Government-run mortgage-finance firms Fannie Mae (FNM) and Freddie Mac (FRE) said Thursday that their chief executive officers, Michael Williams and Charles Haldeman respectively, are each eligible for pay packages of as much as $6 million for 2009.
The companies said that the pay packages for top executives at both companies were approved by their regulator, the Federal Housing Finance Agency or FHFA, in consultation with the Treasury Department's pay czar Kenneth Feinberg. Williams and Haldeman each will receive $900,000 in salary, $3.1 million in deferred payments and up to another $2 million if they meet certain performance goals, the two companies said in separate filings with the U.S. Securities and Exchange Commission or SEC.
The announcements are likely to provoke a new round of controversy concerning the federal government's role in propping up the two companies. Taxpayers have pumped more than $111 billion of capital into both the companies to prevent them from collapsing amid huge losses stemming from falling home prices and mortgage defaults.
Fannie Mae and Freddie Mac were chartered by Congress to provide liquidity to the housing market and were seized by the FHFA in September 2008 as the collapsing housing market forced both companies to incur significant losses. That move, under a legal process known as conservatorship, allows the regulator to control the board and management of the companies, although their common shares remain owned by private shareholders.
Since then, both the companies have operated as wards of the state. Salaries for executives at Fannie and Freddie are not subject to approval by the government's pay czar Kenneth Feinberg, but the arrangements still need to be scrutinized and approved by regulators.
Fannie Mae, formally known as the Federal National Mortgage Association, said in a filing with the SEC that it adopted new pay packages for its executive officers on December 16, subject to the approval of the FHFA. The regulator in consultation with the Treasury Department approved the new compensation packages. Accordingly, Fannie Mae said that for 2009, the compensation packages for its executives consist of an annual base salary, and deferred pay, that will be paid in four equal quarterly installments in March, June, September and December 2010. The executives will also be eligible to long-term incentive awards in the event they and the company achieve performance measures established by the company and approved by FHFA. The long-term incentive award will be payable in cash, with 50% of the award payable in 2010 and the remaining 50% of the award payable in 2011.
Except for Fannie Mae's Chief Compliance Officer, the actual amount of each executive officer's long-term incentive award for the year 2009 will be based on individual and corporate performance for the year, as determined by Fannie Mae's board of directors and as approved by the Director of FHFA. The company noted that Williams' compensation for the year will be prorated to reflect the portion of the year he served as the company's Executive Vice President and Chief Operating Officer, and the portion of the year he served as its President and Chief Executive Officer. Williams took over as Fannie Mae's President and CEO on April 21, 2009 after the company's first government-appointed CEO, Herbert Allison, took a job at the Treasury Department.
Fannie Mae said that the base salary for the company's Executive Vice President and Chief Financial Officer, David Johnson, will be $0.65 million, while his annual deferred pay will be $1.70 million and long-term incentive award will be up to $1.15 million.
Johnson's base salary rate is retroactive to January 1, 2009. Fannie Mae said that the new compensation package for Johnson will replace and supersede the compensation package described in Fannie Mae's Form 8-K filed with the SEC on December 1, 2008.
Williams and three other top executives at Fannie Mae are eligible to receive an additional payment pursuant to a 2008 retention program, according to the filing.
The company said that direct compensation for its executive officers for the year 2010 will consist of annual base salary, deferred pay that will be paid in four equal quarterly installments, and a long-term incentive award, payable 50% each in 2011 and 2012.
Fannie Mae said it will limit perquisites for its executive officers to $25,000 per year, effective January 1, 2010. However, the Director of FHFA, in consultation with Treasury, may approve of exceptions to the $25,000 limit on perquisites on a case-by-case basis.
In connection with this decision to limit perquisites, Fannie Mae said it will no longer fund universal life insurance coverage for its current and retired executive officers, including Herbert Allison, Fannie Mae's former President and Chief Executive Officer.
Further, the company said it will freeze benefit accruals in the Executive Pension Plan for all participants, including Williams and Bacon, effective December 31, 2009. Separately, Freddie Mac, formally known as the Federal Home Loan Mortgage Corp., said that CEO Charles Haldeman will receive a base salary of $900,000 and annual deferred salary of $3.10 million. Based on performance, Haldeman's long-term incentive award for the year has been set at up to $2 million. The compensation for the company's CEO is the same as that for Fannie Mae's CEO.
Haldeman, a former mutual fund executive, was named Freddie Mac's CEO in July 2009. He is due to receive the same pay level in 2010.
Freddie Mac's chief operating officer, Bruce Witherell, will receive a base salary of $0.70 million, annual deferred salary of $2.30 million and a long-term incentive award of up to $1.50 million.
Freddie Mac said that the base salary for its Chief Financial Officer, Ross Kari, will be $675,000, while his annual deferred pay will be $1.658 million and long-term incentive award will be $1.167 million. Separately, the FHFA said the new compensation packages for top executives at both the companies utilize the same general structure of packages approved by the Feinberg for top executives at financial institutions that received most help under the government's Troubled Asset Relief Program, or TARP.
The FHFA said that pay at the companies must be sufficiently high to "attract and retain" top talent, reflecting the debate over salaries at companies receiving government support. The regulator that the new compensation programs for top executives at both the companies are significantly lower from the levels in place prior to conservatorship. On average, total compensation for executive officers at both the companies for 2009 is down 40% from pre-conservatorship levels, the FHFA said.
The regulator said that beginning January 1, 2010, further reductions will be made so that base salary for executive officers will not exceed $0.50 million per year, except for five positions approved by FHFA.
The exceptions are for the chief executive officers and the chief financial officers of both the companies, and the chief operating officer of Freddie Mac. Fannie Mae has no chief operating officer. In contrast, before the conservatorships in 2008, the two companies had a combined sixteen officers with salaries above $0.50 million, the FHFA noted. According to the regulator, deferred salary is designed to replicate the "stock salary" that has been approved by the Special Master for executives at firms receiving exceptional TARP assistance. Because of the both the companies' unique circumstances, they are prohibited from providing corporate shares to employees - salary amounts payable over time will be denominated in cash.
The Wall Street Journal had earlier reported that regulators and company officials were not able to reach a consensus on how the pay should be structured, partly because executives did not want to be paid in the companies' low-value stock. It was also difficult to tie compensation to the companies to long-term performance as the long-term picture for both the companies remain unclear. In Thursday's regular trading session, FNM is trading at $1.06, up $0.01 or 0.95% on a volume of 1.49 million shares. In the past 52 weeks, the stock has been trading in a range of $0.35-$2.13.
FRE is trading at $1.30, down $0.01 or 0.76% on a volume of 1.40 million shares. The stock has been trading in a range of $0.35-$2.50 in the past 52 weeks.
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