Bonuses Mount as Stock Falls

FBR Pays Millions To Keep Executives

Friedman Billings Ramsey Group, the Arlington investment firm battered by the credit crunch and subprime slump, last week granted senior executives cash and stock potentially worth about $30 million.

The grants involve a mix of 2007 bonuses and incentives designed to ensure that senior executives stay with the firm, and reward them for guiding the company through its troubles. The compensation included $11 million in cash and common stock payable to five senior executives, including Eric F. Billings, chief executive and chairman. Billings also received $2 million in cash, which he has to pay back if he leaves the company before 2010.

Billings and two other top executives will receive a total of 7.25 million shares of stock if they stick with the company for three years. The shares become available to the executives in one-third increments every year, starting in 2009. If those shares were available at Friday's closing price, they would be worth $18 million.

Some executive compensation analysts said the sums are excessive. They cited FBR's declining stock price -- down 63 percent in the past year -- as one reason top management should not be rewarded so richly.

"We all like pay that ties to performance. That's more like pay for failure," said Scott A. Fenn, managing director of policy at Proxy Governance, a Vienna proxy research and advisory firm.

FBR noted in a filing with the Securities and Exchange Commission that Billings had not received any cash bonuses in 2005 and 2006. Billings also has told the board he does not want any cash bonuses for the next three years. Under his direction, the firm invested $550 million in the subprime business in early 2005, but almost immediately started to see that investment wane. Ultimately, the investment lost almost all of its value.

According to the filing, the compensation committee of FBR's board of directors recommended the bonuses and retention incentives announced last week because management successfully oversaw the initial public offering of FBR Capital Markets, a subsidiary investment bank, and eliminated the firm's exposure to subprime mortgages.

"In recognition of their efforts and achievements, certain members of executive management should receive bonuses in excess of the bonuses to which they would have been entitled based on the performance goals established in early 2007," the filing said.

Fenn said that logic was twisted.

"It's a little bit of a tough argument to say you should reward somebody to get you out of the subprime business when they took you in at the top and proceeded to ride the thing down," he said.

Alan Johnson, a New York compensation expert, said other Wall Street firms, also hit hard by the subprime crunch, have richly rewarded their top executives this season. But he noted that FBR's decline has gone on longer.

"Other major financial services firms stepped up and paid a lot of people in '07, even with bad results," Johnson said. "It isn't unusual that the board paid people in '07. What's unusual is this is the third bad year in a row."