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.
Army Chief Lauds NIMASA Boss Over Performance
The Chief of Army Staff (COAS), Lt Gen Faruq Yahaya, has commended the Director General of Nigerian Maritime Administration and Safety Agency (NIMASA), Dr. Bashir Jamoh, over his efforts in transforming and promoting the transportation sector as president of the Chartered Institute of Transport Administration of Nigeria (CIoTA).
He gave the commendation recently, during the 4th National Transport Summit of the Institute in Abuja.
Yahaya, who was represented by Maj. Gen. E. Akerejola, commended the President and members of CIoTA for the many economic sectors it touched: from facilitating international trade, through supporting food security, to enabling industrial and infrastructural development.
In the same vein, the Nigerian Army and other security agencies pledged their support to the growth and improvement of the country’s transportation sector to international standards, expressing their willingness to collaborate with CIoTA to achieve this feat.
The COAS stated that the theme of the summit, “Transport Safety and Security Administration in Nigeria”, was also timely, saying it is “an important aspect of the Transportation sector which has often been overlooked by many, including the transport professionals and academia.
“Over the years, the transportation sector has witnessed series of issues and challenges ranging from poor infrastructure, poor regulations, limited specialised professional training institutions, lack of effective and efficient transport policies, intra industry squabbles among transport professionals, to unethical behaviours, poor working condition amongst others,” he said.
He reassured the Institute of the Nigerian Army’s resolve to support the transportation sector wherever necessary.
On his part, President CIoTA and DG of NIMASA, Dr. Bashir Jamoh, whose speech was read by Prof Samuel Odewumi, noted that the theme for this year’s summit is focused on safety and security of the transportation sector in Nigeria.
In his words: “We were able to achieve the Chartering of the Institute, Renewed Advocacy, Vigorous Membership Drive and Certification. This year’s summit focuses on Safety & Security on all modes of transportation, hence we must all work together as stakeholders and custodians of the transportation sector of Nigeria.
“Safety and security are paramount to achieving a robust and intermodal transport regime in Nigeria.
“CIoTA as the only statutory professional association in charge of the Transportation Industry in Nigeria, therefore, deserves to be accorded its place in nomination of members into relevant agencies and in consultations for policy formulation and implementation strategies. It is the right thing to do.
“As a Chartered Institute, our role is very huge; with great opportunities and challenges. Let’s focus on the job at hand”.
By: Nkpemenyie Mcdominic, Lagos
Revenue Challenges: DMO Sues For Efficient Tax Administration
As part of efforts to tackle revenue change in the country, the Debt Management Office (DMO) has called for the operation of an efficient and effective tax administration in Nigeria
Director-General of the agency, Ms Patience Oniha, who made the call in a statement made available to journalists, stressed on the need for Nigeria to operate such efficient tax administration system, that will tackle loopholes in revenue generation of the country.
According to her, a lot of loopholes are noticeable in the current tax system, which has given room for evasions and all sorts of sharp practices, causing hiccups in the public revenue management system.
She said revenue challenge remains one of the most critical policy issues of the Federal Government which is currently threatening the nation’s debt sustainability.
“The country needs to operate an efficient tax administration that would ensure greater compliance to remittances devoid of all forms of evasions in the system,” she said.
Recall that the current revenue problem is compounded by leakages such as an increase in oil theft and petrol subsidy, both of which have significantly reduced the revenue from oil sales that used to account for the bulk of government revenue.
Oniha noted that the outlook of both the local and international markets was becoming tighter with rising interest rate.
The DMO boss, therefore, stressed the need for the country to urgently moderate its new borrowings and ensure that public debt is sustained by accelerating its revenue base to shore up non-oil revenue and rationalising expenditure of the nation.
By: Corlins Walter
214m Persons Subscribe To Telecoms In Nigeria
Active telecommunication subscribers in Nigeria have now increased to 214.35 million as at October this year, according to data from the Nigerian Communications Commission (NCC).
The latest NCC statistical records so far obtained shows that this is the highest number of recorded telecoms subscribers in the nation since the total number of subscribers peaked at 207.58 million in October 2020, some months before the SIM-NIN linkage.
The record has revealed that more subscribers were getting new SIMs in a bid to circumvent restrictions on SIMs that had not been linked with their National Identification Numbers, which was the major reason for the growth in 2022.
One of the major service providers in Nigeria, MTN, in its third quarter release through the Chief Executive Officer, Karl Toriola, said the average daily gross connection was 48.1 per cent above the pre-directive level, partly driven by the cohort of subscribers who were initially restricted and opted to register new SIMs.
“Combined with increased usage from the existing base, these have supported an acceleration in the service revenue growth recovery and mitigated the impact of churn on the base”, he said.
Also looking at the predictions in the industry among the global industry’s stakeholders, Nigeria has a sizeable number of its population under the age of 18, which is indicating that its subscriber growth would remain strong for the foreseeable future as more young consumers crossed into adulthood and subscribed to mobile services.
Given the growing population, it is expected that 18 million new Nigerians will become unique telecoms subscribers even by 2025, and as Mobile connectivity is at the core of connectivity in Nigeria, with the majority of online services accessed through mobile channels in the nation.
Records have shown that mobile ecosystem also supported more than 3.2 million jobs (directly and indirectly) and made a substantial contribution to the funding of the public sector, with $16bn raised through taxes on the sector, and this will grow in coming years.
However, inspire of this growth, many will not have access to telecom service, just as the Federal Ministry of Communications and Digital Economy had said that about 31.6 million Nigerians live in areas without telecoms coverage.
The absence of such coverage, according to the ministry, had enabled criminal activities and insecurity in these unserved areas to thrive.
By: Corlins Walter
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