Marie Antoinette, Meet Angelo Mozilo
Here’s an idea. Instead of retiring when we turn 65, let’s go to work scrubbing tables at the nearest fast-food outlet.
Not to most of us. But it’s a future that U.S. workers increasingly are facing. America’s workers aren’t just losing their homes in what is misleadingly termed the nation’s mortgage crisis. More of us are losing retirement savings as well, as pension funds bear the brunt of overwhelming losses faced by financial institutions. The International Monetary Fund estimates the financial turmoil triggered by the collapse of the mortgage market could total nearly $1 trillion.
But Angelo Mozilo won’t be among the millions of America’s seniors forced to work to survive long after age 65. Mozilo, chairman and CEO of Countrywide Financial Corp., the nation’s largest mortgage company, wasn’t happy when a consultant said his pay package was too large. So Mozilo brought in another consultant to renegotiate his package in 2006. In an e-mail message, Mozilo complained to John England of Towers Perrin, who helped redo his pay package:
Boards have been placed under enormous pressure by the left-wing anti-business press and the envious leaders of unions and other so-called “C.E.O. Comp Watchers.”
Mozilo’s renegotiated contract with Countrywide included an annual salary of $1.9 million, an incentive bonus of between $4 million and $10 million and fringe benefits, as well as $37.5 million in severance benefits. After the mortgage market collapsed, public pressure forced Mozilo to give up the severance package.
Countrywide Financial Corp., of course, was once the nation’s biggest home lender, which originated more than $450 billion in mortgages annually, or about one-fifth of all home loans. More than any company, Countrywide embodies the subprime mortgage crisis. And the waves of that crisis keep building: Home foreclosure filings surged 57 percent in the 12 month-period ended in March and bank repossessions soared 129 percent from a year ago, according to data released Tuesday from RealtyTrac.
In our annual online AFL-CIO Executive PayWatch report released this week, we show the connection between egregious CEO pay and the economic disaster most of us with non-Mozilo pay packages are experiencing. Countrywide is one of seven case studies profiled that show how compensation packages create incentives for CEOs to gamble on risky ventures for short-term increases in stock prices at the expense of the long-term future of their companies and shareholders.
AFL-CIO Secretary-Treasurer Richard Trumka puts it concisely:
Exploding CEO pay contributed directly to the subprime mortgage crisis and the economic meltdown that followed.
In fact, the gap between the nation’s richest and the rest of us is the worst it’s been since 1928, at the peak of the stock market bubble (and we know what happened after that). Stagnant wages and the resulting increase in income inequality mean the nation’s income flowing to the wealthiest top 1 percent rose to 22.9 in 2006 from 16.9 percent in 2002. Corporate chief executives are among those in the rarified atmosphere of unimaginable wealth. CEOs of large U.S. companies averaged $10.8 million in total compensation in 2006, more than 364 times the pay of the average U.S. worker, according to the latest survey by United for a Fair Economy.
According to PayWatch findings:
Since 2000, mortgage lenders have made more than $2.5 trillion in subprime loans. A large proportion of these mortgages was sold to those with credit scores high enough to qualify for conventional loans with far better terms. Instead, individuals often were pushed into subprime loans by unlicensed mortgage brokers motivated by the more favorable commissions and using deceptive tactics.
Over the past several years, CEO pay has exploded at many of the companies responsible for creating the subprime mortgage crisis. Too often, their compensation programs encouraged corporate executives to maximize short-term financial gains at the expense of long-term sustainability. In effect, boards of directors rewarded their CEOs for generating financial results that were often based on taking on irresponsible levels of subprime mortgage risk.
Which is why, as The New York Times reported this week, the "ultrarich keep spending." Demonstrating the extent to which this elite group is insulated from the financial crises roiling the country, The Times writes:
Buyers this year have already closed on 71 Manhattan apartments that each cost more than $10 million, compared with 17 apartments in that price range during all of 2007. Last week, a New York art dealer paid a record $1.6 million for an Edward Weston photograph at Sotheby’s. And the GoldBar, a downtown lounge, reports that bankers continue to order $3,000 bottles of Rémy Martin Louis XIII Cognac.
The article also notes the steady sales of high-end yachts (who knew there is such a thing as a "low-end" yacht?).
Last week, Washington Mutual, the nation’s largest savings and loan institution, announced it was laying off 3,000 workers. But CEO Kerry Killinger was paid more than $14 million in compensation in 2006. Although he refused a bonus in 2007 because of the company’s poor performance, the 2008 proxy reveals that Washington Mutual more than made up for that by giving Killinger a hefty grant of stock and options awards valued at close to $13 million. This was on top of a base salary of $1 million.
CEOs are rewarded even when they lead their companies into the tank, send their workers to the unemployment line and decimate the value of shareholder investments—including our pensions. Meanwhile, even as millions of us work hard, we’re paid less than ever.
Between 1947 and 2005, U.S. worker productivity grew by 370 percent, while wages grew by less than half that amount. The income of the wealthiest .01 percent in this country skyrocketed by 513 percent between 1973 and 2005, while the incomes of middle-income earners rose by 23 percent in that same period. For the first time, median family income has declined from one economic boom to the next, from $61,227 in 1999 to $59,493 in 2006.
So while CEOs collect fat bonuses, relax on custom-built yachts and toss back $3,000 bottles of Cognac, millions of America’s working families are losing their jobs and their homes and facing the prospect of working long into their "Golden Years"—while working harder and producing more for the privilege.
There are a couple things we can do right now. The PayWatch site offers two e-mail actions. In one, available by clicking here, you can tell Congress to pass a "say on pay" law requiring publicly traded companies to submit executive pay plans to a nonbinding shareholder vote each year. The second action, here, provides a letter you can send Congress calling for support of legislation that includes:
- An immediate short-term moratorium on home foreclosures.
- A conversion of the low, ”teaser” interest rates on home loans to the standard 30-year fixed mortgage.
- Expanding Chapter 13 bankruptcy court protection to enable homeowners to shield their primary residences from foreclosures.