AFL-CIO Links 'Runaway Pay' to Credit Crisis

Labor union officials, who blame the nation's mortgage mess in part on runaway executive pay, are calling for Congress to adopt a "say on pay" bill that would let shareholders weigh in on CEO compensation. Chief executives particularly at mortgage and financial services companies were paid "obscene amounts" even when their performance faltered as subprime borrowers defaulted on home mortgage loans, said AFL-CIO Secretary-Treasurer Richard Trumka at a press briefing yesterday. The bad loans devalued mortgage-backed securities tied to them, leading to large write-downs in assets at a number of financial firms. Countrywide Chief Executive Angelo Mozilo, Washington Mutual CEO Kerry Killinger, former Bear Stearns Cos. CEO James Cayne, and former Citigroup CEO Charles Prince were among those rewarded lavishly for betting on risky loans, according to labor officials. Mozilo and Cayne are also chairmen. "When the house of cards fell, they didn't pay for it, we did," said Trumka. Killinger's 2008 bonus excludes consideration of loan loss provisions, restructuring costs and expenses related to foreclosed assets, according to AFL- CIO officials, shielding him from any pain related to mortgage losses. Lenders encouraged excessive risk-taking by rewarding CEOs for short-term gains in revenue and return on equity, said Daniel Pedrotty, who heads the AFL- CIO investment office.