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COMPENSATION

Mozilo could reap $115 million

The Countrywide CEO's potential pay if his company is acquired rankles critics.

January 11, 2008|Kathy M. Kristof | Times Staff Writer

Countrywide Financial Corp. founder Angelo Mozilo, one of the nation's highest-paid chief executives, stands to reap $115 million in severance-related pay if his troubled company is acquired by Bank of America Corp., regulatory filings show.

Free rides on the company jet are also included in Mozilo's departure deal, and the company will pick up his country club bills until 2011.

Other executives, including Home Depot Inc.'s jettisoned CEO, Robert Nardelli, have garnered bigger going-away packages. But critics say Mozilo's arrangement is especially nettlesome given the losses that Countrywide investors have suffered in the last year. Company shares rallied Thursday to $7.75, up $2.63, but that's still down 82% from their high last year.

"This is a failed chief executive -- a failed and overpaid chief executive -- who has driven his company to the brink of bankruptcy," said Daniel Pedrotty, director of the office of investment at the AFL-CIO. "I think shareholders are going to be especially outraged if he walks away with another pay-for-failure package."

Neither Mozilo nor Countrywide officials returned calls for comment.

Bank of America is in talks to acquire Countrywide and a deal could be announced as early as today, according to people with knowledge of the talks.

If Countrywide is acquired, Mozilo could potentially stay on with the company. But he could probably make more money by leaving, compensation experts say.

For one thing, Bank of America is unlikely to pay Mozilo more than its own chief executive, Kenneth Lewis.

Lewis, whose company has a market capitalization of $174 billion, earned $27.9 million in 2007, according to regulatory filings. Mozilo earned $48.1 million last year, and Countrywide's market capitalization is $4.5 billion.

If Mozilo is fired or resigns voluntarily, his employment contract guarantees him three times his base salary, plus a cash payment equal to three times the amount of whichever is greater: his average bonus over the last two years or his bonus from the previous year.

That combined total would be $87.9 million, according to Countrywide's most recent proxy statement.

In addition, Mozilo has two pensions that his severance pact gives him the right to receive as a lump sum upon his departure. Those pensions were worth $24 million as of December 2006, the last time the company was required to report their value.

Finally, Mozilo would be eligible for accelerated payment of stock options and stock grants if the buyout goes through. Those are worth at least $3 million at current market prices, estimated Richard Ferlauto, director of pension and benefits policy at the American Federation of State, County and Municipal Employees.

Add it all up, and the severance package is potentially worth $115 million.

"He has driven the stock price into the ground and the company has been destroyed," Ferlauto said. "Their customers have lost their homes and he is potentially walking away with more than $100 million. For us, that's unconscionable enrichment."

In the past, Countrywide has defended Mozilo's pay, saying that shareholders had reaped vast riches thanks to the leadership of the company's founder, who has served as its chief executive since 1998. Until it was struck by rising loan defaults last year, the company had been profitable and its stock price had handily beaten market averages.

Mozilo has also defended his sale of company stock options, which are now the subject of an inquiry by the Securities and Exchange Commission.

The Times reported last year that Mozilo made changes to his stock-trading arrangements that allowed him to ramp up his sales of company stock before Countrywide shares went into a tailspin.

In October 2006, shortly before the severity of the mortgage crisis became understood to investors, Mozilo adopted a stock-trading plan allowing him to sell 350,000 shares of Countrywide stock each month.

He launched a second trading plan in December 2006 and then revised it in February, when the stock was at a 52-week high, to vastly increase his stock sales. Those changes helped enable Mozilo to sell $145 million in Countrywide stock between Nov. 1, 2006, and Oct. 12, 2007. Although executives are allowed to trade shares in their companies under so-called 10b(5) agreements, industry experts said it was highly unusual to revise and add plans in short succession.

SEC officials will not discuss continuing investigations, but people within the agency have confirmed that Mozilo's stock sales are being scrutinized.

Combining those sales with pay and previous gains on the sale of stock, Mozilo has taken more than $650 million out of Countrywide over the course of the last 10 years, Ferlauto said. Add in potential severance payments and the Calabasas-based company would have enriched Mozilo to the tune of three-quarters of a billion dollars.

"Compensation abuse has been a recurring travesty with this company," said William Patterson, director of CtW Investment Group in Washington. "The company has been run into the mud. Should Mozilo be able to walk away with this additional cash? Clearly not. I think it becomes the latest in a series of outrages."

--

kathy.kristof@latimes.com

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