The pay package given to Freddie Mac’s new chief financial officer should have sent a message from Washington to corporate America about how executive compensation standards must change. Instead, it did just the opposite.
The government-controlled mortgage finance company is giving CFO Ross Kari compensation worth as much as $5.5 million. That includes an almost $2 million cash signing bonus and a generous salary that could top $2.3 million.
The Federal Housing Finance Agency, which oversees Freddie Mac, approved the pay package. A spokeswoman pointed to a statement that justified the agency’s approval of the pay, which was done in part because the amount was comparable to what others in the financial services industry make.
That way of thinking is exactly what helped feed the surge in executive pay over the last decade. Everyone wants to make at least as much, or more, than their peers.
Freddie Mac is not just another company. It’s alive today, and nearly 80 per cent owned by the government, only because almost $51 billion in taxpayer funds were pumped into it over the last year. More bailout money also may be needed in the quarters ahead as losses from its troubled mortgages mount.
Outside pay experts are outraged. “We are in a period when this shouldn’t be acceptable,” said Paul Hodgson, a senior research associate at The Corporate Library, an independent corporate governance research firm. “Even if pay is competitive to the market, that doesn’t make it OK today.”
Lawmakers, regulators and corporate directors have spent the last year talking about how to “fix” executive pay following the outcry over what many Americans deem as excessive compensation.
Banks have come under fire for paying top executives big bonuses, which many see as encouraging excessive risk-taking and a focus on short-term results. The Obama administration also has proposed giving shareholders of all public companies a nonbinding vote on compensation.
Financial companies that receive bailout funds under the $700 billion Troubled Asset Relief Programme, or TARP, are bound by rules on compensation. So long as they hold the government money, they can’t pay cash bonuses to top executives, retention awards to top managers or stock compensation subject to performance-based vesting.
Freddie Mac doesn’t have to follow those restrictions because its government aid has come from outside TARP.
Instead, Freddie Mac and its sibling, Fannie Mae, operate under “conservatorship” of the U.S. government after being crippled by losses last year. That was done because of the vital role both companies play in the mortgage market by purchasing loans from lenders and selling them to investors. Together, they own or guarantee about half of all U.S home mortgages.
The McLean, Va.-based Freddie Mac has been without a permanent CFO for more than a year, when its two top executives stepped down as part of the government takeover in early September 2008. Acting CFO David Kellermann committed suicide in April.
Given the close government control over Freddie Mac, the pay package for its new CFO could have been held up as an example of reasonable compensation. Instead, his pay package doesn’t reflect much restraint.
When Kari joins Freddie Mac on October 12, he will receive a base salary of $675,000 and is entitled to an additional $1.66 million in cash for the year. The company said Kari will be paid in installments, but did not specify the timing of those payments in a September 24 securities filing. The company declined to comment beyond the filing.
Kari will also receive performance-based pay at the board’s discretion. The target amount for that cash compensation is $1.16 million, but what is actually given to Kari could be higher or lower.
His cash signing bonus totals $1.95 million and will be paid out in semi-monthly installments over the year. That money is supposed to cover what he forfeited in stock options and grants when he left Fifth Third Bancorp, where he served as CFO since last November.
Freddie Mac also said it would immediately allow him to sell his home to the company, waiving a 60-day offer period that is required for other executives. It did not, however, specify which of his homes would be covered; Kari has residences in Ohio, Oregon and Washington State, according to the filing.
No doubt that Kari is an able executive and has a hard task at hand. Before his 10-month stint at Fifth Third, he worked in the executive ranks at the insurance company Safeco and Wells Fargo.
Freddie Mac’s regulator, the FHFA, highlighted his qualifications in a statement it made after the pay package was disclosed. The agency said the approval of Kari’s pay was done after consulting with the Treasury Department. The FHFA declined further comment, and the Treasury Department didn’t return a request for comment.
In its statement, FHFA also said that Kari’s hire came at a “critical time for our nation’s economy and for the company.”
