By David S. Hilzenrath
Washington Post Staff Writer
Friday, June 22, 2007
Fannie Mae's board of directors has proposed releasing millions of dollars of incentive payments to current and former employees based on the company's performance since 2003, including periods in which earnings were misstated and regulators allege the company was mismanaged.
Chief executive Daniel H. Mudd stands to receive shares worth $1.9 million, the District mortgage funding company said in a filing with the Securities and Exchange Commission late yesterday.
The plan, adopted by the board last week, is subject to approval by the Office of Federal Housing Enterprise Oversight, which regulates the government-chartered firm.
The agency has asked Fannie Mae to provide "additional data and analysis" on the proposal, and Fannie Mae "is in the process of responding to that request," OFHEO spokeswoman Corinne Russell said.
Fannie Mae spokesman Brian Faith declined to elaborate on the company's filing.
The payments involve compensation plans under which executives had the potential to receive varying amounts of Fannie Mae stock based on the company's performance during three-year cycles. Fannie Mae's board proposed paying 40 percent of the potential maximum for the cycle that ended in 2005 and 47.5 percent for the cycle that ended in 2006.
The accounting scandal exposed such weaknesses in Fannie Mae's financial systems and internal controls that the company remains unable to fulfill a basic requirement of any public company: issuing quarterly financial results on a timely basis. It plans to resume doing so by February.
The board had put off decisions about the payments as a result of the company's delayed audited financial results for 2005 and 2006. The company has yet to issue its 2006 financial statements, but the board concluded it had "a sufficient basis" to determine the payouts for the cycle ending in 2006, the SEC filing said.
Though regulators have severely criticized the way Fannie Mae was run, it isn't clear whether their complaints have any bearing on the incentive payments. The company said it determined the payments based on financial and non-financial criteria established at the outset of each cycle.
The company has acknowledged overstating past income by $6.3 billion. But for 2003 and the first half of 2004, periods covered by the incentive payments, Fannie Mae said it originally understated its profit by nearly $1.4 billion. And, in yesterday's filing, Fannie Mae said the incentive payments were pegged to a different measure of earnings.
Fannie Mae didn't disclose how much money, if any, former chairman and chief executive Franklin D. Raines would receive. He left the company after the SEC in 2004 directed it to correct previously reported financial results. When the incentive plans were put in place, Raines had the potential to earn about three times as much as Mudd over one cycle and about four times as much over the other cycle, according to company filings.
Raines is engaged in a legal battle with OFHEO, which is trying to recoup compensation he received in the past.
Mark Fabiani, a spokesman for Raines, said by e-mail that he didn't know any more than what Fannie had disclosed in the filing.
The company, which made a $400 million settlement with regulators, continues to defend itself in class-action litigation with investors. Meanwhile, it has announced plans to reduce its workforce by several hundred employees.