Obama Seeks Review of CEO Exit Pay
By KARA SCANNELL and PHRED DVORAK
September 10, 2008; Page A5
Sen. Barack Obama and two senior Democratic lawmakers have asked the
government to review exit-pay plans for the departing chief executives
of Fannie Mae and Freddie Mac, increasing pressure on the
executives to give up part of their multimillion-dollar payouts.
In two letters, one from
Sen. Obama and a joint letter from Sens. Charles Schumer (D., N.Y.) and
Jack Reed (D., R.I.), the senators requested that Fannie and Freddie's
regulator review the compensation plans using new authority it received
as part of this year's housing bill. The letters come as Democrats and
Republicans have begun trading shots over who deserves blame for the
conditions that led to the government takeover of the two mortgage
Freddie Chief Executive
Richard Syron, a former official with the Federal Reserve who joined the
mortgage company five years ago, is expected to forfeit some of his
estimated $14 million pay package, according to a person close to him.
In a statement, a
spokesman for Mr. Syron said, "Mr. Syron is not seeking a windfall. It
is important to him that our country have a strong mortgage finance
system that provides affordable mortgages for homeowners and reliable
liquidity for lenders -- and he is helping in every way he can with the
Fannie Mae CEO Daniel Mudd
is expected to walk away with $9.2 million, including some stock he
already owns. An attorney for Mr. Mudd said Mr. Mudd is considering a
request to stay for a transition period. The attorney declined to
comment on whether Mr. Mudd intended to return any of his exit package.
Persuading executives to
fork over pay is difficult, and companies often are bound by
During the past few years,
companies have been trying to make it easier to get back money by adding
"clawback" provisions to executive-employment or pay agreements. Such
provisions stipulate conditions under which companies can take back
executive pay - most often when executives are responsible for errors
that led to accounting restatements.
In 2006, the latest
figures available, 42.1% of Fortune 100 companies had adopted clawback
provisions, compared with 17.6% in 2005, according to pay-tracker
Equilar Inc. Last year, the percentage was likely to top 50%, Equilar
said. Few companies have used the provisions.
In a letter dated Sept. 9
to Treasury Secretary Henry Paulson and Federal Housing Finance Agency
Director James Lockhart, Sen. Obama urged the officials to make sure the
government deal to take over the mortgage companies "voids any such
inappropriate windfall payments to outgoing CEOs and senior management."
Citing the new housing bill, Sen. Obama said FHFA could block any
payments that were contingent on termination and said to not do so would
be a "gross violation of the public trust" as taxpayers will need to
foot the bill.
The housing law, passed in
July, gave the FHFA the authority to approve pay packages and prohibit
or limit severance pay, known as golden parachutes, to executives who
leave as part of a change of control or other circumstances. Among the
conditions FHFA would consider, according to the law, is whether the
executive "is substantially responsible for the insolvency of the
regulated entity, the appointment of a conservator or receiver for the
regulated entity." It isn't clear if the law would apply to Fannie's and
Freddie's current chief executives, whose play plans were in place
before the law.
On Sunday, when the
Treasury Department and FHFA announced the plan to put the companies
into conservatorship, Mr. Paulson said he blamed the
government-sponsored entities' "flawed business model" and the
housing-market crunch. "Managements and their boards are responsible for
neither," Mr. Paulson said.
It isn't clear if Treasury
would support moves to cut the executives' pay. A Treasury spokeswoman
declined to comment on the letters.
Sens. Schumer and Reed,
senior members of the Senate Banking Committee, said in their letter to
FHFA Tuesday that for the executives to receive millions of dollars in
pay was "way out of line." The letter asked FHFA to review the exit-pay
packages and "where appropriate" to "substantially reduce or eliminate
In an interview with the
PBS "Nightly Business Report" on Monday, Mr. Lockhart said, "We're not
going to try to get part of the money back."
Mr. Lockhart added: "The
new CEOs will have salary and benefits significantly lower than the old
CEOs." A spokeswoman for FHFA said Tuesday, "We are working through the
compensation issues and have nothing more to say at this time."
Write to Kara
firstname.lastname@example.org and Phred Dvorak at