Mortgage Firm CEO Defends His Pay

Firing back at critics, Countrywide Financial Corp. Chief Executive Angelo Mozilo defended a pay package that provided him nearly $165 million in compensation and stock option gains last year, saying his earnings reflected the huge profit his investors have enjoyed.

“This company came from zero and created $22 billion in shareholder value,” Mozilo said Wednesday in response to a question at Countrywide’s annual meeting in Calabasas. “People like me, entrepreneurs, are not going to come into the public arena if ... their reputation is ruined because they did well.”

Mozilo’s remarks came after a measure that would have given shareholders an advisory vote on executive pay was defeated, with shareholders representing 55% of the company’s stock voting against it and those holding 43% of shares voting in favor. Such measures are routinely rejected by much wider margins, however, leading supporters to claim a partial victory.

“That’s an extraordinary level of support for a proposal like this one, and I think it shows that shareholders are very frustrated with this company,” said Nell Minow, editor of Corporate Library, a corporate governance research firm that has recently criticized Countrywide. “This is a resounding vote of no-confidence in the board.”

Of the 65 similar pay review measures voted on by shareholders this proxy season, only 21 have garnered 43% or more of the vote, according to Institutional Shareholder Services Inc.

“Those are very impressive numbers, especially considering that this is the first year they’ve proposed this,” said Carol Bowie, director of governance research at the Rockville, Md.-based group that advises large shareholders. “It certainly suggests that shareholders are expressing continuing concern about executive pay and, particularly, about the role of the compensation committee in executive pay.”

The sponsor of the pay review proposal was the pension fund for the American Federation of State, County and Municipal Employees. The union pension plan, a big institutional investor, has targeted Countrywide and a handful of other companies, including Home Depot Inc., for what it claims are overly generous compensation practices.

Union representative Scott Adams said the Countrywide vote exceeded his expectations, especially since shares of the mortgage lending company are up 6.8% this year.

“This is a company where we have happy shareholders -- ecstatic shareholders,” Adams said. “But we got practically the same vote as we got at Home Depot, where shareholders are very unhappy.”

Home Depot shares have fallen 9.2% this year, adding 46 cents Wednesday to $36.75. Countrywide slipped 65 cents to $36.51.

As the Countrywide annual meeting began, a union official dressed in a chicken suit picketed briefly outside the gates of the company’s hacienda-style headquarters building. He waved a placard that said: “Don’t be chicken. Give shareholders say on pay!”

During a question-and-answer session inside, Mozilo was peppered with questions on his salary. The Los Angeles Times annual California Executive Pay Report listed Mozilo’s 2005 compensation as $45.2 million, a figure that included salary, bonus and the present value of the stock options he received last year.

But Mozilo also earned $119 million last year by exercising stock options received in previous years. That made for a total of nearly $165 million. (Countrywide values the new options differently, placing the total at about $160 million.)

One shareholder thanked Mozilo for delivering big profit, but said that he thought the CEO’s compensation was “out of whack” at a time when investors have lost faith in corporate leaders after the scandals at Enron Corp., WorldCom Inc. and other corporate giants.

Mozilo said he was insulted to be mentioned in the same breath as companies “that didn’t have a soul, that didn’t have any moral fiber.” Countrywide, he said, had prospered by enabling people to own homes.

The nation’s largest mortgage lender was founded by Mozilo and David Loeb in 1969, with each kicking in $250,000 of the seed capital. Countrywide went public six months later, trading over the counter at less than $1 a share.

The AFL-CIO, which has become an activist shareholder on behalf of its pension plan, also sent Countrywide’s board a letter Wednesday, questioning the company’s option-granting policies. Countrywide was cited in a recent report by Corporate Library for releasing news within 30 days of granting options, a practice that the union said could boost their value.

Countrywide said the study was severely flawed, saying it offered no evidence of any attempt to manipulate stock prices.