A better approach for Kari’s compensation would have been to require him to wait at least three years to receive a bulk of his compensation, instead of allowing him to get as much as 80 percent of it in cash over one year.
“It’s that kind of pay package that got us into trouble in the first place, because it encourages short-term thinking,” said Richard Ferlauto, director of pension and benefits policy for the American Federation of State, County and Municipal Employees, a Washington-based labour group representing government workers.
At Fifth Third, Kari’s yearly salary was $580,000 and he received a $100,000 signing bonus. He also received a restricted stock grant of 20,000 shares and 40,000 stock appreciation rights, both of which would have vested after four years but were terminated once he left the Cincinnati-based bank.
Had he stayed at Fifth Third, he would not have been able to cash out of his equity compensation until the bank repaid the $3.4 billion in TARP funds it received. But Carol Bowie, head of the Governance Institute at RiskMetrics Group, a financial risk management firm, notes that his cash signing bonus at Freddie Mac effectively allows him to accelerate his receipt of equity he forfeited when he left Fifth Third.
Bowie acknowledges that attracting top talent is critically important to a troubled company like Freddie Mac, and supports the idea of executives being paid for their skills.
But she also thinks figuring out what’s fair in pay doesn’t mean sticking with the bad practices from the past.
Nigerians Spend N2.6trn On Data, Airtime In Nine Months
MTN Nigeria and Airtel Africa have revealed that the amount spent on airtime and data by Nigerian telecom subscribers rose to at least N2.59 trillion in the first nine months of 2023.
According to the financial statements of the two telecommunication companies, this amounts to a 32.57 per cent increase from the N1.95 trillion both telcos recorded from both income sources in the corresponding period of 2022.
The increase in voice and data venue was partially driven by rising data subscriptions and the devaluation of the naira on Airtel’s part.
In the first nine months of 2022, Airtel made $1.41bn from airtime and data. When converted at the exchange rate of N461/$ which was obtained at the time, it amounted to N647.71billion.
In the same period of 2023, the company’s income from these two revenue sources amounted to $1.29 billion.
When converted at the exchange rate of N777/$ at the time, it amounted to N1.003 trillion.
On MTN’s part, increasing data revenues continue to fuel the company’s overall revenue growth. Data revenues grew by 36.36 per cent year-on-year, while voice revenues only grew by 10.64 per cent, indicating a rise in the usage of the Internet in the country.
Commenting on this growth, MTN said, “Data revenue grew by 36.4 per cent on increased usage and data conversion in new and existing base”.
The firm stated that data usage on its network grew by 29.1 per cent in the period under review.
It noted that “Data usage (GB per user) grew by 29.1 per cent to 8.6GB, and the number of smartphones on our network increased by 7.6 per cent, bringing smartphone penetration to 53.4 per cent, up 1.4pp YoY.
“Consequently, we recorded a 46.3 per cent growth in data traffic, with the 4G network accounting for 83.7 per cent of the total traffic (up 5.2pp YoY)”.
On its part, Airtel recorded an increase in data usage per customer to 5.9 GB per month. The firm highlighted, “Data revenue grew by 29.3 per cent in constant currency, driven by data customer base growth of 17.4 per cent and data ARPU growth of 12.3 per cent.
“Data usage per customer increased by 23.8 per cent to 5.9 GB per month (from 4.8 GB in the prior period). Our continued 4G network rollout has resulted in nearly 100 per cent of all our sites delivering 4G services”, it stated.
Increased Internet usage because of a rise in video streaming pushed the amount telecom consumers spent on telecom services to N3.86 trillion in 2022.
LCCI Faults FG’s $1trn GDP Projections
The Lagos Chamber of Commerce and Industry (LCCI) has said the macro-economic projections in the Federal Government’s Medium Term Expenditure Framework (MTEF) are not sufficient to achieve the $1 trillion economy target it set to achieve by 2029.
