The Inspector General for the Federal Housing Finance Agency concludes that Fannie Mae and Freddie Mac would benefit from compensation reductions for their senior professionals.
According to FHFA-OIG estimates, senior professional compensation costs were $455 million in 2011. The FHFA already capped CEO pay reportedly at $600,000 per year.
In order to preserve and conserve their assets and limit taxpayer-related cost, the FHFA should gain reasonable assurance that the Enterprises’ compensation controls are effective. This can be done by the Agency enhancing its responsibility to current non-executive compensation oversight through reviews or examinations, the Inspector General recommends.
"Although FHFA has controlled the Enterprises’ non- executive compensation levels through the ongoing pay freeze, the Agency’s oversight of the related compensation structures, processes, and controls has been limited. FHFA has not conducted any reviews or examinations to gain assurance that the Enterprises’ non-executive compensation costs are reasonable and justified," the findings reported.
Several general issues and risk are associated with the Enterprises’ senior professional compensation structures.
For example, Fannie Mae uses a pay grade structure compared to Freddie Mac set target compensation for each position. As a result, one structure could offer greater benefits than the other.
Click on the graph to view Enterprises' comparison salaries.
While both government-sponsored enterprises use the median market compensation level as a reference points, the OIG found that one Enterprise’s compensation offers were significantly higher than the median offering price of the other Enterprise.
Thus, the FHFA is encouraged to consider assessing Enterprise compensation offers to newly hired senior professionals.
The Inspector General adds the FHFA has yet to examine the impact of the GSEs implementating a pay freeze for senior professionals, which was effective as of December 2010. Despite the imposition of the pay freeze, the GSEs senior professionals compensation increased 5% in 2011.
"Because FHFA has not yet conducted any reviews or examinations, it is not in a position to determine whether the Enterprises are enforcing consistently the pay freeze or, alternatively, are using promotions and/or changes in responsibility as a means to offset the effects of the pay freeze on senior professional compensation," the report said.