By David Weidner at Marketwatch
SAN FRANCISCO (MarketWatch) — Did you hear the heads of the mortgage giants are getting a raise? Yep. They’ll be earning about six times more than they did last year.
Hey, that’s more than good enough for government work, right?
In an earlier era, this never would have happened. Say, last year, for instance.
No federal agency with any regard for politics, public perception, its own reputation or the White House’s wishes would approve a 567% pay raise for the CEOs of two of the most tarnished institutions of the financial crisis: Fannie Mae FNMA, -0.43% and Freddie Mac FMCC, -0.45%
But that’s exactly what the Federal Housing Finance Agency under Director Mel Watt approved, according to filings made Wednesday with the Securities and Exchange Commission. Fannie CEO Timothy J. Mayopoulos and Freddie’s Donald Layton would have a total target compensation of $4 million a year each, effective Wednesday. Their pay had been capped at $600,000 annually.
Forget for a minute that these government-backed mortgage giants took $180 billion in bailout funds and were guaranteed $400 billion. Consider some comparisons:
At $4 million, Layton and Mayopoulos aren’t raking it in compared with other CEOs. They’d be paid in the bottom third of the 300 highest-paid CEOs as measured by the The Wall Street Journal’s compensation survey.
But these are not exactly the private-sector companies the WSJ examines. Fannie and Freddie were established by the government to create liquidity in the mortgage market and provide home ownership to citizens. They are heavily regulated and under conservatorship by Watt’s FHFA. Watt reports to the president and Congress. Fannie and Freddie are more like Amtrak or the U.S. Postal Service than they are Bank of America Corp. BAC, -1.83%
Even if Layton and Mayopoulos were private-sector CEOs, they would be paid more than Jeff Stevens, CEO of Western Refining Inc. WNR, -0.51% a company that produced $559 million in profit last year, and more than A.G Lafley, the CEO of Procter & Gamble PG, +0.14% Lafley made just $1.8 million in total compensation last year. His company reported an $11.6 billion profit.
Fannie reported net income of $14.2 billion last year; Freddie, $7.7 billion profit. Combined, about a third of their profits was returned to the government.
The U.S. Treasury Department, under Jack Lew, has been critical of the raises as “not appropriate.” The White House, of all places, summed up the criticism.
“These entities are different than some of the financial entities you see in the private sector,” Josh Earnest, the White House press secretary, said in May. “They benefit significantly from a backstop that is provided by the taxpayer.”
Watt and FHFA directors have defended the raises as essential to the retention of Layton and Mayopoulos. But those CEOs don’t take the risks of private-sector CEOs. Their business is guided by strict rules of how much and what types of mortgages they can buy. In the end, they’re just managers of a subsidiary to the biggest corporation of all, the U.S. government.
FHFA and Watt need to stop pretending these entities are big banks. They’re big government. And those who work in government are public servants — and should be paid that way.