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Whoever Designed Ray Mozilo’s Severance Package Should Be Ashamed

Whoever Designed Ray Mozilo’s Severance Package Should Be Ashamed

by Frank Roche on January 12, 2008

in Executive Compensation

When I’m Wrong, I Say I’m Wrong…Unless I Design Crappy Severance Agreements
There’s a scene in Dirty Dancing when Dr. Houseman says to Johnny Castle, “When I’m wrong, I say I’m wrong.” Too bad that doesn’t happen when exec comp goes haywire.

Severance Packages Gone Wild
In an ugly scene from Severance Packages Gone Wild, we see Countrywide Financial’s CEO getting $110 million as he leaves the company. The rub? Under Ray Mozilo’s “leadership” in the past year, Countrywide’s stock declined 81 percent and they laid off 10,000 employees. Yep, he ran the company into the ground by encouraging subprime lending, then he gets paid off.

Sorry, but I’m pissed about this. And you should be too. There are good people out there who design fair and competitive executive compensation packages. This ain’t one of them.

Have You No Sense of Decency, Sir?
Whoever designed Ray Mozilo’s $110 million severance package should be ashamed. So ashamed, in fact, that they shouldn’t work in the HR business anymore. It gives us all a bad name. I mean, c’mon.

Here’s some background from a Los Angeles Times article today:

[SNIP…] Mozilo was guaranteed three times his base salary, plus a cash payment equal to three times the greater of his average bonus or the incentive bonus paid the previous year. Net value: $87.8 million.

Read the whole article. Eat something bland before you do because you’re gonna throw up in your mouth.

Circuit Breakers for Severance Packages
I’m not a comp designer. But I know a little bit about it. Here’s a solution: Severance packages shouldn’t encourage bad behavior. They shouldn’t reward pulling forward on sales the year before a CEO leaves. And if a company has been run into the ground, there should be a severance circuit breaker. No performance, no severance. It’s as simple as that.

Just for Laughs
If you’re a little fragged off about granting severance to a guy who ran a company into the ground, or even if you’re just feeling a tinge of schadenfreude, this one’s for you. On the Countrywide Financial investor’s page, right next to the one-year stock graph showing a price decline from $45.26 to a low of $4.43, is a link to a speech that Ray Mozilo gave which extols the “virtues” of sub-prime lending. The title of his speech? The American Dream of Home Ownership: From Cliche to Mission.

I got another one for ya, Ray. Your next speech could be From Layoff to Payoff: How I Learned to Stop Worrying About Sound Business Practices and Learned to Love My Severance Package.

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