Executive Compensation Report

Who Got What in a Slowing Economy

Financial Industry's Leaders Among Best Paid in Region

Washington Post Staff Writer
Monday, July 28, 2008; Page D01

Washington's growing financial sector was one of the first to feel the effects of the year-long slide that grew out of the mortgage mess. Although most financial firms saw their stocks wither, the industry's top executives continue to be among the best paid in the region, according to a Washington Post survey of large public companies.

Leaders at Freddie Mac, Fannie Mae, Capital One Financial, Allied Capital and American Capital each earned more than $10 million in 2007, according to the survey.

Several companies said the pay reflects their executives' efforts to navigate a difficult economic environment. Local executives have kept their companies afloat by containing the subprime mortgage crisis, hiring talented people, reorganizing businesses and generally running the enterprises, according to various proxy reports, spokesmen and interviews with human resource specialists.

Nevertheless, executive pay is a hot topic as the credit crisis continues to simmer. In the case of Freddie Mac and Fannie Mae, for instance, Congress just approved legislation to create a new regulator with the power to set compensation at the two government-sponsored enterprises.

Rep. Sam Johnson (R-Tex.), speaking on the floor of the House last Wednesday, criticized the pay packages at Fannie Mae and Freddie Mac.

"Why should taxpayers foot the bill to prop up those former giants when the company CEOs rake in a bundle and continue to do so?" Johnson said. "It's privatized profits and socialized risk. . . . Everyone knows I'm a strong supporter of freedom and free enterprise, but this is ridiculous. The lack of accountability and responsibility is astounding."

Fannie Mae and Freddie Mac representatives said their boards of directors put the brakes on certain parts of compensation packages in 2007 in recognition of the companies' struggles.

Experts note that an overall compensation package for any given year does not mean an executive will receive the money that year, or maybe ever. Stocks and bonuses can be spread over several years and sometimes not even materialize if an executive doesn't meet certain goals. On the other hand, compensation such as stock options or stock awards can grow to an amount far exceeding the size at which they were granted.

On average, the 100 highest-paid executives received $6.6 million, according to The Post examination. Data were provided by Equilar, an executive compensation research firm in Redwood Shores, Calif. The big factor in getting on the top-100 list was bonuses. Ninety-eight percent of the executives on the list received a bonus averaging $1.47 million. Seventy-nine percent received a direct stock award, with an average award of $2.7 million. Stock-option grants were given to 72 percent of the executives at an average value of $2.3 million.

At Fannie Mae and Freddie Mac last year, as at many other companies across the region and the country, the risky stock option was out. Stock awards and bonuses were in.

Richard F. Syron, chairman of Freddie Mac, earned $14.5 million in 2007, including a $2.2 million performance bonus. A company spokesman said the $2.2 million was only 66 percent of his targeted bonus of $3.34 million, showing that the board of directors held Syron accountable for the rough sledding at Freddie Mac. Freddie Mac's stock dropped by about half in 2007, destroying billions in shareholder value.

Even though he didn't receive all of the bonus he could have, Syron was paid another $1.25 million bonus in November when he agreed to stay an extra year and allow the board time to choose his successor. The company had offered the top job to Chief Operating Officer Eugene M. McQuade, who turned it down.

CONTINUED     1           >

© 2008 The Washington Post Company