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FHFA to Increase Oversight of Staff Compensation at GSEs

The ""Federal Housing Finance Agency"":http://www.fhfaoig.gov/ (FHFA) isn't doing enough to monitor compensation for senior professionals at ""Fannie Mae"":http://www.fanniemae.com/portal/index.html and ""Freddie Mac"":http://www.freddiemac.com/, the ""Office of the Inspector General"":http://www.fhfaoig.gov/ (FHFA-OIG) suggests in a ""new report"":http://origin.www.fhfaoig.gov/Content/Files/EVL-2013-001.pdf.

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At the end of 2010, the FHFA--acting as conservator of the GSEs--enacted a pay freeze on all general merit pay increases and cost of living adjustments to be given to all Fannie and Freddie employees through 2011; that freeze was extended to cover 2012, as well. The freeze allows an exception for raises granted to employees who receive a promotion or is otherwise given added responsibilities.

Since that time, the agency has also worked to strengthen its oversight and control over compensation given to executives, including scaling back the CEOs' salaries to the tune of nearly 90 percent.

However, while the FHFA has increased its monitoring on executive pay, its oversight of non-executive compensation--which encompasses some 11,900 employees, including 2,000 senior professionals--has been relatively limited. According to the report, senior professionals (classified as VPs and directors) earned a collective $455 million in 2011. The median cash compensation for the Enterprises' total 333 VPs was $388,000, while the median pay among the 1,650 director positions was $205,300.

Additionally, while payment for executives was brought down from 2010 to 2011, FHFA-OIG found that compensation for senior professionals actually increased in those years. According to the report, ""one Enterprise official told FHFA-OIG that promotions and changes in responsibility also may have played a role in the increase in median compensation from 2010 to 2011.""

""FHFA has not conducted any reviews or examinations to gain assurance that the Enterprises' non-executive compensation costs are reasonable and justified ... [a]s the Enterprises' conservator, FHFA has a responsibility to preserve and conserve effectively their assets and limit taxpayer costs. To help do so, FHFA-OIG believes that the Agency should gain reasonable assurance that the Enterprises' compensation controls are effective,"" the report reads.

To that end, FHFA-OIG recommends the agency take steps to further enhance its monitoring of compensation at the GSEs, particularly for senior professionals. The report specifically urges an assessment of the GSEs' processes and cost controls for compensation, an evaluation of pay offered to new hires, and the companies' compliance to the mandated freeze on increased compensation.

In a response to the report, FHFA representatives agreed to take action, noting that ""it would be prudent and feasible for FHFA to improve our monitoring of the promotions and new hires at the Vice President and Director levels."" However, they did point out that FHFA-OIG's ""take-home pay"" figures include long-term incentives and deferred payments from prior years that were not yet adjusted by the agency.

""FHFA and the Enterprises have made significant changes to both compensation and plans which are not yet reflected in the cash paid data,"" they write.

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