GSE executive bonuses and corporate culture
Based on reported earnings that it must now correct, Fannie Mae paid $65.1 million in bonuses to employees in 2003, according to one of the federally chartered company’s congressional overseers.
The bonuses, pegged to annual earnings targets set by the company’s board, were distributed to 749 members of management.
Even if they are big dollars ($65 million), the executive bonuses are a drop in the bucket (well, actually, 0.7% of a bucket) of the $9 billion in earnings writedown it appears Fannie Mae will have to make. So is this just scapegoating?
No, says House Financial Services committee Capital
The bonuses are “extremely relevant to the question of fixing a corporate culture so focused on short-term success that it appears to have created the wrong type of incentives that may have played a part in the manipulation of earnings,” Baker said in a news release.
All this emphasis on executive bonuses is part of a pattern of building up political pressure to increase regulatory oversight of the financially very complex GSEs (Fannie Mae and Freddie Mac):
“There is no question but that the statutory enforcement powers given OFHEO with respect to Fannie Mae and Freddie Mac pale when compared to the explicit enforcement powers given the federal banking agencies under the banking laws,” said Raymond Natter, former deputy chief counsel for the Treasury Department’s Office of the Comptroller of the Currency, which regulates national banks.
The second front, soon to be opened, is whether the GSEs make efficient use of their taxpayer-funded advantages to achieve their important affordability goals.
Now that Fannie Mae has halved its dividend (for the first time in 23 years), another potential front will be shareholder lawsuits, such as those against Enron and WorldCom.
