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Dave wandered down to the House Hearing on severance pay last Friday and wrote up these thoughts (you could see Dave sitting in the background if you watched CNN; he didn’t phone this one in – compare the WSJ article and NY Times article):

“The hearing of the House Committee Oversight and Government Reform on CEO pay was a little disappointing. It had all of the potential to be the sort of public spectacle that the same Committee’s hearings on steroid use in baseball had become, but instead it was a relatively straightforward identification of some CEO pay abuses, juxtaposed to the people that are unfortunately losing their houses to foreclosure in the midst of the mortgage mess.

In addition to testimony from some experts on the state of the mortgage crisis and issues with executive pay (which was covered by Nell Minow of The Corporate Library), the hearing featured Angelo Mozilo from Countrywide, E. Stanley O’Neal formerly at Merrill Lynch, and Charles Prince formerly at Citigroup. The respective compensation committee chairmen from those organizations also appeared, including Richard Parsons, Chairman of Time Warner.

The questioning was relatively light – both in volume and in tone – given the sparse turnout from Committee members on an unusual Friday hearing (the day when many members are heading home to their district). Much of the questioning focused on issues outlined in the Committee’s majority Staff memorandum, which outlined a number of issues that tend to be wrong with the CEO pay process – “confusion” about for who a compensation consultant is working (i.e. the CEO, the comp committee or the company), questionable use of 10b5-1 plans, awards that don’t seem to make sense in light of the circumstances or the rationale, extraordinary low performance targets, and payment of performance bonuses and the awarding of retirement and severance benefits even in a year as bad as 2007.

The battle lines were clearly drawn, with Chairman Waxman (D-CA) and his colleagues in the majority pointing out the financial distress that many Americans face while these three executives reaped rich rewards. Meanwhile, Representative Tom Davis (R-VA) repeatedly drew the old sports and entertainment analogy for executive pay – saying that no one expected Ben Affleck and Jennifer Lopez to pay reparations for Gigli.

Both sides were careful not to sully the reputations of the three CEOs who all represented classic American success stories, and clearly the CEOs (particularly Mozilo) seemed to be emboldened as the hearing went on and the “light” touch was evident. The only thing that tripped up Mozilo were questions concerning a threatening email that he sent seeking reimbursement of taxes for his wife’s travel on company aircraft – he apologized, noting that he was an “emotional person” – but Representative Issa (R-CA) was quick to jump to his defense and note that many of his colleagues in Congress fly their spouses all over the world on government aircraft because they need to have their spouse with them when conducting business.

One of the particular areas of questioning was on Mr. Mozilo’s sales of substantial amounts of stock under Rule 10b5-1 plans while Countrywide was conducting an accelerated share repurchase program. Mr. Mozilo asserted that all of his stock sales were done pursuant to a plan to diversify his holdings in anticipation of retirement and were unrelated to the stock repurchase program. The Chairmen of the Merrill Lynch and Citigroup compensation committees noted that these kinds of sales were unlikely at their companies, given their very high stock ownership and retention requirements.

While the Democrats on the Committee may not have been able to establish these CEOs as suitable scapegoats, the majority was certainly able to put some questionable pay practices under the microscope at a time when most people are worried about paying for their house – as opposed to paying for taxes on spousal travel on the company jet.”

My Ten Cents: It’s too bad the committee members did such a poor job of questioning the hearing’s compensation committee members. Had they simply followed the path of the Committee staff’s memo, they could have called for an explanation of each of the actions by the compensation committees (although some of the meaty issues were addressed, like why did Prince got a bonus for 2007).

My primary “take-away” is that when a successful CEO throws a temper tantrum over pay – even if the demands are unreasonable – the board caves in. My guess is that all too often boards are told the consultant is hard to work with – or is not responsive or does not understand the company – and has to go. Boards comply – and there is typically no explanation other than “the board thought it was time for a change.”

I can’t resist addressing the mistaken comparison between CEO pay and the pay levels in the sports & entertainment industry. Putting aside the fact that only the top 1% of athletes and actors get paid astronomically – remember all those starving actors and baseball players buried in the minor leagues – it’s apple and oranges because the processes by which the relative amounts are established are completely different. I recently addressed this point by posting a comment on this compensation consultant’s blog. I guess the argument that public company CEOs will be flocking to hedge funds doesn’t hold much water anymore…

Aflac’s CEO Speaks

Take a moment to read this interview in Friday’s WSJ with Aflac CEO Daniel Amos (there is a video of him linked from the article). Aflac will be the first company in the US to have shareholders vote on “say on pay” at their May annual meeting.

During the interview, Mr. Amos says: “I want to be paid what I am worth” and “compensation is the way the scorecard is kept.” There are many CEOs who feel that way. But there are many others (like GE’s Jeff Immelt and others who have taken significant steps) that realize that CEOs’ total compensation and accumulated wealth generally are out of whack – particularly when it comes to equity grants and post-employment arrangements. Here’s where compensation committees need to be doing a better job. And just as importantly. where stand-up CEOs need to take the lead.

For many CEOs, the real scorecard is their legacy and what others will remember them for. The typical CEO will not want to be remembered as caring more about squeezing the last nickel for themselves than the well-being of the company’s employees, shareholders, customers and communities. Instead, there are a growing number of CEOs and directors who feel an obligation to do something to restore trust in our leaders and the integrity of our markets. (Who can forget former DuPont CEO Ed Woolard’s candid remarks that we taped a few years back.)

So cheer up, we do believe that there is a sea change coming as more CEOs and boards start to make significant changes (we’ll continue to update our list of responsible actions on CompensationStandards.com). But as reflected from the House severance hearing, we still have a loooong way to go (particularly if there are more CEOs like the one described in this article).

Exec Comp Comment Letter Highlights

On CompensationStandards.com, Mark Borges continues to blog regularly on the latest compensation disclosures in the proxy statements as they are filed with the SEC. He also recently waxed on the highlights in the publicly available comment letters in this blog.

And we continue to maintain our list of links to the SEC’s comment letters as they are posted – here is the latest list.

Here is some sad news – my good friend Maria Pizzoli of Sun Microsystems recently passed away. Maria was well known in the Bay Area legal coummunity and this notice describes her beautifully. A memorial service was held last week; donations in lieu of flowers can be sent for an educational fund for her very young son Nate.

– Broc Romanek