When the mortgage market was booming and Countrywide Financial founder Angelo Mozilo was cruising to an annual pay packet of $141,975,114, there was at least one cautionary voice.

The Corporate Library was grousing even back then—the heady days of 2005—that Countrywide was in danger of a very nasty fall.

Now that the fall is here (Countrywide's stock has cratered, falling by more than 50 percent this year), the Corporate Library is using the nation's biggest mortgage lender and its woes to make a larger point:

Executive pay can be a very useful measure of good corporate governance. Investors ignore it at their peril.

"Regardless of other strengths, when a company's executive compensation policy is as poorly designed as this one, experience has led us again and again to lower our rating to reflect the highest level of governance risk at that company," chief analyst Ric Marshall and senior research associate Paul Hodgson wrote in a report this week.

"The fundamental truth is this: Any board which can make such poor decisions about a C.E.O.'s compensation package is almost certain to be making poor decisions elsewhere in its range of responsibilities," they added. "We saw this in 2000 and 2001 at Global Crossing, another high flyer cast down to Earth, and at any number of seemingly strong companies since.

"C.E.O. pay that is poorly aligned with sustainable shareholder value is not just the idealist's soapbox; it is a power early warning sign of significant governance weakness."

In particular, the Corporate Library criticized contractual pay guarantees granted to Mozilo, most of them assured regardless of his or the company's performance. Annual increases in salary, stock option grants, and retirement benefits, for example, were awarded without being tied to performance.

When bonuses and stock grants were tied to performance, more than one reward was sometimes linked to the same metric, effectively rewarding Mozilo twice for the same thing, the Corporate Library analysis said.

Countrywide dismissed the report in an e-mail statement to Reuters:

"Countrywide's executive compensation agreements are strongly tied to the company's performance, including stock and earnings results. The board of directors has established a pay-for-performance model that assures alignment of executive strategies with the shareholders' interests. [Mozilo's] personal wealth remains centered in Countrywide, further aligning him with the interest of all shareholders."

Note to other shareholders: Mozilo sold millions of Countrywide share over the last few years, even as the board was handing him millions more...

by Mark Stein