Governor of the Central Bank of Nigeria (CBN), Mr Yemi Cardoso, had last weekend restated the commitment of the government to realising the GDP target.
Reviewing Cardoso’s statement, the Director General, LCCI, Dr Chinyere Almona, explained that the basis for government’s projection contains some inconsistencies that will make it unachievable.
She said, “LCCI is aware of the enormous challenges and the uphill task before the CBN in ensuring macro-economic stability and restoring investors’ confidence.
“However, we note the inconsistencies between the Federal Government’s vision of achieving a $1 trillion economy in the next six years and the MTEF.
“The macro-economic projections in the MTEF state that the economy will grow by 3.76 percent 4.22 percent, and 4.78 percent in 2024, 2025, and 2026, respectively. We note that the projected growths are sub-optimal to achieve a $1trillion GDP by 2029, which implies an average growth of 21 percent over the next six years”.
Almona commended the CBN’s plan to review the minimum capital base of banks, but cautioned the apex bank to strengthen its banking supervision to avoid “too big to fail” banks.
She, however, said, “The Chamber appreciates the intellectual humility of the Governor in admitting the errors or mistakes of the past, particularly in the areas of corporate governance failures, diminished institutional autonomy of CBN, deviation from the core mandate of the bank, and unorthodox use of monetary tools and foray into fiscal activities under the cover of development finance activities.
“As we advance, we challenge the current CBN team to ensure professionalism and integrity and rebuild the trust of the general public.
“On recapitalization of banks, we commend the plan of CBN to review the minimum capital base of banks due to consistent devaluation of the Naira, which has eroded the capital base of banks, attracted significant investment into banks, as well as increased the capacity of banks to provide the required support for the economy.
“However, we caution the CBN to strengthen its banking supervision to avoid “too big to fail” banks.
“Given the sensitivity of monetary policy and price stability, we urge the CBN to ensure transparency and synergy between monetary and fiscal authorities and effectively communicate significant changes in policy direction”.
By: Corlins Walter
Firm Urges FG To Attract Foreign Investment
Multinational professional services firm, EY has advised the Federal Government to improve on its investment attractiveness as a way of building on previous year’s fortunes.
Senior Partner and Head of Markets, EY West Africa, Ashish Bakhshi, while sharing insights on a newly released report on Foreign Direct Investments for 2022, said Nigeria needed to improve on FDIs to achieve the ambitious targets it had set for itself to reduce poverty and build a sizeable middle class by 2030.
“Africa’s leaders will need to adopt pragmatism as they respond to a new geopolitical world order so that its member states can optimize the full spectrum of inbound investment opportunities, which will be essential in meeting Africa’s aspirations for a more equitable, wealthier and urbanised middle-class society”, the report read in part.
It stated further that “Last year saw Africa’s return as a top investment destination hub for global investors. The continent had struggled to attract investment since the onset of COVID-19 and took longer than other regions to recover, as a result of its delayed vaccine rollout and therefore its ability to reopen its 54 national economies.
“To this, its growth lagged pre-pandemic levels for longer than it did in mature markets, setting back the ambitious targets it had set for itself to reduce poverty and build a sizeable middle class by 2030.
“The new report, released by EY, a global multinational professional services firm, uncovered that FDI attracted more than 730 projects across the continent in 2022, injecting $194 billion in capital and creating 154,000 jobs.
“Significantly, Egypt saw a record of $ 107 billion in capital for its 149 FDI projects. In East Africa, Kenya dominated the FDI landscape while Nigeria was the leading country in West Africa.
“The countries came in third and fourth respectively for the largest FDI regions on the continent”.
The EY’s 13th Africa Attractiveness report tagged “A Pivot to Growth”, provides insights into the continent FDI, exposing that the 2022 calendar year saw a strong FDI rebound, led by Renewables inflows, with the West being the largest investor, while the North and Southern hubs of Africa were key beneficiaries.
A notable highlight of the report shows that CleanTech became the largest FDI recipient sector in 2022, leading Africa’s FDI for the first time.
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