CEO Pay at Fannie Mae and Freddie Mac

By on April 5, 2011 in Corporate Gov., In The News, USPX

On Thursday, the inspector general of the Federal Housing Finance Agency (FHFA) released a devastating report on executive compensation at Fannie Mae and Freddie Mac in the wake of the government’s $153 billion bailout of those firms. CEOs Michael Williams and Charles Haldeman received a combined $17 million for 2009 and 2010. The firms’ top six executives earned a combined $35 million over that period.

Before we condemn this excess, let’s stop and think. How we frame a story is important. So far, the media and pundits have presented these executives’ compensation as inappropriate in light of the government’s massive bailout. Yes the context is damning, but it is also irrelevant. The executives’ compensation is excessive irrespective of context.

Saying it is excessive in the context of the bailout suggests that this level of compensation might be acceptable in another context—perhaps if Fannie and Freddie had not needed a bailout. That puts us on a slippery slope because there are other corporations in America that did not receive bailouts. Is it acceptable for executives of those corporations to pay themselves tens of millions of dollars in compensation? See what I mean about framing?

Rather than frame executive compensation at Fannie and Freddie in the context of the government’s bailout of those firms, let’s frame it in the context of another study that was released on the same day. USA Today reported that median CEO pay rose 27% in 2010, to $9 million. That is disgusting.

Not many years ago, median CEO compensation was one-tenth that amount. Corporations were just as well run as they are today. Probably, they were better run. Shareowners and society receive nothing for today’s largess. Whatever checks and balances may have once existed are broken. CEOs take their astronomical pay for one simple reason: because they can.

Some may think this is how capitalism works, but they delude themselves. Grasping CEOs and the entrenched boards that pamper them have nothing to do with the capitalism of Adam Smith. They resemble more the corrupt nobility of Machiavelli. Call them pigs, or call them leaches. They are on the wrong side of history.

Michael Williams and Charles Haldeman aren’t a separate issue. They are part of the same problem.

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One Response to CEO Pay at Fannie Mae and Freddie Mac

  1. Claire F May 15, 2011 at 4:48 pm #

    There are a couple of different approaches here:
    1) Educate more individuals as investors so we become a larger proportion of stock owners in all companies; at that point we can chose to sell the stock in the companies that pay their execs more than we think is wise

    2) Propose laws that require that mutual funds to pass on voting rights to mutual fund holders. This could be an accounting nightmare but if it were given to fundholders of record that had a) held the fund for at least one year and b) passed on voting rights for companies in the holdings that represent 10% of fund holdings. Fundholders could chose to pass that responsibility to the directors but would not have to.