Fannie Cancels Executive Bonuses
Wednesday, February 21, 2007
Fannie Mae's board has decided not to give out executive bonuses potentially worth $44.4 million for some of the years when the federally chartered housing finance company's earnings were misstated.
The stock awards had been on hold since early 2005 after the company was caught up in an accounting scandal. They could have totaled $11.2 million for Franklin D. Raines, former chairman and chief executive; $3.4 million for J. Timothy Howard, former finance chief; $1.1 million for Jamie S. Gorelick, a former vice chairman; and $4 million for Raines's successor as chief executive, Daniel H. Mudd, company spokesman Brian Faith said.
A total of 46 current and former executives were affected.
Under a long-term incentive plan, the payouts had been pegged to the company achieving a combination of financial and other goals. The District company recently corrected years of past financial results, acknowledging that it had overstated profits by $6.3 billion.
It was unclear how much money the executives could have received based on the restated results, and spokesmen for the company declined to say.
The awards, known as "performance shares," were one component of overall pay packages that typically included salaries, cash bonuses, stock options and other forms of compensation. The stock awards were granted on a rolling schedule, based on the company's performance over various three-year periods.
For instance, executives had already received the first installment of awards for a cycle covering 2001 through 2003, and the board is not trying to reclaim that money, spokesman Chuck Greener said. Those awards were worth $4.1 million to Raines, $1.4 million to Howard and $1.8 million to Mudd.
The board "determined not to pay" the second installment for that cycle and "determined that no award was due" with respect to a three-year cycle ending Dec. 31, 2004, Fannie Mae said in a report filed yesterday with the Securities and Exchange Commission.
Regulators have alleged that Fannie Mae's senior management intentionally manipulated the company's accounting to hit earnings targets and maximize bonuses. Raines's pay totaled more than $90 million from 1998 through 2003, the Office of Federal Housing Enterprise Oversight said last year.
The agency has filed administrative charges against Raines, Howard and former controller Leanne G. Spencer, seeking to recoup more than $115 million of compensation plus penalties that could exceed $100 million.
The three former executives are contesting the charges.
Attorneys for Raines and Howard did not respond to requests for comment on Fannie Mae's announcement, which came after the markets closed yesterday.
OFHEO said it concurred with the board's decision not to issue the stock awards.
The action "was not directed at any specific individual but rather reflected the performance of Fannie Mae in the years 2001-2004," the regulatory agency said in a news release.
In addition to denying the bonuses, the board recommended "other actions regarding current employees" and the company "has undertaken disciplinary and remedial steps," the agency said. Neither the company nor the agency would elaborate on those other developments.
"With these actions OFHEO considers the board's required review of current officers and employees complete," the agency said.
Fannie Mae also announced that it was eliminating certain executive perquisites, such as company-owned country club memberships and payments for personal financial counseling, which help executives manage their money. In the future, executives would also be required to reimburse the company for personal use of corporate transportation, such as aircraft.
In 2003, Raines's compensation included $37,548 for tax counseling and financial planning services and $196,852 for personal use of company transportation, according to a Fannie Mae report. Mudd's compensation included $80,400 in club membership fees.