In the fallout from an accounting scandal, Fannie Mae's top 43 executives will not be awarded bonuses for 2004, the company said last night. In addition, potentially lucrative stock awards for the group will be postponed until Fannie Mae sorts out its books.
The company also said in a regulatory filing that its principal accounting officer, Leanne G. Spencer, stepped down as senior vice president and controller. Spencer, who was criticized by regulators in a September report, will remain on the payroll for a year in an advisory role unless she resigns or is fired, Fannie Mae said.
Regulators have accused Fannie Mae of manipulating earnings, and the company is planning to correct financial statements dating to 2001. The company has estimated that it could be required to record $9 billion in losses that it excluded from reported income since a key accounting rule took effect. Annual bonuses have been tied to Fannie Mae's profits, and for many executives they have exceeded salaries. In 2003, for example, Fannie Mae's five most highly paid executives received a combined $3.4 million in salaries and more than twice that amount, $8.2 million, in annual bonuses.
Data released this week by one of the company's congressional overseers showed that Fannie Mae paid more than $65.1 million in bonuses to 749 members of management in 2003, an average of $86,953 per recipient. From 2001 through 2003, Fannie Mae paid $154.3 million in bonuses, according to Rep. Richard H. Baker (R-La.), chairman of a House subcommittee overseeing the government-chartered housing finance company.
He urged recovery of executive compensation based on false financial results, and the Office of Federal Housing Enterprise Oversight, Fannie Mae's primary regulator, has vowed to try to recapture any such payments.
Fannie Mae spokeswoman Janis Smith said she could not say how much the executive group received in bonuses last year. "Based on its assessment of the company's performance in 2004, the board didn't believe it was appropriate to pay bonuses to the top 43 executives," Smith said.
OFHEO spokeswoman Stefanie Mullin said Fannie Mae "consulted with us, and we thought it was appropriate and reasonable."
Still unresolved is how much money former chairman and chief executive Franklin D. Raines and former chief financial officer J. Timothy Howard will take with them in various forms of compensation. The two executives were forced out last month.
In its filing, Fannie Mae said it is deferring stock awards under a long-term incentive pay program "until reliable financial data for the relevant periods are available." Raines and Howard and three other top executives received long-term incentive payments totaling $24.4 million last year.
With the ouster of Raines, Fannie Mae named real estate executive and longtime board member Stephen B. Ashley to the new position of non-executive chairman. Fannie Mae said yesterday that it will pay Ashley an annual fee of $500,000. The company also amended its bylaws to eliminate a requirement that its chairman and chief executive be the same person.
Many corporate governance specialists have advocated a separation of powers to provide greater checks and balances, but under Raines, Fannie Mae had opposed any such requirement.
Spencer will leave the controller's position on Jan. 31 and be replaced by David C. Hisey, a former auditor at KPMG LLP. Though KPMG audited the financial statements that Fannie Mae must now correct, Hisey was not involved in the accounting firm's audits of Fannie Mae, the company said.
In a September report accusing Fannie Mae of accounting violations, OFHEO said Spencer told investigators she lacked a detailed understanding of certain accounting rules at issue. OFHEO said it considered "unacceptable" Spencer's "inability to comment on the regulatory accounting standards which govern the Enterprise's accounting policy." Spencer would not comment for this story, spokeswoman Smith said.