American International Group, Inc. (AIG) isn’t the only government-assisted corporation to come under fire for the payout of bonuses to employees — housing finance giants Fannie Mae (FNM) and Freddie Mac (FRE) are taking center stage as this week comes to a close for their own plans to pay out so-called ‘retention’ bonuses. Fannie Mae is set to pay retention bonuses totaling at least $1 million over two years to four key executives, according to the company; Freddie has similar plans. Obviously, the dollar amount here is ostensibly far smaller compared to the bonuses paid out by AIG, but it’s pretty clear that public tolerance for bonuses at companies being propped up with taxpayer dollars is wearing thin. On Friday, House Financial Services Committee chairman Barney Frank (D-MA) sent a letter to Federal Housing Finance Agency director James Lockhart, asking him to cancel planned bonuses to executives at both Fannie Mae and Freddie Mac. “I remain very skeptical that retaining and rewarding people who made the mistakes that contributed to the unsatisfactory performance is a good idea,” he wrote in the letter. “Further, in this troubled economy, and in this job market, it is difficult to imagine that the companies would not be able to find competent and talented replacements for anyone who chooses to leave.” Lockhart, whose agency oversees the GSEs, earlier this week had defended the bonus plans. “We started to design a retention plan with a compensation consultant even before the conservatorship because it was critical to retain their most important asset –- their employees — who are being asked to play a vital role in the nation’s economic recovery,” he said in a statement released Wednesday afternoon. “As the previous senior management teams left, it would have been catastrophic to lose the next layers down and other highly experienced employees. Fannie Mae and Freddie Mac purchased 73 percent of all mortgages originated last year and are the key players in the Making Home Affordable plan designed to help millions of homeowners. Many employees have received significant pay reductions, with no bonuses for 2008 performance and all past stock grants are virtually worthless.” House Democrats on Thursday passed a bonus-blocking bill that would discourage the use of funds at major financial institutions, by imposing a 90 percent tax on such bonuses. The tax would apply to employees at companies that have received more than $5 billion from the government — including Fannie and Freddie. Read full coverage. Write to Paul Jackson at [email protected]. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.

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