April 14 (Bloomberg) -- Pay plans for chief executive officers helped create the subprime-mortgage crisis by encouraging companies to take on too much risk for short-term gains, the AFL-CIO said in an analysis.

Companies including Bear Stearns Cos., Countrywide Financial Corp., Merrill Lynch & Co. and Citigroup Inc. ``create incentives for CEOs to gamble on risky ventures in hopes they will lead to short-term increases in stock prices,'' hurting ``the long-term future of their companies and shareholders,'' the Washington- based AFL-CIO, the largest U.S. labor federation, said in an executive-compensation study released today.

CEO pay packages are often linked to performance measures such as revenue growth or return on equity that don't consider the risk the company takes on, Richard Trumka, the AFL-CIO's secretary-treasurer, said in a statement. ``When CEOs are paid obscene amounts to make bad decisions, it hurts average Americans who hold mortgages, have bank accounts and who are invested, such as through their pensions,'' Trumka said.

The collapse of the U.S. subprime-mortgage market has triggered $245 billion in asset writedowns and losses by financial firms since the start of 2007, according to Bloomberg data. In March, a House committee questioned former CEOs Charles O. ``Chuck'' Prince of Citigroup and Stan O'Neal of Merrill Lynch, and Countrywide CEO Angelo Mozilo about their pay.

``You always look to blame somebody,'' said Alan Johnson, a New York-based compensation consultant. ``But I don't think pay had much to do with what happened.''

`Say on Pay'

On its Web site, the AFL-CIO urged passage of so-called say- on-pay legislation to give shareholders a non-binding advisory vote on executive compensation. The labor federation also called for a law that would impose an immediate short-term moratorium on home foreclosures and convert low ``teaser'' interest rates on home loans to 30-year fixed mortgages.

Shareholders at Morgan Stanley and Goldman Sachs Group Inc. rejected say-on-pay proposals last week.

Prince, who left Citigroup under pressure in November when the company reported $6.5 billion in writedowns and losses for the third quarter of last year, received a $10.4 million cash bonus for 2007.

Prince's exit package ``was entirely proper and fair,'' Citigroup spokesman Michael Hanretta said in a statement. ``He received retirement benefits and prior equity awards to which he was legally entitled after almost 30 years with the company,'' he said.

Citigroup also took into account Prince's accomplishments and his agreement not to compete with the company or solicit its clients or employees, Hanretta said.

Countrywide, Bear Stearns

Mozilo received $121.7 million last year selling Countrywide shares, according to company filings. Countrywide spokesman Rick Simon didn't return a phone call seeking comment.

O'Neal resigned from Merrill in October with a $161.5 million package including stock bonuses based on his performance in previous years. Company spokesman William Halldin declined to comment.

The AFL-CIO report criticized a $14.8 million stock award in 2006 for James ``Jimmy'' Cayne, who was then CEO and is now chairman of Bear Stearns. The award followed the company's fifth straight year of record profit.

Rumors of a liquidity shortage pushed the fifth-largest securities firm to the brink of bankruptcy before it was sold last month to JPMorgan Chase & Co. for $10 a share, a fraction of its previous market value.

Bear Stearns spokeswoman Monica Orbe declined to comment.

To contact the reporter on this story: Ian Katz in Washington at ikatz2@bloomberg.net.

Last Updated: April 14, 2008 14:35 EDT