Describing the issue of executive compensation as the ‘most vexing’ he's faced since becoming conservator, Federal Housing Finance Agency (FHFA) Acting Director Edward DeMarco on Thursday defended the recently reported million-dollar bonuses for Fannie Mae and Freddie Mac execs as a necessity for minimizing taxpayers' exposure to the companies.
Last week, it was reported that 10 government-sponsored enterprise (GSE) executives are slated to receive nearly $13 million in bonuses. The bonuses have rankled lawmakers, including a bipartisan group of 60 senators who demanded an explanation from DeMarco in a letter late last week.
In a response to the senators posted on the FHFA's site Thursday, DeMarco broadly outlined the structure of the GSEs' executive compensation program and justified the compensation packages as a means of keeping top talent at the two firms.
"I have concluded that it would be irresponsible of me to risk this enormous contingent taxpayer liability with a rapid turnover of management and staff, replaced with people lacking the institutional, technical, operational, and risk management knowledge requisite to the running of corporations with thousands of employees and more than $2 trillion in financial obligations each," DeMarco said.
He also explained that since the FHFA revised the GSEs' compensation program in late 2009, senior executive pay has fallen by an average of 40%.
According to DeMarco, one-third of each executive's target compensation is based on a combination of individual and corporate performance. Additionally, deferred salary represents a ‘significant component’ of the remainder of the target compensation, DeMarco said, explaining that deferred salaries are meant to incentivize executives to stay on board. Half of the deferred salary is based on corporate performance.
‘Simply put, most of the so-called bonuses are simply deferred salaries,’ DeMarco said.
"The decisions FHFA faces in overseeing multiyear conservatorships are unprecedented and striking the right balance of limiting pay while attracting and retaining competent executives is a continuing challenge," he added. "As difficult as these judgments are, I recognize they should be re-evaluated from time to time."
DeMarco additionally stated that he will provide a more in-depth explanation of the GSEs' compensation program at a Senate Banking Committee hearing Nov. 15.