CEO Pay Fueled Subprime Crisis as Executives Ramped Up Risk, AFL-CIO says

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from Bloomberg:





CEO Pay Helped Fuel Subprime Crisis, AFL-CIO Says (Update2)

By Ian Katz

April 14 (Bloomberg) -- Pay plans for chief executive officers helped create the subprime-mortgage crisis by encouraging companies to take on too much risk for short-term gains, the AFL-CIO said in an analysis.

Companies including Bear Stearns Cos., Countrywide Financial Corp., Merrill Lynch & Co. and Citigroup Inc. ``create incentives for CEOs to gamble on risky ventures in hopes they will lead to short-term increases in stock prices,'' hurting ``the long-term future of their companies and shareholders,'' the Washington- based AFL-CIO, the largest U.S. labor federation, said in an executive-compensation study released today.

CEO pay packages are often linked to performance measures such as revenue growth or return on equity that don't consider the risk the company takes on, Richard Trumka, the AFL-CIO's secretary-treasurer, said in a statement. ``When CEOs are paid obscene amounts to make bad decisions, it hurts average Americans who hold mortgages, have bank accounts and who are invested, such as through their pensions,'' Trumka said.

The collapse of the U.S. subprime-mortgage market has triggered $245 billion in asset writedowns and losses by financial firms since the start of 2007, according to Bloomberg data. In March, a House committee questioned former CEOs Charles O. ``Chuck'' Prince of Citigroup and Stan O'Neal of Merrill Lynch, and Countrywide CEO Angelo Mozilo about their pay.

``You always look to blame somebody,'' said Alan Johnson, a New York-based compensation consultant. ``But I don't think pay had much to do with what happened.'' ......(more)

The complete piece is at: http://www.bloomberg.com/apps/news?pid=20601087&sid=abIvC8rXaMVo&refer=home