SOURCE: The Corporate Library

March 07, 2008 09:00 ET

Perverse Incentives Lead to Perverse Behavior, Minow Tells Waxman

PORTLAND, ME--(Marketwire - March 7, 2008) - The inadequacy of board oversight of CEO compensation practices at companies hit by the sub-prime mortgage crisis will be brought to light today at the U.S. House Committee on Oversight and Government Reform meeting in testimony by Nell Minow, Editor and Co-Founder of The Corporate Library. "With executive compensation you get what you pay for and you pay for what you get," Minow told Chairman Waxman and the other commissioners. "If you make compensation all upside and no downside that will affect the executive's assessment of risk. It will make it clear to him that he can easily offload the risk onto shareholders. It's heads they win, tails we lose."

Ms. Minow will present to Chairman Waxman's committee evidence on the perverse incentives of CEO Angelo Mozilo at Countrywide Financial, and former CEOs Charles Prince at Citigroup, and Stanley O'Neal of Merrill Lynch, among others. The revenues, income and earnings leading to enormous incentive payments for these executives melted away as each company wrote down billions of dollars yet the incentives had already been "earned."

In summation, Ms. Minow said, "The undue compensation awarded to these failed CEOs should be returned to shareholders, they should be liable for providing false and misleading statements to investors, and held accountable for the impact of their poor strategic decision-making policies. That is first and foremost the responsibility of the directors. If they fail, it is up to the shareholders to replace the board and it is up to lawmakers and regulators to make sure they have the power to do that."

The current report including the whole of Ms. Minow's written testimony is titled "Perverse Incentives" and is available for complimentary download from The Corporate Library's online store (http://www.thecorporatelibrary.com).

About The Corporate Library

The Corporate Library is an independent research firm offering corporate governance information products, research services and data products to its clients. The Corporate Library produces the definitive ratings of U.S. corporate boards of directors using its extensive database of over 3,200 public companies and over 30,000 U.S. and Canadian public company executives and directors. Additional information on The Corporate Library and its suite of online corporate governance data and analysis products can be found on its website at www.thecorporatelibrary.com.

Contact Information

  • Contact:
    Cheri Grimmett
    Media Relations
    The Corporate Library
    Email Contact
    207-553-5604