Given the refinance and home-buying boom of the last few years, it's no surprise that Angelo Mozilo, chairman and chief executive of mortgage lender Countrywide Financial Corp., has catapulted to the top spot as the highest-paid executive in Los Angeles.

Mozilo's take-home pay of $71.8 million topped last year's highest-paid executive, Ray Irani, chairman and chief executive of Occidental Petroleum Corp. Irani came in second with $68 million, while No. 3, Bruce Karatz, chairman and chief executive of homebuilder KB Home, earned $50.1 million last year.

Despite Countrywide's success the Calabasas-based company has become the nation's largest mortgage lender over the past several years Mozilo's pay package seems astronomical by the standards of normal working folk.

In fact, CEO pay remains stubbornly high, despite reforms aimed at better linking executive pay to performance. Scrutiny of reported results has been increased and penalties stiffened. In addition, certain forms of compensation, such as loans to CEOs that were later forgiven, have been outlawed. And the role of CEOs in setting their own compensation has been circumscribed.

Even so, pay keeps going up.

"The classic economic justification for why executive compensation is so high and disproportionate is similar to why baseball players or world-class ballerinas are paid so well," said Richard Cellini, senior vice president and head of research at "People are willing to pay an extreme amount for tiny increments of better performance. So corporate directors are willing to pay a huge amount for a guy who is running slightly faster than the next guy."

Mozilo received a base salary of $2.5 million in 2004, supplemented by a bonus of $17.3 million and other forms of compensation, including restricted stock and country club dues.

He also exercised stock options valued at $48.6 million that were granted in the years since he co-founded Countrywide in 1969. As of Dec. 31, Mozilo owned exercisable options valued at $308.2 million, plus another large chunk of unvested options, including 1.4 million he was granted last year.

His rich pay puts him in the stratosphere of U.S. executives. Forbes, which uses a different method to calculate executive pay, placed him No. 9 on its list of highest-paid executives in the United States.

And how does Countrywide respond? Company officials wouldn't comment, but the board's compensation committee issued a statement saying that Mozilo "has a unique role in the continued evolution of the company as a worldwide diversified financial services organization."

His 2004 compensation, the committee said, "reflects the outstanding and sustained financial performance of the company during the year," and has a "direct relationship to the company's financial and operational results."

On a roll
There's no denying that Countrywide has done very well. The stock split twice during 2004, as its adjusted price surged 52 percent amid near-record earnings and a prolonged mortgage-lending boom.

Overall value has increased by more than $7 billion since the beginning of 2004 meaning shareholders have benefited from owning the stock with Mozilo at the helm. And earnings for 2004, while down slightly from 2003, totaled $2.3 billion.

So in a sense, quibbles about a $35,932 country club bill, $23,314 for automobile use or $24,076 for tax and investment advice all part of Mozilo's 2004 compensation could be considered trivial.

Still, Mozilo's pay package, valued at $96.9 million by Forbes, contains features of the kind that have been criticized by watchdog groups.

One is the automatic raise. Mozilo's five-year employment agreement, which expires in 2006, calls for his base salary to rise by at least $200,000 a year. It rose nearly 9 percent in 2004, to $2.5 million, compared with the 2-4 percent average annual increase for CEOs, according to a study by compensation consultant Equilar Inc.

While options exercises lifted the total amount Mozilo took home, his bonus actually fell 13 percent last year, to $17.3 million.

Countrywide's proxy gives some explanation for the drop. Mozilo's cash incentives are based primarily on earnings, which declined slightly from 2003 to 2004. (The company said that changes to its incentive plan will give it more flexibility in awarding bonuses.)

Countrywide relies heavily on the pay practices of other companies in its so-called peer group to determine the amount of its executive compensation. The assumption is that the same big companies are competing for the same small pool of executive talent.

But such benchmarking has been cited as the biggest contributor to escalating executive pay, according to a report by the Council of Institutional Investors, a group of pension funds. Many watchdog groups are calling for companies to disclose the names of companies that are used in the peer group in setting CEO compensation.

Though Countrywide does not name any competitors or peers, the proxy states that the group is "a broader and more diverse" set of companies than those included in the S & P; Financial Index. So, rather than having Mozilo's peer group include only other large mortgage lenders, it contains a range of top financial institutions and other large public companies.

Yet at Citigroup Inc., Chairman Sanford Weill received a salary of just $1 million last year, plus a bonus of $8.4 million and $6.8 million of restricted stock. James Dimon, president and chief operating officer of JP Morgan Chase & Co., received a $1 million salary, a $6.5 million bonus and 600,000 new stock options, but no restricted stock.

"Compensation committees are taking a harder look at peer groups, looking at who really are their peers and whether there should be changes," said Daniel Marcus, a senior principal at Mercer Human Resources Consulting.

Countrywide, like many other companies, relied on a consultant (in this case Hewitt Associates LLC) to help evaluate the methodology behind Mozilo's pay package. "We target total compensation for executive officers assuming strong performance at the highest quartile as compared to our peer group," Countrywide's proxy stated.

Secure future
Mozilo is protected whatever happens.

Under the new agreement that takes effect next year, if either Countrywide or Mozilo decide he should leave, he receives a cash severance equal to three times his base salary and the average bonus or cash incentive award for the two preceding years.

He also gets an annual fee of $400,000, an office and secretary, the use of a private plane for up to 100 hours per year, and the continued payment of financial planning services and country club dues.

If there's a change in control at the company, or he dies or gets disabled, all of Mozilo's options vest in full.

Despite reforms and a higher level of scrutiny, board compensation committees are reluctant to make anything but small tweaks to executive compensation. Many are bound by generous employment agreements that were agreed upon years before.

And CEOs still have a fair amount of say in their own pay packages, making any cuts nearly impossible. Consultants may suggest changes but aren't always heard.

"It's time for a more comprehensive test of whether executive pay is unassailable will it stand up to scrutiny in the halls of a shareholder meeting or on a call with tough analysts?" said Jesse Purewal, a senior consultant at Sibson Consulting, a unit of Segal Co., in Los Angeles.

Sibson has been at the forefront of designing tests and performance-based ratios to determine if pay is actually aligned with performance. But even then, companies aren't always open to change.

"It has been a bit of a wake-up call for some clients, who hadn't realized they were paying so much or that they should base more pay on performance," Purewal said.

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