Let's assume for a moment that you were the CEO of a major financial services company. And that you turned your company into a leader in the risky business of "subprime mortgages", using an incentive structure that rewarded the employees who gave out the riskiest loans. And that eventually your subprime empire got smacked by reality, forcing you to lay off thousands of employees and driving the price of your company's stock into the ground. And that you just happened to sell off a bunch of your shares of the stock before the stock tanked, leading the SEC to investigate the legality of your stock sales. And that eventually one of your biggest investors had to buy your company at a fire-sale price just to attempt to bail their investment out.
Let's assume that was you. How much of a bonus would you expect to get on your way out the door?
If your answer was "I'd be lucky if I made it out the door without employees and investors chasing me down with torches and pitchforks", you're out of touch with the life of the modern CEO. Because Angelo Mozilo, CEO of Countrywide Financial Services, is anticipating a stunning $115 million payout if Bank of America is successful in buying out his struggling company:
Countrywide Financial Corp. founder Angelo R. 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, regulatory filings show.
Free rides on the company jet also are included in Mozilo's departure deal, and the company would pick up his country club bills until 2011...
If Mozilo is fired or resigns voluntarily, his employment contract guarantees Mozilo three times his base salary, plus a cash payment equal to three times the amount of whichever is greater: his average bonus over the past two years or his bonus from the previous year.
That would be $87.9 million, according to Countrywide's most recent proxy statement.
In addition, Mozilo has two pensions that his severance agreement 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 C. Ferlauto, director of pension and benefits policy at the American Federation of State, County and Municipal Employees.
Yes. The guy's contract guarantees him an enormous cash payment even if he is fired. Which is generally what happens to CEOs who fly their companies into the side of a mountain.
David Lazarus at the L.A. Times uses Mozilo's example to argue that "For CEOs, failure can be lucrative":
In August, Countrywide was forced to draw down its entire $11.5-billion credit line. Weeks later, the company said it would hand pink slips to as many as 12,000 workers, or about 20% of its workforce.
Countrywide's stock lost 79% of its value last year.
Amid rumors of a possible bankruptcy filing, Mozilo and Countrywide finally turned to [Bank of America] to rescue their behinds from the fire. The bank, which had already invested $2 billion in the company, will pony up an additional $4 billion in stock to become the nation's top mortgage lender.
So what sort of consequences will Mozilo face for his managerial failure?
Aside from nearly $88 million in cash, he'll have to make do with not one but two pensions, accelerated payment of stock options, free rides on the company jet and his country club bills being paid until 2011.
Man, that has to sting.
I guess "sting" is one word for it.