Commentary - 03/08/2008

Executive Pay: Heads They Win, Tails You Lose

Here's the latest headlines of executives that win big while shareholders lose:
US Congress opens fire on banking 'fat cats' - Telegraph UK
CEOs Defend Their High Pay on Hill - Associated Press
Congress Questions Executives on Pay - New York Times

Published: March 7, 2008
WASHINGTON — Three prominent financial executives faced questioning from a House committee on Friday about the huge paydays that they earned from the subprime mortgage boom, even as their companies have lost billions of dollars and thousands of borrowers have lost their homes.

The questioning mainly fell along party lines, with Republicans apologizing for hauling such distinguished corporate officials before the panel, and Democrats questioning everything from the income gap in America to the particular bonuses, stock sales and compensation the executives were awarded.

Two of the three lost their jobs last fall after the collapse of the subprime market — E. Stanley O’Neal, Merrill Lynch’s chairman and chief executive, and Charles O. Prince III, his counterpart at Citigroup — but left with sizable pay packages. The other, Angelo R. Mozilo, the founder and chief executive of Countrywide Financial, presided over the demise of a once high-flying company that is now being acquired by Bank of America.

Not at the hearing, but included in my commentary because of today's announcement is Lloyd Blankfein of Goldman-Sachs.

The above links goes to the tables below. The point I'd like to make is that all four of these are corporate plantations. By that, I mean that a very small percentage of Major Holders control large amounts of shares. All four are completely governed by Board of Directors that report to the Major Holders. The CEO reports to the Board, and since he has less than 1% interest in the company, could rightfully be called the plantation manager, especially considering the salary and perks.

So you could say that he gets paid for exactly what he does for those who control him, and that's not the individual public shareholders. The institutional holders have the right to vote all shares exactly as if they owned them, whether it be in the public's interest or not.

First is Angelo R. Mozilo, the founder and chief executive of Countrywide Financial.

Mr. Mozilo’s pay drew the most scrutiny from members of Congress. He has taken home more than $410 million since becoming chief executive in 1999, including several stock sales made under an automatic plan while the company was buying back shares.

Federal securities regulators have been scrutinizing those trades. And in a report released Thursday, Congressional investigators found that the use of a flawed peer group and easy bonus targets helped inflate his pay. He also had been entitled to a $37.5 million severance package, though he forfeited that in January, shortly after Congress requested that he testify.

Next is E. Stanley O’Neal, Merrill Lynch’s [former] chairman and chief executive.
Mr. O’Neal retained more than $161 million after he was ousted in October on top of the $70 million he took home during his four-year tenure. The bulk of the exit pay was linked to previously earned benefits and stock since his departure was deemed a retirement; he did not receive any severance pay. Merrill Lynch, meanwhile, has announced write-offs totaling more than $10.3 billion and watched its stock price fall sharply.
Next is Charles O. Prince III, [former] chairman and chief executive at Citigroup.
Mr. Prince collected $110 million while presiding over the evaporation of roughly $64 billion in market value. He left Citigroup in November with an exit package worth $68 million, including $29.5 million in accumulated stock, a $1.7 million pension, an office and assistant, and a car and driver. Citigroup’s board also awarded him a cash bonus for 2007, largely based on his performance in 2006 when the bank’s results were better, worth about $10 million. Citigroup has announced write-offs worth roughly $20 billion and seen its share plummet over 60 percent from last year’s high.
And finally, for a big WOW! that was published today, but not interviewed at the congressional hearing, was:
Goldman CEO gets $54M in compensation
NEW YORK - Goldman Sachs Group Inc. Chairman and Chief Executive Lloyd Blankfein did better than any of his colleagues in 2007, a year in which the world's largest investment bank profited despite the subprime market collapse.

Blankfein, the highest-paid CEO among the investment banks, received compensation valued at $54 million.

Goldman Sachs CEO gets $100 mln in pay, stock
Blankfein also realized $45.76 million from the vesting of stock, bringing his compensation and other awards to about $100 million, according to Goldman's proxy filing with the U.S. Securities and Exchange Commission.
That's more than a million dollars cash per week for a whole year. It just goes to show you that:
Sometimes The Dragon Wins

Symbol Name Of Corporation

Countrywide Financial Corp. (As of 31-Dec-2007)
Top 10 Institutional HoldersShares2007Value2006
Brandes Investment Partners L.P.55,325,1679.56%$494,606,992-.--%
Legg Mason Capital Management, Inc.54,636,5449.44%$488,450,703-.--%
Capital Research And Management Company47,659,0008.24%$905,997,590-.--%
Capital World Investors31,259,0005.40%$279,455,460-.--%
FMR LLC (Fidelity)30,992,4785.36%$277,072,753-.--%
Goldman Sachs Group Inc28,095,1224.85%$251,170,390-.--%
Capital Research Global Investors25,450,0004.40%$227,523,000-.--%
Wellington Management Company, Llp23,883,1864.13%$213,515,682-.--%
Barclays Global Investors UK Holdings Ltd22,376,8123.87%$200,048,699-.--%
Pzena Investment Management, Llc22,128,4243.82%$197,828,110-.--%
% of Shares Held by All Insider and 5% Owners:6%-.--%
Top 10 [2.6%] of 383 Institutional Holders Control59.07%-.--%
Percentage of Barclays and "Associates" Control18.16%-.--%
NOTE: Capital Group manages three funds that control 7.21%.
Legg-Mason manages a fund that controls 3.53%.
Washington Mutual manages a fund that controls 2.73%.
Fidelity manages a fund that controls 1.38%.
Therefore, the TOP 10 Major Holders control 73.92%, and
Barclays/Associates control 24.42% of Countrywide.

