Hello Freddie? I’d like to apply for a job!

Okay, this is just too much.   Supposedly when the government (meaning you and me!) bought/bailed out Fannie Mae and Freddie Mac, they gave all of the top executives a major pay cut.   I mean after all, they were going from being private citizens to being civil servants.

Well, guess what, Freddie just hired a new CFO.  And guess what, they are paying him $3.5 Million a year.   That’s right, $3.5 Million per year.   Oh, and that works out to almost a 400% increase from what he was making last year.

Oh, Freddie?   Are you out there?   If you are offering 400% pay increases, I’d like to apply for a job!

Tom VanderwellFreddie Mac hands out big bonus to new CFO | footnoted.org

Last we checked, Freddie Mac (FRE) was still operating under a conservatorship, having received over $51 billion in taxpayer money. And, we seem to recall lots of chest-beating last year about sharply lower salaries and fewer perks for the new group of top executives charged with setting Freddie (and Fannie Mae) back on the path to prosperity.

So you can imagine our surprise when we came across this employment contract yesterday for Freddie’s newly named CFO, Ross J. Kari. Here’s a few key bullets:

* annual compensation of $3.5 million (this includes $675K in salary, $1.6 million in something called “additional annual salary” and $1.1 million in a target incentive
* a $1.95 million signing bonus
* immediate buyout of Kari’s house (or perhaps houses)
* reimbursement for travel between Washington D.C. and Kari’s residences in Ohio, Washington and Oregon

Needless to say, none of this — and certainly not the ridiculous sounding additional annual salary — was included in the press release that Freddie put out earlier this week.

Technorati Tags: Freddie Mac, Government Bailout, Executive Compensation

A couple of thoughts on Bank Payrolls

Tom here…..

Diana at Housing Wire does a great job of summarizing what’s happening with the bank executive pay issues, so I’m going to just throw a couple of observations into the mix:

1. I don’t think that it should be limited to just the top 5 or 10.   How about the top 5 to 10 percent instead?
2. This whole mess about how we need to be able to pay them outrageous sums of money or they will leave and go elsewhere is a big pile of, well, let’s just say it doesn’t float with me.    Let me explain:  These are the people who have made the decisions that have put the banks in the situation they are.   It wasn’t the lowly commercial lender who is out meeting with Mom and Pop stores or the mortgage loan officer who was looking at the rate sheet and product offering and writing what they had to offer.   The people in the top 10% are the ones who made the decisions that impacted the direction of the bank.    If they made such bad decisions to put the bank in the position that it’s in, do we really want them there?    Also, they can get lots of stock options yet.   If they won’t work for $500K plus stock options to help the bank and the industry, do we really want them there?
3. No one, that I’ve read, has made much of the distinction about “exceptional” aid.   What does that mean?   Does that mean that if they have gotten over $5 Billion?   Why not make it mandatory for all banks who have gotten TARP money?

In case you didn’t gather, I don’t like it….

Tom Vanderwell

Obama, Geithner Crack Down on Executive Pay : HousingWire || financial news for the mortgage market

As President Barack Obama called for “basic common sense” regarding executive pay Wednesday, the Treasury Department was announcing a campaign of measures to limit the compensation of top executives at institutions that receive government funds through the Troubled Asset Relief Program. “The Treasury guidelines on executive pay seek to strike the correct balance between the need for strict monitoring and accountability on executive pay and the need for financial institutions to fully function and attract the talent pool that will maximize the chances of financial recovery and taxpayers being paid back on their investments,” Treasury officials said in a media statement regarding the restrictions.

Any firm designated as needing “exceptional assistance” — or TARP funds beyond what’s reasonably accessible to other institutions, usually through bank-specific agreements with the Treasury — will be subject to strict regulations regarding executive compensation and company expense. The Treasury will require the institutions to limit the annual compensation of senior executives to $500,000, other than restricted stock, with any additional pay made in the form of restricted stock that vests when the government has been repaid the bailout funds with interest. The top five seniors of the firms are currently restricted from receiving any golden parachute payment upon severance from employment, “a ban that will be expanded to include the top 10 senior executives” with the new rules, which also require the companies to adopt a strict policy toward extra expenditures “related to aviation services, office and facility renovations,” (ahem — John Thain) “entertainment and holiday parties, and conferences and events.”

Banker Pay, Executive Compensation

Well, it’s about time!

UBS is going out on a limb. Responding to hefty losses, regulatory pressure and public outcry, the Swiss bank has overhauled compensation for top executives. The new plan goes well beyond forgoing bonuses this year, as UBS bosses have done and Goldman Sachs’s bosses are doing. It could set a new industry standard.

The goal is to reduce the perverse one-way incentives that are widespread at financial institutions. Typically, fat bonuses are paid out for risky bets that start well but aren’t returned if the bets later fail.

That’s no longer going to be the case at the top of UBS. Starting next year, no more than one-third of any cash bonus will be paid out the year it is earned. The rest will be held in reserve and can be reduced by future losses, risky trading or compliance shortcomings. Share awards will also be handed over only after three years. The share amount can also be reduced by a “malus,” or negative bonus.

Breakingviews.com – Bankers to Learn What ‘Malus’ Is – NYTimes.com.

What a novel concept!   Let’s reward the top execs if things go well but set up the compensation structure so that they realize they’ll have to return some of it if the deal goes sour!

Maybe we are seeing somewhat of a return to common sense?

What do you think?

Tom Vanderwell