GSE Chiefs To Congress: Show Us The Money!

GSE Chiefs To Congress: Show Us The Money! The question of compensation for the executives at the government-sponsored enterprises (GSEs) created a significant difference of political opinions yesterday, with the chairman of the House Committee on Oversight and Government Reform issuing a report that referred to ‘lavish bonuses’ and ‘immense compensation packages,’ while the CEOs of Fannie Mae and Freddie Mac claimed their compensation structure was necessary to ensure stability and quality in their operations.

Rep. Darrell Issa, R-Calif., the committee chairman, issued a report yesterday entitled ‘Government-Sponsored Moguls: Executive Compensation at Fannie Mae and Freddie Mac.’ Issa's report complained that the GSE executive salary structure was created in comparison to compensation policies at profitable private-sector corporations and not federal regulatory agencies. The report also noted that the GSEs are guaranteed financial rewards, even though Fannie Mae and Freddie Mac continue to register billions of dollars in losses.

‘If private institutions were not profitable by themselves, as is presently the case with the enterprises,’ the report said, ‘instead of being handsomely rewarded with bonuses, their executives would be fired.’

The committee also questioned President Obama's absence from the debate on GSE compensation. A new video entitled ‘Fannie & Freddie Bonuses: Stunning Silence from President Obama’ was posted on the committee's YouTube page, while the Issa report questioned the administration's priorities in regard to the GSEs.

‘Although the administration's rhetoric on executive compensation for companies who owe money to taxpayers has been tough in the past,’ the report stated, ‘the administration appears to be in no hurry to change the existing dynamic of executives receiving millions in compensation while taxpayers continue to lose billions on the bad decisions of Fannie Mae and Freddie Mac.’

The GSE executives, responding in testimony before the committee, defended the current compensation structure as being essential to ensuring they attract and maintain high-caliber officers.

‘There is great uncertainty for the company and its employees, as we know there will be GSE reform, but we don't know what form it will take and when,’ said Michael J. Williams, president and CEO of Fannie Mae. ‘This uncertainty makes it very difficult to attract and retain employees with highly specialized skills, expertise and experience. Other financial institutions can offer long-term career opportunities, and in many cases, substantially more compensation.

‘The attrition at our company this year is already double our historical experience,’ Williams continued. ‘If we are to continue to provide the stability that our housing finance system needs and protect the taxpayers' investment in our company, we must retain and recruit qualified executives and employees. Our ability to attract and keep this talent is essential to rebuilding the housing market, which is necessary to get our country on the road to recovery.’

Williams insisted that Fannie Mae was working to trim compensation levels.

‘Aggregate target total compensation for our executive management is down 50 percent or more from target total compensation levels prior to conservatorship,’ he said. ‘We have also reduced senior managers at the company by 30 percent. Fannie Mae's resulting compensation plan for senior officers is structured to pay for performance, which reflects general principles of good corporate governance. It is consistent with the congressionally mandated requirement in Fannie Mae's Charter Act that a significant portion of the compensation of senior officers be based on the performance of the company. A substantial portion of this pay is deferred, encouraging executives to make decisions that will benefit the company over the long term.’

Charles E. Haldeman, CEO of Freddie Mac, echoed Williams' concerns about personnel turnover, adding that working for the GSEs creates additional challenges for financial executives.

‘We operate in an environment today in which virtually every business decision is closely scrutinized and subject to public criticism,’ he said. ‘Many executives are unwilling to accept these risks for less than what they could earn elsewhere.’

Haldeman, who previously announced that he was leaving Freddie Mac next year, stressed that the U.S. taxpayers would be hurt if the current GSE compensation system was drastically altered.

‘In my view, cutting compensation at this time would only exacerbate these problems by driving away even more employees,’ he said. ‘This would greatly reduce the value of taxpayer investment in our company.’

According to Issa's report, Williams' 2010 compensation included $900,000 in base pay and $2.37 million in bonuses, while Haldeman stands to earn up to $6 million this year between his base pay and bonuses. In comparison, the GSEs' regulator – Edward DeMarco, acting director of the Federal Housing Finance Agency – earns $239,555 a year.

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