Symbol Name Of Corporation

Merrill Lynch & Co. (As of 31-Dec-2007)
Top 10 Institutional HoldersShares2007Value2006
State Street Corporation76,870,0719.01%$4,126,385,411-.--%
AXA (Paris, France)53,962,2336.32%$2,896,692,667-.--%
Barclays Global Investors UK Holdings Ltd37,962,5634.45%$2,037,830,381-.--%
Vanguard Group, Inc. (The)24,878,2822.92%$1,335,466,177-.--%
Clearbridge Advisors, LLC24,429,6702.86%$1,311,384,685-.--%
Price (T.Rowe) Associates Inc20,093,7512.35%$1,078,632,553-.--%
Marsico Capital Management, LLC16,921,8741.98%$908,366,196-.--%
Morgan Stanley16,520,8771.94%$886,840,677-.--%
Northern Trust Corporation10,620,6991.24%$570,119,122-.--%
Legg Mason Capital Management, Inc.10,586,5461.24%$568,285,789-.--%
% of Shares Held by All Insider and 5% Owners:7%-.--%
Top 10 [1.2%] of 801 Institutional Holders Control34.31%-.--%
Percentage of Barclays and "Associates" Control20.23%-.--%
NOTE: Vanguard manages four funds that control 2.57%.
Therefore, the TOP 10 Major Holders control 36.88% of Merrill-Lynch.

Symbol Name Of Corporation

Citigroup Inc. (As of 31-Dec-2007)
Top 10 Institutional HoldersShares2007Value2006
Capital Research And Management Company230,537,5774.63%$10,759,188,718-.--%
Barclays Global Investors UK Holdings Ltd193,733,2243.89%$5,703,506,114-.--%
State Street Corporation168,713,7333.39%$4,966,932,299-.--%
Capital Research Global Investors152,224,2973.06%$4,481,483,303-.--%
Vanguard Group, Inc. (The)147,162,3652.95%$4,332,460,025-.--%
Capital World Investors135,231,7772.71%$3,981,223,514-.--%
FMR LLC (Fidelity)104,388,7532.10%$3,073,204,888-.--%
AXA (Paris, France)85,210,0351.71%$2,508,583,430-.--%
Bank of New York Mellon Corporation76,662,5871.54%$2,256,946,561-.--%
UBS Global Asset Management (Americas) Inc71,044,1101.43%$2,091,538,598-.--%
% of Shares Held by All Insider and 5% Owners:0%-.--%
Top 10 [0.7%] of 1416 Institutional Holders Control27.41%-.--%
Percentage of Barclays and "Associates" Control8.82%-.--%
NOTE: Capital Group manages four funds that control 5.58%.
Vanguard manages three funds that control 2.13%.
Therefore, the TOP 10 Major Holders control 35.12%, and
Capital Group controls 15.98% of Citigroup.
Interestingly, Barclays, who brags about quietly conquering the world of finance, seems to be slowly bailing out of Citigroup and Capital Group's interest has grown significantly. Here's tables for June of 2007 and June of 2006. Hmmmm.

Symbol Name Of Corporation

Goldman Sachs Group Inc. (As of 31-Dec-2007)
Top 10 Institutional HoldersShares2007Value2006
Barclays Global Investors UK Holdings Ltd17,075,9284.31%$3,672,178,316-.--%
Marsico Capital Management, LLC14,496,2103.66%$3,117,409,960-.--%
State Street Corporation14,274,7763.61%$3,069,790,578-.--%
Vanguard Group, Inc. (The)11,231,0272.84%$2,415,232,356-.--%
Wellington Management Company, LLP9,760,9432.47%$2,099,090,792-.--%
AXA (Paris, France)9,240,2732.33%$1,987,120,708-.--%
FMR LLC7,831,4921.98%$1,684,162,354-.--%
Janus Capital Management, LLC6,791,8871.72%$1,460,595,299-.--%
Bank of New York Mellon Corporation6,418,0881.62%$1,380,209,824-.--%
Northern Trust Corporation6,357,4111.61%$1,367,161,235-.--%
% of Shares Held by All Insider and 5% Owners:9%-.--%
Top 10 [0.9%] of 1010 Institutional Holders Control26.15%-.--%
Percentage of Barclays and "Associates" Control12.87%-.--%
NOTE: Vanguard manages three funds that control 2.10%.
SPDR Trust controls 0.60%.
Janus Capital manages a fund that controls 0.55%.
Fidelty manages a fund that controls 0.45%.
Therefore, the TOP 10 Major Holders control 29.85%, and
Barclays/Associates control 14.02% of Goldman-Sachs.

© 2008 by Edward Ulysses Cate
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