Payouts For Ousted CEOs Anger Shareholders
RENEE MONTAGNE, host:
This is MORNING EDITION from NPR News. Good morning. I'm Renee Montagne.
Now that Fannie Mae and Freddie Mac are in the hands of the government, these huge mortgage companies will likely need billions of dollars of taxpayer money to shore up their finances. Their stock prices are near zero, leaving shareholders with major losses, although, as NPR's Frank Langfitt tells us, the two men who ran the companies won't be leaving with empty pockets.
FRANK LANGFITT: A few days ago, Daniel Mudd and Richard Syron were told they were out as the respective heads of Fannie Mae and Freddie Mac, but the men won't leave the mortgage giants empty-handed.
According to an analysis by James F. Reda & Associates, a compensation consulting firm, Mudd could depart with six to $7 million, and Syron could leave with $11 million. That's as long as they're terminated, quote, "without cause." News of such potential payouts left shareholders angry.
Mr. STEPHEN LERNER (Service Employees International Union): It's ridiculous.
LANGFITT: That's Stephen Lerner. He's an official with the Service Employees International Union. Like other unions, the Service Employees had pension money in some Fannie and Freddie stock. The union is still trying to figure out how much it's lost. Either way, Lerner says paying executives well after financial failure makes no sense.
Mr. LERNER: There are these compensation packages that you tank a company, you potentially tank part of the whole economy, and you still walk away with millions of dollars.
LANGFITT: Both presidential nominees have criticized the agreements. Democrat Barack Obama has asked both the Treasury and the Federal Housing Finance Agency to look into the matter.
Senator BARACK OBAMA (Democrat, Illinois; Presidential Candidate): Yesterday, I sent a letter to Secretary Paulson and Director Lockhart to make clear that it would be unacceptable for executives of these institutions to earn a windfall at a time when the U.S. Treasury has taken unprecedented steps to rescue these companies with taxpayer resources.
LANGFITT: Calls to Freddie Mac and Fannie Mae were not returned. The Federal Housing Finance Agency, which now runs the companies, said only that it was, quote, "working through the compensation issue."
David Schmidt is a senior consultant with James F. Reda & Associates. He says changing an employment agreement at the end is very unusual. They are, after all, legal contracts. And he says by corporate standards, the potential payouts for Mudd and Syron aren't that big, given the size of the companies.
Mr. DAVID SCHMIDT (Senior Consultant, James F. Reda & Associates): Well, we've seen in the financial community departures in the last year where people have been leaving with, you know, anywhere from 50 to $150 million.
LANGFITT: But Schmidt says one part of Syron's package stands out. In November, a provision was added that could pay Syron $8.8 million if Freddie Mac came under a, quote, "change of control." That money was to compensate Syron for forfeiting stock grants, stock grants that now aren't worth much.
Schmidt says he has no way of knowing why the provision was included, but he suspects it may have been to give Syron an incentive to stay with the company in rocky times.
Mr. SCHMIDT: Clearly, he had to know that there was substantial risk in continuing as CEO.
LANGFITT: The executives will pay some price for their firms' performance. Had they been forced out at the end of, say, 2006, when shares were trading vastly higher, Schmidt says each might have left with up to $30 million. Frank Langfitt, NPR News, Washington.