands of dollars in profit, the federation said. Lead Director Snyder sold shares under a trading plan that was also revised, according to CtW.

Many of the trades were conducted as Countrywide was buying back $2.4 billion of its shares, potentially inflating the company's market price, Patterson of CtW wrote in his letter.

The federation called for Snyder and two other members of Countrywide's compensation committee to step down.

The other directors are Robert Donato and Oscar Robertson, the Hall of Fame basketball player.

Each has reaped significant net gains -- $6.6 million for Snyder, $1.7 million for Donato and $9.2 million for Robertson -- by selling Countrywide shares over the last two years.

Board members could not be reached for comment.

Major shareholders have complained that previous attempts to get a response from the board have been brushed off, but that would be an unwise course now, said Amy Borrus, deputy director of the Council of Institutional Investors, a shareholder-rights organization.

"This is a company that has numerous shareholder groups up in arms," she said. "This is a time for Countrywide's directors to be listening and listening hard to its owners."

The company's shares fell a penny Thursday to $13.47.

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kathy.kristof@latimes.com

scott.reckard@latimes.com

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