Before the Bust, These CEOs Reaped Big Gains

provided by

The credit bubble has burst. The economy is tanking. Investors in the U.S. stock market have lost more than $9 trillion since its peak a year ago.

But in industries at the center of the crisis, plenty of top officials managed to emerge with substantial fortunes.

Fifteen corporate chieftains of large home-building and financial-services firms each reaped more than $100 million in cash compensation and proceeds from stock sales during the past five years, according to a Wall Street Journal analysis. Four of those executives, including the heads of Lehman Brothers Holdings Inc. and Bear Stearns Cos., ran companies that have filed for bankruptcy protection or seen their share prices fall more than 90% from their peak.

The study, which examined filings at 120 public companies in such sectors as banking, mortgage finance, student lending, stock brokerage and home building, showed that top executives and directors of the firms cashed out a total of more than $21 billion during the period.

The issue of compensation and other rewards for corporate executives is front-and-center in the wake of the financial meltdown. Congress has held several hearings attacking Wall Street chieftains and others for perceived excesses given the state of their companies and the economy. America's boardrooms also are wrestling with the issue, trying to formulate pay plans that give proper long-term incentives.

Some experts say huge paydays inevitably coincide with economic booms. In the tech bubble of the late 1990s, more than 50 individuals each made more than $100 million from selling shares just prior to the crash. Many had just founded companies that had never turned a profit.

"The system tends to reward people for participating in bubbles," says Roy C. Smith, a finance professor at New York University's business school. Mr. Smith, a former partner of Goldman Sachs Group Inc., says that almost nobody anticipated the recent collapse.

Still, some firms are taking action to change their compensation systems. This week, Goldman Sachs, which recently received government funds, said its top brass would forgo bonuses for this year. Swiss banking giant UBS AG said it would hold some future compensation for executives in escrow, and pay it out only for strong long-term performance.

Many executives highlighted in the Wall Street Journal study defended their compensation, noting that the cash they took out was tied to strong financial results and that shareholders flourished along with them. Some officials executed regularly scheduled sales of stock. Others exhibited good timing in stock sales, cashing out shares months or years before the market's steep decline.

Most of those at the top of the list retained far more shares than they sold, meaning that their paper losses exceed the amount they took out of their companies. Some are founders or longtime executives who had built up equity over decades. Others on the list left their companies long before the crisis hit.

In a surprising finding, home-building executives often made more money than better-known Wall Street titans. One is Dwight Schar, chairman of NVR Inc., a Reston, Va., home builder best known as the parent of Ryan Homes. He made more than $625 million in the five years, nearly all of it from selling stock. NVR's stock, though down 64% from its 2005 peak, has held up better than that of many rivals, in part because the company didn't buy vacant land on which to build its mostly midpriced homes.

Mr. Schar's own home these days is an 11-acre oceanfront compound in Palm Beach, Fla., with a tennis court, and two pools, purchased in 2004 and 2005 for $85.6 million from billionaire investor Ronald O. Perelman, according to county officials. Through a spokesman, Mr. Schar declined to comment.

In its study, the Journal analyzed the compensation and stock sales of insiders at financial and housing-related companies over a five year period. The study used compensation data from Standard & Poor's ExecuComp and stock-trading information from InsiderScore.com.

The goal was to determine how much cash insiders actually collected, including salary, bonus, and cash realized from stock-option exercises and open-market sales of stock. The tally doesn't include paper profits from vesting of restricted stock or exercising options, unless the executive sold the resulting shares.

By surveying entire industry groups, the Journal's study includes some companies that are under intense regulatory and law enforcement scrutiny because of their actions during the bubble. It also includes firms merely swept up in the crisis, as well as those performing well considering the economy.

For example, Charles Schwab, chairman and founder of the brokerage company that bears his name, realized $817 million over the five years, almost all through stock sales. A spokesman says Mr. Schwab, 72, regularly sells stock to diversify his holdings and pursue charitable activities, and still holds a 17% stake. Schwab shares are up over the past five years and have held up well in the downturn. Mr. Schwab and his wife have established a charitable foundation that gives millions annually to help children with learning disabilities, among other causes.

Six of those who made more than $100 million headed home builders, the Journal analysis found. One is Robert Toll, CEO of Toll Brothers Inc., a Horsham, Pa., firm known for building deluxe suburban homes. Mr. Toll and brother Bruce Toll, a company director, together garnered $773 million in compensation and stock proceeds over the five-year period.

A big chunk of Robert Toll's stock sales were in a one-month period just as Toll Brothers' stock roared to its all-time peak in mid-2005. It's off 73% since then. A Toll Brothers spokeswoman declined to discuss the timing of stock sales. She said the CEO's compensation is based on performance and that his stock gains resulted from equity he built up as a founder of the company.

The list includes some familiar names, such as Angelo Mozilo, who realized $471 million during the five-year period as he piloted Countrywide Financial Corp. into a leading subprime lender. Amid huge losses, Countrywide was sold earlier this year to Bank of America Corp. Mr. Mozilo defended his pay before Congress earlier this year, saying his compensation was tied to performance and he had built up equity over decades as a founder.

Some who made large sums before the recent crisis don't appear on the list because their wealth isn't detailed in securities filings. These include hedge fund chiefs, Wall Street traders, and executives who sold their companies outright.

In 2006, Herbert and Marion Sandler reaped more than $2 billion selling their mortgage lender, Golden West Financial Corp., to Wachovia Corp. Analysts have said losses in Golden West's loan portfolio contributed to Wachovia's subsequent downfall. Wells Fargo & Co. has agreed to buy Wachovia.

Mr. Sandler, 77, defends Golden West's underwriting and says its loan losses weren't big enough to bring down Wachovia. Mr. Sandler, who pledges to give the proceeds of the sale to charity, adds that he held on to an "extremely material" amount of Wachovia stock, which lost 90% of its value since early 2007. "If we had foreseen what was going to happen, we would have sold all our stock," he says.

The Sandlers' sale of their company has been well publicized. Others who profited have kept a low profile, including the executives below:

Page 1 | 2