Sallie Mae Lowers Staff Bonuses in Wake of Losses
Tuesday, January 27, 2009
Sallie Mae is cutting cash bonuses by as much as 80 percent, reducing stock options and freezing merit pay increases for employees earning $50,000 or more after the student loan giant last week reported losses for a second consecutive year.
In addition, Sallie Mae Vice hairman and chief executive Albert Lord, Vice Chairman and Chief Financial Officer Jack Remondi and Chief Lending Officer Jack Hewes will not receive a cash bonus for 2008, which saw the lender lose $213 million.
The Reston lender lost $896 million in 2007, bringing total losses over two years to more than $1.1 billion.
"I recognize this is difficult news," Lord said in a memo to managers yesterday. "The best thing we can say about 2008 is it is behind us."
Sallie Mae spokesman Tom Joyce said the company was not disclosing the total savings from the reduction in bonuses, stock options and merit pay.
"This was not an easy decision," Joyce said. "Our management team worked tirelessly this year and made enormous progress on many fronts that will help students and schools in the years to come. However, we have a compensation system based on paying for results."
Sallie Mae's top executives have historically been among the highest paid in the region. Lord will earn about $1.125 million for 2008 even without a bonus that of more than $1 million in a good year.
Lord's combined compensation, which includes salary, bonuses and stock options, was enough to allow him to make a serious attempt at purchasing the Washington Nationals baseball team three years ago. Lord lost out to Theodore N. Lerner, a local real estate businessman. Much of Lord's wealth was in company stock, which is worth only a fraction of what it was before the financial crisis.
Remondi will earn about $1 million for 2008, according to the company. Hewes started in March and his salary has not yet been disclosed in company filings.
Sallie Mae employs 8,200 people nationwide, including 600 in the Washington area
Formally known as SLM Corp., Sallie Mae makes private student loans and ones backed by the federal government. The company then pools the loans into securities, which it sells to investors.
That model has been thrown into turmoil as disarray in the credit markets has meant fewer investors are willing to buy such securities, even for the federal loans guaranteed by the government.
The federal government has taken several steps to shore up lenders such as Sallie Mae, agreeing, for instance, to provide funding for federally backed loans and buy them if the companies could not find buyers.
The company attributed its loss in the final three months of 2008 to a write-down of $439 million on derivative contracts that it uses to hedge against swings in interest rates and currency values.
However, Sallie Mae said its core business of making student loans remained profitable. The company said it made $4.8 billion in loans in the fourth quarter, a slight increase from the $4.7 billion during the same period a year earlier.