Note to Readers: Read this live blog on the House Committee on Oversight and Government Reform's March 7 hearing on executive compensation and the mortgage crisis from the 10:15 a.m. entry at the bottom to the Postcript at the top for a chronological perspective. 

 Postscript: Apart from the questions surrounding CEO compensation that got batted around today, one question didn’t get a serious hearing. Was the subprime “surprise” really a surprise? Was it partially a question of inadequate GRC systems in place, as Parsons offered about Citigroup’s risk-management assessment, or was the collapse for individual companies more of a governance issue? Were the risk-assessment people relegated to running the numbers in their cubicles and aware of the doomsday scenarios? Were they overruled by greedy execs who could stomach massive risk as they were pumped up with visions of gargantuan compensation packages and unending profits?

Who knew what, and when? Oh, how Watergate of me.

But, companies and their investors need to ponder what measures need to be put in place to ensure a more conservative, risk-conscious stance in the future. Not for the short term in a crisis, but in the long term when the market recovers and the pain of today is a mere memory.

2:20  p.m. Waxman, as committee chair, had the last word. He framed the hearing as the first congressional hearing on CEO compensation when companies are losing billions of dollars.

The California Democrat zeroed in on O’Neal’s exit from Merrill Lynch because despite all of the write-downs, O’Neal was allowed to resign with a $161 million compensation package instead of being terminated for cause, which would have brought him a mere $6 million.

What was the rationale for letting O’Neal retire? Waxman asked. “Everyone is hurting,” Waxman said, referring to the foreclosure epidemic. “It looks like when you are a CEO, you get paid for failure.”

Finnegan, the Merrill Lynch compensation committee head, replied that the company’s contracts with its thousands of executives allow for termination for misconduct, but not for poor financial results. Finnegan added that O’Neal indeed felt the consequences because he lost his job and didn’t receive a bonus.

Waxman reacted, saying it w asuntenable for Finnegan to say the committee lacked the tools to fire O’Neal when “you” wrote the termination policy.

There needs to be accountability, Waxman added.

1:43 p.m. Sticking with the governance theme, Rep. Edolphus Towns (D-N.Y.) accused the compensation committees and the CEOs of the other companies (Parsons of Time Warner, Finnegan of Chubb and Harley Snyder of HSC) who head them, of “scratching each others’ backs” when it came to compensation packages.

Parsons noted that Citigroup made about a $4 billion profit last year, that many of its divisions were doing well, and that it was only the subprime business that “imploded.”  

1:20 p.m. Governance issues came to the fore throughout the afternoon. Rep. Eleanor Holmes Norton (D-District of Columbia) wondered why Countrywide overruled the recommendations of its own compensation consultant, and gave Mozilo a more lucrative compensation package, one that a second consultant, which the company hired for Mozilo, was pushing.  Why was Mozilo “self-dealing” by getting the company to hire a separate consultant for himself and why did the board go along with it? Holmes Norton asked.

1:11 p.m. From the CRO perspective, one of the most interesting aspects of the hearing took place when Rep. Peter Welch (D-Vermont) took the microphone. He interrogated the panel about their GRC (Governance, Risk and Compliance) practices. He asked Prince whether Citigroup had a risk-management solution in place to detect the looming subprime crisis, given that lenders often were parceling out mortgages with no money down and no closing costs.

Prince responded that Citi’s risk-model did not forecast what would happen when the bottom fell out of the subprime market.

And, Parsons, who heads Citi’s Compensation Committee and in his spare time is the chairman of Time Warner, acknowledged that assessing risk is a vital part of a CEO’s duties, but there was a “system-wide failure.”

Parsons said Citi is “reworking” its risk-assessment process. “We had one. We thought it was robust, but we missed it,” Parsons said.

Welch, echoing the views of several legislators, pointed out that Goldman Sachs largely dodged the bullet of the subprime mess, relatively speaking, yet Prince, O’Neal and Mozilo took it on the chin and still received ample compensation packages.

12:49 p.m.  Rep. Darrell Issa (R-Calif.) summed up the GOP committee members’ stance, blasting the Democrats for scapegoating the CEOs for the subprime mortgage catastrophy. “This is a hearing in search of bad guys,” Issa said. He added: “I’m not seeing it.”

Issa noted that O’Neal, Mozilo and Prince all still own stock in their current or former companies and suffer the economic repercussions when the stock prices fall. In addition, all of the companies were transparent about their compensation practices, he said. 

12:40 p.m. It becomes apparent as the hearing progresses in the afternoon that the issues will break down along partisan lines, of course. The Dems are ready to condemn the execs on behalf of their suffering foreclosed-upon constituents back home, and the GOPers are ready to give the CEOs a pass on compensation matters, arguing that their packages are consistent with standard industry practices or reflective of the stellar jobs these guys did before everything fell apart. 

