Freddie Mac chief executive Richard F. Syron was paid $3.6 million in cash and received an additional $9.2 million in stock and options in his first year at the top, a record level of executive pay for the housing finance company that follows its emergence from a damaging accounting scandal.
In addition to his $1.1 million salary, Syron received a $2.5 million cash bonus, $4.8 million in restricted stock and stock options valued at around $4.4 million.
Though the company's executive pay program has been changed to avoid the financial incentives that regulators said contributed to its 2003 accounting troubles, Syron's first-year package nevertheless surpassed that of his predecessor, Leland C. Brendsel. In 2001, his highest-pay year, Brendsel received $3.2 million in salary and bonus and stock and options worth $8.6 million.
In 2003, Freddie Mac disclosed that it had shuffled billions of dollars in profit between years in an effort to show steady improvement in the company's bottom line. The accounting maneuvers led to the resignations of Brendsel and another chief executive, Gregory J. Parseghian, before Freddie Mac hired Syron in December 2003.
Syron's bonus last year was tied largely to nonfinancial measures, such as adhering to the McLean company's public mission, improving internal controls and delivering long-delayed financial reports to investors. In previous years, senior Freddie Mac executives' bonuses were largely tied to achieving earnings growth, a practice regulators said encouraged executives to manipulate the books to make it appear as if the company was meeting those goals.
Like its larger cousin, Fannie Mae, which is in the midst of its own accounting overhaul, Freddie Mac buys mortgages from banks and other lenders to keep the housing market supplied with cash. Part of its mandate under a congressional charter is to encourage homeownership, particularly for low- and moderate-income families. As a result of the accounting problems at both companies, Congress is prepared to tighten regulation of Fannie Mae and Freddie Mac.
Freddie Mac spokeswoman Shawn Flaherty said the compensation levels in 2004 reflect the board's mandate to Syron to clean up the company's accounting problems and build a team of experienced executives, while meeting goals.
"Syron wanted his pay to reflect the company's goal of increasing homeownership for America's families," she said. "And those goals are all measurable.
"Service to our mission and service to our shareholders are not mutually exclusive ideas, but instead we see them as mutually reinforcing."
Flaherty said Syron wanted to move away from compensation being tied to earnings per share.
Syron's pay was disclosed yesterday by the company as it released its long-delayed annual report and proxy statement to shareholders.
Freddie Mac's earnings per share in 2004 were $3.94, compared with $6.69 in 2003 and $14.17 in 2002.
Freddie Mac's auditor in 2003 found that the company had underreported profit by more than $5 billion from 2000 through 2002 in an effort to smooth out earnings growth. The errors led to a $125 million civil penalty imposed by Freddie Mac's federal regulator, the Office of Federal Housing Enterprise Oversight.
Subsequently, the Securities and Exchange Commission, Labor Department and the Internal Revenue Service began investigating aspects of the company's accounting. A criminal investigation by the U.S. attorney's office in Alexandria is also underway. Several shareholder lawsuits have been filed.
In the documents released yesterday, Freddie Mac estimated that it may cost between $75 million and $100 million to resolve those legal issues.
Five of Freddie Mac's top six executives were hired since the accounting restatement issues surfaced in 2003, and they all made significantly more than their predecessors.
Eugene M. McQuade, whom Syron hired as president and chief operating officer on Sept. 1, was paid $2.87 million in salary and bonus for four months on the job. He was also given more than $6 million in restricted stock, but no options.
Restricted stock is stock that can't be sold until it vests, usually in increments over four years.
Patricia L. Cook, executive vice president for investments and capital markets, was hired on Aug. 2. She was paid $3.25 million in salary and bonus for five months of work and awarded $1.87 million in restricted stock as well as options valued by Freddie Mac at $500,123.
Both McQuade's and Cook's compensation included $2 million signing bonuses.