The Federal Housing Finance Agency (FHFA) Office of the Inspector General on Wednesday said the agency has not adequately defined the rules and scope of its executive compensation practices. The OIG concluded that the agency should update its rules and procedures and determine if it has enough staff to vet executive compensation decisions.
The evaluation report and succeeding memo are in response to a controversy stemming from former FHFA Director Mark Calabria’s intention to pay a Fannie Mae executive $250,000 under the guise of a retention award, the watchdog said in a report published in January. Federal law prohibits bonuses to GSE executives while they are under conservatorship.
“Under the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended (the Safety and Soundness Act), the FHFA Director must prohibit the Enterprises from providing executive compensation that is ‘not reasonable and comparable with compensation for employment in other similar businesses (including other publicly held financial institutions or major financial services companies) involving similar duties and responsibilities,’” the report explained.
The report noted that a compensation consultant would be added to help FHFA staff validate the enterprises’ compensation submissions.
The OIG found that there were times the agency didn’t adequately assess issues related to GSE executive compensation, including a failure to document its analysis of the reasonableness of executive compensation requests.
The OIG said the FHFA should revise its enterprise executive compensation review to improve it in four key areas:
- Defining the scope of FHFA’s reviews of compensation submissions
- Reflecting the current roles and responsibilities of FHFA personnel involved in the process
- Establishing expectations for documenting compensation reviews in staff analysis memoranda
- Reflecting changes that result from incorporating the consultant into the review process
FHFA management agreed with all of the OIG recommendations and said it plans to have new procedures in place by Feb. 28, 2023. It will also perform a review of its human capital resources for oversight by the end of November.
In January, an FHFA OIG report described how a whistleblower had reported that a former FHFA chief of staff led the effort to secure a $250,000 “retention award” for a Fannie Mae executive, whose name was redacted.
“As the whistleblower alleged, the award originated with FHFA—more specifically, with the former Director and his [chief of staff]—and not with Fannie Mae,” the original letter explained.
In a succeeding memo accompanying the new report, Inspector General Brian Tomney wrote that FHFA has adequately made changes based on recommended actions in the January report.
“[W]e conclude that FHFA has fully implemented sufficient corrective actions to address the January 26, 2022 report’s three recommendations, and we are closing them on this basis,” Tomney wrote in the memo. “OIG may conduct additional compliance work in the future to assess the Agency’s implementation of its new procedure as warranted.”
Find the report and succeeding memo on the FHFA website.