WASHINGTON Dec 10 Fannie Mae and
Freddie Mac, the two mortgage firms operating under
U.S. government control, need increased regulator scrutiny to
ensure their senior staff pay structures are justified, a
government watchdog said on Monday.
There is a "significant cost" involved in retaining 11,900
non-executive employees at Fannie Mae and Freddie Mac, the
inspector general of the Federal Housing Finance Agency said in
a report. The watchdog estimated that in 2011 the two companies
paid about 90 executives a total of $92 million, while they paid
2,000 senior staff about $455 million.
Currently, pay levels for Fannie and Freddie's senior level
employees are mainly left to the two companies to determine,
while their regulator, FHFA, sets top executive officers'
compensation packages in consultation with the U.S. Treasury.
"FHFA's oversight of senior professional compensation is
comparatively limited," the report stated. That lack of
oversight restricts FHFA's "capacity to ensure that the costs
associated with senior professional compensation are warranted."
A major uproar from Republicans and Democrats over the
multimillion-dollar pay packages for Fannie Mae and Freddie
Mac's top executives has already prompted FHFA to take several
steps to rein in compensation this past year. To further limit
taxpayer liabilities, new salary benchmarks might be needed for
senior staffers, the watchdog said in its report.
Fannie Mae and Freddie Mac have soaked up almost $190
billion in taxpayer aid since the government seized them in 2008
at the height of the financial crisis.
The inspector general called on the FHFA to "develop a plan
to strengthen its oversight" of the costs involved in retaining
senior staff through reviews or examinations. The regulator
agreed with the watchdog's recommendations in the report.
Fannie Mae and Freddie Mac use market data from consulting
firms as part of the process in adjusting both executive and
senior staff salaries. FHFA has not tested the structures that
Fannie and Freddie use to pay senior staff in order to make sure
they are effective, the watchdog noted.
The report credited the FHFA for its increased control of
executive compensation. FHFA implemented a revised compensation
program this year that reduces the annual compensation of CEOs
nearly 90 percent from about $5 million to $600,000 each.
Separately, FHFA in December 2010 imposed a pay freeze on
general merit salary increases and cost of living adjustments
that has been extended to cover all of 2012. Since the pay
freeze has been in effect, employees do not receive more money
unless they are promoted.
Uncertainty about the future of Fannie and Freddie, which
many policymakers in Washington want to eventually wind down,
has made it difficult to attract and retain employees with
specialized skills and experience, the watchdog acknowledged.
FHFA will need to probe further whether using promotions or
changing job responsibilities might offset the impact of the pay
freezes on further attrition problems, the report stated.