Taxpayers are up in arms after the Federal Housing Finance Agency (FHFA) approved exorbitant $4 million salaries for the CEOs of Fannie Mae and Freddie Mac. Given the $188 billion equity injection Fannie and Freddie received from the U.S. Treasury during the 2008-2009 financial crisis, coupled with the government’s ongoing backstop of support from taxpayers, Americans have every right to be livid with this decision. And Congress can and should act to protect taxpayers should the FHFA not change course.
The CEOs of the respective Government Sponsored Enterprises (GSEs) are already receiving an extremely generous $600,000 in annual compensation, which was capped in 2012. According to recent filings with the Securities and Exchange Commission (SEC), Fannie CEO Timothy Mayopoulos and Freddie CEO Donald Layton will see base salary increases of $150,000 annually – from $600,000 currently to $750,000 as of July 1. In addition, they will receive annual fixed deferred salaries of $2,050,000 each, plus at-risk deferred salaries with a target amount of $1,200,000 annually. This amounts to an annual target salary of $4 million.
{mosads}Despite White House, Treasury Department and broad Congressional opposition, FHFA moved forward with the salary increases.
In support of its decision, FHFA Director Mel Watt stated the increases are designed to, “promote CEO retention, allow reliable succession planning and ensure the continuity, efficiency and stability” of Fannie and Freddie. Increasing salaries for valued corporate officers is an entirely reasonable position to take for truly private sector companies. Unfortunately, Fannie and Freddie are still too closely bound up in government’s apron strings.
In its recent filing with the SEC, Fannie stated that the target salary of $4 million is “substantially below the 25th percentile of compensation for chief executive officers in our comparator group.” Likewise, Director Watt confirmed the new compensation structure was “well below” the 25th percentile at comparable companies, a group the Wall Street Journal stated, “includes firms such as U.S. Bancorp, Allstate Corp. and PNC Financial Services Group Inc.”
Yet there are no truly comparable firms to Fannie and Freddie; the Treasury’s senior preferred stock in each company makes them completely different than their supposed peers. And compared to top government officials, the proposed salaries are indefensible – ten times that of the president, almost 16 times more than the Chief Justice of the Supreme Court and nearly 18 times more than the Speaker of the House of Representatives.
FHFA should reverse its decision immediately. If it does not, Congress should pass Rep. Ed Royce’s (R-Calif.) Equity in Government Compensation Act that would suspend the salary increases for 2015.
The ultimate relief for taxpayers, however, would be to wind down Fannie and Freddie and let the private sector provide additional liquidity to the mortgage market through secondary market purchases. Unlike shareholders of private companies, taxpayers have no say in management decisions of Fannie Mae and Freddie Mac. Public officials therefore have a special responsibility to protect taxpayers, through all possible means.
Packard is Policy and Government Affairs manager at the National Taxpayers Union.