In response to public anger and pressure from U.S. lawmakers, the government regulator overseeing Fannie Mae and Freddie Mac is limiting pay for the mortgage giants' new chief executives once appointed. Pay for other top executives at the mortgage giants, however, is not budging much, putting the new CEOs in the potentially awkward position of making less than some of their subordinates.
The Federal Housing Finance Agency, which controls Fannie Mae and Freddie Mac, announced on Friday that when its current chief executives step down, replacements will receive $500,000 per year with no bonuses. Though the number might seem eye-popping to most, it is comparatively low for the financial services industry and marks a 91 percent pay cut from the current chief executives' maximum pay.
The heads of both Fannie Mae and Freddie Mac have said they plan to resign this year. Michael Williams, chief executive of Fannie Mae, received $5.259 million in total pay last year, and Charles Haldeman, chief executive of Freddie Mac, earned $3.799 million, according to the FHFA.
For 2012, nearly all other senior executives at Fannie Mae and Freddie Mac are receiving a 10 percent pay cut in maximum pay, according to the FHFA -- which means that the CEOs will make less than some executives. For example, Ross Kari, the chief financial officer of Freddie Mac, will receive a maximum of $3.15 million for his work in 2012, and Susan McFarland, chief financial officer of Fannie Mae, will receive a maximum of $2.88 million. Other senior executives' maximum pay for 2012 exceeds $1.7 million.
In response to public outrage, Congress has been pushing the mortgage giants to eliminate bonuses. The House Financial Services Committee approved legislation in November that would have ended bonuses for senior executives altogether at the companies. A bipartisan group of senators have also said they want to ban bonuses at Fannie Mae and Freddie Mac.
Fannie Mae and Freddie Mac have cost taxpayers about $169 billion since their government takeover in 2008.
The FHFA argues that lowering pay comes with the risk of attracting lower-tier talent, which could end up costing taxpayers more money.
Edward DeMarco, acting director of the FHFA, said in a statement on Friday that "a sudden and sharp change in pay from these levels would certainly risk a substantial exodus of talent, the best leaving first in many instances." DeMarco earns $239,555 per year, according to a Freedom of Information Act request from WikiOrgCharts.
Michael Cosgrove, a spokesman for Freddie Mac, said in a statement that Freddie Mac shares the FHFA's concern that its "executive compensation framework must enable us to attract and retain highly qualified professionals." He noted that Freddie Mac's executive compensation is "significantly below the 25th percentile of market-based peers."
Fannie Mae muted its concerns on Friday in an amended SEC filing and in a statement that the new executive pay program is "consistent with good stewardship of taxpayer resources and will enable the company to attract and retain qualified executives."
But in an earlier filing for 2011, Fannie Mae wrote that steep executive pay cuts would endanger Fannie Mae's ability to conduct business effectively.
"A sudden and sharp decline in compensation would likely cause significant and swift employee turnover, restrict recruitment of qualified replacements and decrease engagement of remaining employees," Fannie Mae wrote. "An improving economy is likely to put additional pressures on turnover, as attractive opportunities become available to our employees."