Waxman castigates Mozilo of Countrywide and its compensation committee chair Finnegan, who moonlights as the Chairman and CEO of the Chubb Corp., about Mozilo’s aggressive move to sell his own shares just as Countrywide was carrying out a stock buyback, which kept the share price high for a time, before the bottom fell out. Finnegan countered that he didn’t believe the board found any problem with such a dynamic, and Mozilo chimed in that he had to diversify his portfolio, and the company’s projections were that it would continue to do well.

Waxman, in fact, raised a parallel to the practices at Enron, although Finnegan noted that this was clearly not a case of insider trading.

“Your timing,” Waxman said, referring to Mozilo’s sale of his shares, “was particularly good for yourself.” Waxman added that shareholders did not fare so well.

12:20 p.m. Mozilo of Countrywide, too, argues that the press doth protest too much. The Countrywide founder says he waived his severance, cancelled a consulting agreement he was entitled to, and gave up $37 million that would have been coming to him when Bank of America closes on the acquisition of Countrywide.

Mozilo said  the monies coming to him were the result of deferred compensation over a 40-year career. He, too, made it the old-fashioned way and earned it. Mozilo cites the fact that Countrywide’s share price appreciated some 23,000 percent since 1982. Concerning his vast holdings in the company, including 6.5 million shares in vested options, Mozilo said: “In short, as our company did well, I did well.” He added that his stake deteriorated “materially” as the stock value declined.

12:15 p.m.  John Finnegan, the chair of Merrill’s compensation committee, concurs that O’Neal received only his base salary in 2007. The $160 million he received when he left was deferred compensation, and more than 80 percent of it was in the form of Merrill Lynch stock. O’Neal’s compensation was in line with corporate practices throughout the U.S., Finnegan said. 

12:07 p.m. Stanley O’Neal, most previously of Merrill Lynch, gets his turn. He recalls his parents’ pride in getting their first mortgage. O’Neal, too, says he earned his pay. Upon becoming CEO, he led the company through a rapid period of growth, and despite the losses of the second half of 2007, Merrill’s stock price closed on March 6 at a level 60 percent higher than a low point shortly after he took over the CEO post. Contrary to press reports, O’Neal said received no severance pay or bonus in 2007, but received deferred pay in the form of stock and options.

 11:52 a.m. After a break, Prince, formerly of Citigroup, testifies and justifies his compensation in general terms. Quite a site this scene presents, as it resembles an employee going into the boss to plea for a raise and make his or her case. Prince says the first six months of 2007 was the best half year in Citi’s history and he’s proud of it. He helped improved the company’s relationships with regulators around the globe, and he also was instrumental in introducing a comprehensive governance and ethics policy. In other words, he done good.

11:35 a.m. Waxman interrogates the expert panel about the golden parachute of Charles Prince, the former chairman and CEO of Citigroup. One panelist counters that Prince’s package, about a $10 million cash bonus and $1.5 million in perks, was not as egregious as others' compensation levels.

Waxman presses on, wondering how such a package could be justified from a shareholder perspective when Citigroup lost nearly $10 billion in the fourth quarter of 2007. The panel member conceded that from that vantage, there is little justification for it.

10:55 a.m. A panel of experts on the mortgage industry and CEO compensation are having their say before the main attraction, the grilling of the former Citigroup and Merrill CEOs, as well as Mozilo of Countrywide, who's still in office and doing his thing.

Typical is the testimony of Nell Minow, Editor and Co-Founder of the Corporate Library. Minow says it is appalling when CEOs destroy shareholder value and then get the kind of immense compensation that we are seeing. She says she is here today to defend capitalism but this kind of practice undermines the credibility of capitalism throughout global markets. There is no reason to pay corporate chieftains on such a scale, or  to pay "them so much for doing so little," Minow says.

That testimony comes as the Wall Street Journal reported this morning that Mozilo fought the advice of outside consultants who urged him to diminish the size of his compensation package at Countrywide. His total compensation was almost $250 million over the last decade plus he benefited to the tune of some $406 million from the sale of Countrywide stock, according to the House committee's report.

10:15 a.m. the hearing opens and Chairman Henry Waxman sets the stage for the grilling of Charles Prince, former chairman and CEO of Citigroup; Stanley O’Neal, former chairman and CEO of Merrill Lynch; and Angelo Mozilo, founder and CEO of Countrywide Financial, on executive compensation in the subprime mortgage industry. Waxman, most previously in the headlines for his interrogation of Roger Clemens on the steroid issue, framed the issue before the House Committee on Oversight and Government Reform, as one of fairness or unfairness.

Waxman said that it seems that CEOs hit the lottery when their companies collapse. The Democrat noted that CEOs are paid on average about 600 times the compensation of average workers in the U.S., and that about 10 percent of corporate profits go toward keeping the CEOs well-heeled.

It looks like it might be a rough day for the three amigos.