Business Blog: Hoover’s Business Insight Zone

Though I do have my own populist streak, in general I can live with large salaries for CEOs. The best executives take on extraordinarily hard jobs that balance the skills of the politician, the market strategist, the operations troubleshooter, the psychologist, and the financier. But there are plenty of CEOs who don’t live up to their billing, and don’t display any kind of special prudence or insight that justifies their extra-jumbo payouts.

I’m thinking of this because I stumbled across Countrywide Financial CEO Angelo Mozilo’s entry in Fortune’s list of the 25 highest-paid male executives in the US. Mozilo made $43 million last year.

You may have heard something about Countrywide’s, er, recent troubles in the marketplace. Just in the past day we’ve gotten details on the company’s rah-rah P.R. push that tries to cast recent critiques of the company as “personal” attacks prompted by bad actors in the mortgage industry. (See “Countrywide puts lipstick on the pig” and “Countrywide Rearranges the Deck Chairs.”) You may have heard that Mozilo stepped up the pace of his stock sales as things headed south. The point is clear: Countrywide’s hurting right now, and it’s not clear that it’s going to recover.

Maybe it will. I hope it will, because in general I don’t want more disruption in the markets (mortgage, credit, equity — take your pick) than we’ve already had. But in any event it’s not clear that the company will recover from its recent run of bad news.

Now, back to Mozilo’s pay. My heretical notion is that CEOs should take the-buck-stops-here responsibility for how their companies do. I know, I know — this is crazy talk. But CEOs are always saying how hard their jobs are, how tough it is to guide a company successfully, and so on. They’re perfectly happy to take the upside (read: massive paychecks) when things go well. By rights, they should be just as happy to face the downside when things go poorly.

Imagine this: the Mozilos of the world get paid some generous base salary, and then bonuses are put into escrow for a certain number of years until the performance of the company becomes clear. If Countrywide does gangbuster business in Year 1, great — put a truckload of money in Mozilo’s escrow account. When Countrywide does great in Year 2, release some of that money into Mozilo’s hands. When Countrywide takes a dive in Year 3, take some of that bonus money off the table and put in back onto the corporate balance sheet where it can actually help the business to prosper.

The thing is, if CEO performance really is meritocratic, CEOs who espouse the virtues of meritocracy — or, at least, the unhypocritical among them — should embrace this system. CEOs make long-term decisions all the time, so they should be paid for long-term results.

That would mean, of course, that Mozilo’s vigorish would suffer in 2007. But it should suffer. Countrywide’s stock price has plummeted, the company has laid off many thousands of workers, and one wonders whether all of the accusations about the company’s business practices can be dismissed as “personal” jabs. We need not take the approach of “guilty until proven innocent,” but it would be prudent to take the approach of “let’s wait and see how this plays out.”

Champions of mega-payouts to CEOs will say that a system like this would prevent a company from being able to hire the best executives. Baloney. The very best executives will relish the chance to prove their worth over and over, year after year, without any smoke and mirrors. Lloyd Blankfein at Goldman Sachs need not worry — because the quality of his leadership is proven. Jamie Dimon at JPMorgan Chase likewise can rest easy at night. Angelo Mozilo? Well, he should worry, because his company has gone (at least partway) to pot on his watch.

Oh, and why wouldn’t some up-and-coming executive with the chops of, say, Amy Brinkley jump at the chance to run Countrywide — even with the escrow provisions in place? Someone of that caliber would have enough guts to stake her long-term pay to the long-term consequences of her leadership.

All it takes is a slight change in the playing field — one that would benefit shareholders in the long run. It would be like going from Major League Baseball’s system of guaranteed contracts to the NFL’s practice of non-guaranteed contracts. It would be smart, and I say it would work.

What do you think?