The director of the Federal Housing Finance Agency, Mel Watt, is showing some serious backbone as the CEOs of Fannie Mae and Freddie Mac seem set on finally getting a huge boost in pay.
What’s interesting is Watt is apparently going against the same White House that supported him moving into his current position.
In late 2013, President Barack Obama had this to say about Watt: “He’s the right person to protect Americans who work hard and play by the rules every day, and he’ll be the right regulator to make sure the kind of crisis we just went through never happens again.”
Today, however, the Treasury Department isn’t happy with the moves made by the President’s suggested regulator.
According to The Wall Street Journal:
“In separate filings with the Securities and Exchange Commission on Wednesday, Fannie Mae and Freddie Mac disclosed that their respective CEOs, Timothy J. Mayopoulos and Donald Layton, would have a total annual target compensation of $4 million each effective Wednesday.”
That’s an 8-fold increase, by the way.
Early last month, the wheels were set in motion to increase CEO compensation of the government-sponsored enterprises to a level similar to CEOs doing the same jobs at other companies.
Now, it’s happening. And this is notable and correct for a few reasons.
For one, it’s fair.
CEOs who consistently produce positive earnings should be rewarded, not punished. Neither Mayopoulos or Layton are civil servants and should not get paid as such.
Second, it shows that change can happen quickly when the FHFA sets protocol in motion.
When Mel Watt’s predecessor, Ed DeMarco, first put a $500,000 limit on the CEO compensation four years ago, he did so reluctantly.
"I believe the new compensation program strikes the balance between prudent executive pay including the elimination of bonuses, with the need to safeguard quality staffing in order to protect the taxpayers’ investment," DeMarco said at the time.
“A sudden and sharp change in pay from these levels would certainly risk a substantial exodus of talent, the best leaving first in many instances," he added. "A significant increase in safety and soundness risks and in costly operational failures would, in my opinion, be highly likely."
Well, the final two points — exodus of talent and increase in risk — never happened as a result of the CEO limits. Mayopolous and Layton have more than three years at their positions and both GSEs are humming along nicely.
However, the idea of compensation limits is rooted in a reality that doesn’t exist anymore, that CEOs will abuse their positions for personal gain at the taxpayers’ expense.
Fannie and Freddie are not exactly close to reform, or even repaying the bailout. The Treasury continues to use the GSEs as a personal piggy banks, and can still, somehow, find room to complain.
The U.S. Treasury Department “does not support FHFA’s new approach to CEO compensation at Fannie Mae and Freddie Mac and urged the agency to reject any increase,” said a Treasury Department spokesman, as quoted by Joe Light’s article in The Wall Street Journal. “While FHFA ultimately has sole authority over executive compensation at both enterprises, Treasury has consistently recommended that existing limits on compensation continue given the taxpayers ongoing backstop of both enterprises.”
Well, the Treasury is dead wrong, here.
Three years and billions of dollars of profits later, it’s time to give some of it back.