WASHINGTON (Reuters) - The regulator for Fannie Mae FNMA.OB and Freddie Mac FMCC.OB, responding to political pressure, on Friday slashed salaries for the chief executives of the two firms and ruled out bonuses for many top executives.
The new compensation plan for the two government-controlled mortgage market giants targets salaries for the chief executives at around $500,000 per year, down from base pay of $900,000 currently. Previously, they could earn as much as $6 million with deferred pay and bonuses.
The regulator, the Federal Housing Finance Agency, said the action would take total compensation for top executives to nearly 75 percent below the levels that existed before the government seized the firms in 2008.
The companies, which guarantee half of all U.S. mortgages, have soaked up about $170 billion in taxpayer aid since they were taken over.
“We tried very hard to be responsive to congressional concerns and to make appropriate adjustments,” said FHFA acting Director Edward DeMarco.
Revelations that the companies, the two largest sources of U.S. mortgage finance, were paying out $12.79 million in bonuses for 10 executives caused an uproar on Capitol Hill last fall among Democrats and Republicans.
“This is a long overdue change and a step in the right direction,” House Financial Services Committee Chairman Spencer Bachus, an Alabama Republican, said in a statement.
“The lavish compensation packages and million-dollar bonuses that have been given to top executives of these two failed companies are an outrage to the taxpayers whose assistance is the only thing keeping Fannie Mae and Freddie Mac afloat,” he said.
The changes would not affect the current CEOs, because both have announced they intend to depart. Both companies are searching for successors, and their salaries would have to be negotiated within the new pay framework.
The Senate has passed a bill to ban bonuses at the two companies, and that measure is currently being considered by a joint House-Senate negotiating committee. Lawmakers are also eyeing legislation that would tie compensation at Fannie Mae and Freddie Mac to a government pay scale.
The plan announced on Friday updates a 2009 agreement between the FHFA and the Treasury Department.
On Friday, the regulator said its main goal was to strike a balance between prudent pay and the ability to retain qualified staff so the firms can protect taxpayers’ investments.
“I remain very concerned about possible disruptions and risk to the taxpayer from widespread turnover that could result from dramatic changes in compensation,” said DeMarco.
The new framework will also affect the compensation of up to 70 of the top executives at the two government-run firms whose performance-based pay packages will be eliminated.
Under the plan, the chief financial officers would be the highest earners and could receive as much as $3 million in compensation. Some other top executives could pull in as much as $2 million.
Fannie Mae’s outgoing chief executive, Michael Williams, earned $5.3 million in 2011, including $900,000 in base salary. Freddie Mac CEO Charles Haldeman Jr earned $3.8 million last year, including $900,000 in base salary.
“We’ve begun discussions with possible CEO candidates,” DeMarco said. “They understand that we’re seeking individuals at compensation more akin to government service than corporate employment.”
Freddie Mac on Friday announced a fourth-quarter profit of $619 million but requested a further infusion of $146 million in taxpayer funds from the Treasury to help make interest payments on government loans used to keep it afloat.
Last week, Fannie Mae said it would seek an additional $4.6 billion in government funds after reporting a $2.4 billion loss for the quarter ended December 31.
Additional reporting by Rachelle Younglai; editing by Theodore d'Afflisio, Leslie Adler and Padraic Cassidy