On Tuesday, the House Financial Services Committee passed, by a 52-4 margin, a bill designed “to stop future bonuses at Fannie Mae and Freddie Mac and suspend the current multi-million dollar compensation packages for the top executives.”
The rest of the Committee’s press release on the bill:
Earlier this month, the Federal Housing Finance Agency announced the CEO of Fannie Mae received $5.6 million in compensation and the CEO of Freddie Mac received $5.4 million. Under the bill, the top executives of Fannie and Freddie could only have earned $218,978 this year.
H.R. 1221, the Equity in Government Compensation Act, ensures that executives and employees of Fannie Mae and Freddie Mac will receive compensation that is in line with pay practices at federal financial regulatory agencies. The bill does not make them Federal employees, but it aligns their compensation with that of Federal employees.
“The taxpayer-funded bailout of Fannie Mae and Freddie Mac is the biggest bailout in history. Adding insult to injury, the top executives of these failed companies receive multi-million dollar pay packages, all courtesy of American taxpayers who are having a difficult time making ends meet these days. These lavish compensation packages and bonuses are unfair, unreasonable and unjust to the taxpayers whose assistance is the only thing keeping Fannie and Freddie afloat,” said Chairman Bachus.
Since their bailout Fannie and Freddie have received $170 billion in taxpayer dollars. While the GSEs have continued to report losses and receive additional bailout money, the executives of the companies have received millions in compensation and bonuses. On Christmas Eve 2009, Treasury and FHFA ratified $42 million worth of Wall Street-style pay packages for the GSEs’ 12 top executives. In 2010, FHFA approved similar pay packages. According to its SEC 10-K filings, Fannie Mae paid its top six executives $15.4 million in salaries and bonuses. Fannie Mae CEO Michael Williams earned $5.6 million. Freddie Mac paid its top five executives nearly $18.5 million. Freddie Mac CEO Charles E. Haldeman, Jr. was paid $5.4 million. Earlier this month it was revealed that Fannie and Freddie would award $12.8 million in bonuses to the top executives.
“Today the Committee approved a bill to stop rewarding the executives of these bailed out companies. Never again should Americans be forced to send their hard earned tax dollars to be wasted on multi-million dollar pay packages for Fannie and Freddie executives,” said Chairman Bachus.
And who wouldn’t be angry at these organizations having incinerated more than a hundred billion dollars of taxpayer money in a quest to fulfill politicians’ mandates to increase home ownership regardless of whether new owners could actually afford those homes?
But if you were a talented financial manager (and I have no opinion of the talent level of current GSE management), would you likely work at a place which paid you no more than a senior manager in any division of government? People have a handful of prime earning years in their lives. We have a responsibility to our families to earn what we can. This is, of course, not the only factor which would go into a decision about where to work. Everything from job enjoyment to patriotism could fit into someone’s willingness or desire to try to clean up the mess made by politicians from Jimmy Carter to Barney Frank to George W Bush.
But just because the companies have failed does not mean the current executives have failed. And with so many billions of taxpayer dollars at stake, don’t we want to incentivize the best possible care-taking of our money by those entrusted to clean up the mess?
What I would propose, rather than telling these people that they will never be able to earn a decent living trying to save billions of taxpayer dollars, is an incentive program by which a third party analyst group projects expected results from the GSEs and where executives at the GSEs can be financially rewarded for beating those results. Perhaps a bonus pool could be created equal to some fractional percentage of the savings of taxpayer dollars, with the pool capped at some dollar amount.
There is little doubt that current multi-million dollar bonuses for executives of Fannie Mae and Freddie Mac appear inappropriate, and the politics of opposing them makes for easy populist soundbites. But to go to the other extreme and make it impossible for someone who can earn seven figures in the private sector only to be able to earn $100,000 or even $200,000 at a GSE is penny-wise and pound-foolish.
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