March 7 (Bloomberg) -- Wall Street executives defended their compensation against criticism from lawmakers, who faulted them for pocketing hundreds of millions of dollars while shareholders lost billions on subprime mortgages.

Countrywide Financial Corp. Chief Executive Officer Angelo Mozilo, and former CEOs Charles Prince of Citigroup Inc. and Stan O'Neal of Merrill Lynch & Co., appearing today at a House Oversight and Government Reform Committee hearing in Washington, said the pay packages justly reflected their performance.

Congress is scrutinizing executive compensation after the world's largest banks and securities firms reported $188 billion in losses linked to subprime mortgages since the start of 2007. Prince and O'Neal stepped down after reporting losses last year. Mozilo agreed in January to give up $37.5 million in connection with Bank of America Corp.'s proposed takeover of Countrywide.

``As our company did well, I did well,'' Mozilo said today, noting Countrywide's stock price rose 23,000 percent from 1982 through April 2007. Since the company suffered its first loss in 30 years last year, ``my direct compensation and obviously the value of my own Countrywide stock holdings declined substantially, which is as it should be.''

Countrywide's board ``adopted a compensation policy that aligns the interests of top executives with shareholders by making compensation largely performance-based,'' Mozilo, 69, told the panel. He earned $121.7 million last year selling Countrywide shares.

`Economic Realities'

``There seem to be two different economic realities,'' said Representative Henry Waxman, the California Democrat who heads the oversight panel. ``Most Americans live in a world where economic security is precarious. But our nation's top executives seem to live by a separate set of rules.''

O'Neal, 57, defended Merrill's pay practices. ``The compensation of senior management at Merrill was determined through a rigorous and independent process, and consistent with pay levels in the industry,'' O'Neal said.

He noted that the company's revenue rose to $32.7 billion in 2006 from $18.3 billion in 2002. ``As a result of the extraordinary growth at Merrill during my tenure as CEO, the board saw fit to increase my compensation each year.''

O'Neal lost the confidence of investors and directors after delivering a $2.24 billion third-quarter loss last year. Merrill has said O'Neal's stock awards were granted before 2007, and he didn't get a bonus last year or severance.

Citigroup, the largest U.S. bank by assets, ``worked hard to align management's interests with the interests of shareholders,'' Prince said. Prince, 58, who left Citigroup in November, came under pressure after the bank reported $6.5 billion in writedowns and losses in the third quarter.

`Competitive Market'

Executive compensation, especially in the financial services sector, is ``driven by a highly competitive market to attract and retain talent,'' Richard Parsons, chairman of Time Warner Inc. and chairman of Citigroup's compensation committee, told the panel. ``The competition for talent is especially important for a company with the scale and scope of Citi,'' he said.

Goldman Sachs Group Inc., the most profitable securities firm in Wall Street history, said today that it awarded $67.5 million each to Co-Presidents Gary Cohn and Jon Winkelried, boosting their pay 27 percent from the prior year as the company evaded the mortgage losses spreading through the economy.

Goldman, based in New York, disclosed the awards in a regulatory filing.

Virginia's Tom Davis, the top Republican on the oversight panel, questioned the objectives behind scrutinizing CEO pay, saying lower compensation packages won't likely help the U.S. economy or benefit consumers that have lost their homes.

`Satisfying Ritual'

``Punishing individual corporate executives with public floggings like this may be a politically satisfying ritual,'' he said. ``In the end, it won't answer the questions that need to be answered about corporate responsibility and economic stability.''

Some Wall Street firms are changing the way they pay top executives amid investor backlash.

Merrill, the world's largest brokerage, said in January it wouldn't pay 2007 bonuses to three top executives after the New York-based company reported an annual loss of almost $7.8 billion. Merrill said it would begin awarding ``retention'' options tied to the company's stock price.

Morgan Stanley

Morgan Stanley CEO John Mack didn't take a 2007 bonus after the second-biggest U.S. securities firm by market value wrote down $9.4 billion in debt securities during the fourth quarter and reported its first loss.

The firm said in a February regulatory filing it had approved a three-year performance-based stock-option plan. Unlike previous Morgan Stanley stock-option plans that vested over time, the new options will be canceled if specific targets for shareholder return and profit aren't met.

None of the executive committee members at Bear Stearns Cos., the fifth-biggest securities firm, are taking bonuses after a $1.9 billion writedown and declines in trading and investment banking wiped out fourth-quarter revenue.

Merrill is a passive, minority investor in Bloomberg LP, parent of Bloomberg News.

To contact the reporters on this story: Ian Katz in Washington at ikatz2@bloomberg.net; Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.

Last Updated: March 7, 2008 16:50 EST