FBR's Awful Truth

But for pure chutzpah, nothing tops the recent announcement that, following a year in which the company posted an operating loss of $740 million, Billings and three other top executives were awarded bonuses and stock grants worth $30 million, at the time equal to nearly 9 percent of FBR's market value.

The rationale given by FBR's compensation committee is a model of twisted logic that now infects the minds of corporate directors. It noted that these executives had gone years -- yes, two entire years! -- without a bonus because of the company's poor performance due to a subprime mortgage crisis that was outside their control. And it lauded them for their great success in selling off the subprime assets for which they grossly overpaid, and for raising $220 million through the IPO of the investment banking subsidiary to investors who, in the space of eight months, have seen the value of their shares fall by two-thirds.

One can only imagine what bonuses the FBR directors would have lavished on Billings and his associates if they had sold stock that had actually increased in value.

But equally absurd was the rationale for granting Billings $2 million and an additional 3.5 million shares of FBR stock as a retention award, so he won't go leave the company over the next three years. This is the founder of the firm with his name on the door, who, with 6 percent of the common stock, is already the firm's largest individual shareholder. By his own admission, he bet the firm on residential real estate and subprime mortgages -- and lost. So where else is he going to go? Does anyone really believe that recruiters from Goldman Sachs are banging on his door?

Of course, the better question is why, rather than picking the pockets of beleaguered shareholders to pay big retention bonuses, FBR's directors haven't sent Billings packing. After all, that's what happened at Citigroup, Merrill, Morgan Stanley and Bear Stearns in the wake of similar misjudgments. At FBR, by contrast, not a single top executive has lost his job as a result of the mortgage debacle.

Steven Pearlstein can be reached atpearlsteins@washpost.com.