Category: Freddie Mac

Freddie Mac

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In a 5/1/09 WSJ article, James Hagerty reported that Freddie Mac, the quasi-governmental mortgage giant, has designated a $1.3M retention bonus for its human resources director, Paul George. This is equal to the bonus that Fannie Mae, the other mortgage giant, is paying its new CEO, Michael Williams. In 2008, Mr. George’s compensation package was $2.3M.

As I noted in an earlier blog, the majority of employees at Freddie Mac and Fannie Mae have been offered retention bonuses. Presumably, the Federal Housing Finance Administration (FHFA) regulator that oversees these two companies feels that such a retention policy is needed to keep many employees from abandoning ship. Why was Mr. George paid so highly?

“Freddie has had a spotty record of executive recruitment in the recent years,” Hagerty notes. Freddie tried for several years to find a replacement for their CEO and has been looking for a CFO since September of last year.

On April 22nd, David Kellerman (bio), the acting CFO, committed suicide. After working for 16 years at Freddie Mac and rising to the position of corporate controller, Mr. Kellerman became the 4th CFO at Freddie Mac in six years. He earned $1.2M last year and was scheduled for a retention bonus of $850K. Although Congress is conducting an investigation into the company, Mr. Kellerman was not the subject of any inquiry.

Freddie Mac is unable to recruit executive talent. A long time employee commits suicide for no obvious reason, leaving a wife and young daughter behind. The majority of employees are offered retention bonuses to stay with the company. Congress is conducting an investigation into the company’s finances. Taxpayer money continues to be shoveled into this hole.

Fannie Mae Bonuses

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In a 4/5/09 WSJ article, James Hagerty notes that Fannie Mae and Freddie Mac, the two formerly quasi-government mortgage giants that were effectively nationalized last fall, “expect to pay about $210M in retention bonuses to 7600 employees over 18 months.” The maximum bonus that will be paid is $1.5 million. $51M were already paid in 2008 and the remainder are due to be paid this year and next.

Of the 7600 employees receiving bonuses, 4057 are employed by Freddie Mac and constitute a whopping 80% of all the employees at that company. Fannie Mae is rewarding 61% of their employees, 3545 in total, or 61% of their total work force.

The regulator, James Lockhart, is responsible for initiating the retention bonus program. “It is not realistic,” he wrote, “to expect that experienced and highly skilled employees will indefinitely continue to work as hard as they have if we do not provide reasonable incentives to work.” As thousands of people in the financial industry line up at the employment office, why isn’t a paycheck enough “incentive” for most of these workers?

Since Congress has squashed or eliminated many bonuses for those banks receiving bailouts, it is mandatory that Congress follow the same principle with these institutions which have received far more taxpayer money than any of the private banks or investment firms.