Fannie Mae exits scandalous

The generous packages offered to CEO Raines and CFO Howard are ridiculous. I think the biggest problem today in US corporate governance is the cozy relationship between directors and management. It is obvious that directors are not incentivized properly to look out for the best interests of the company, but rather to maintain good relationships with the chief executive. Not only has CEO compensation become decoupled from actual performance, but "caretaker" CEOs who inherit existing public companies with strong brands and product lines are being compensated like entrepreneurs who actually create value out of nothing (see Michael Eisner and Disney for a great example). I don't see why a CEO should make $100M for anything short of a heroic turnaround - let alone lackluster performance.

For previous posts on Fannie, see here and here. Look for congress and OFHEO to claw back some of the largesse heaped on Raines.

From today's WSJ editorial by J. Stewart: "After pledging before Congress to hold himself personally accountable for any accounting errors, news reports suggest he embarked on a strenuous campaign to save his own job, huge salary and perks. Even after the Securities and Exchange Commission faulted the accounting and said Fannie Mae had misstated $9 billion in profits, Mr. Raines's benefit included an astonishing $1.4 million-a-year pension for life, not to mention a multimillion-dollar array of other goodies. Mr. Raines already is immensely wealthy; he earned more than $17 million from Fannie Mae in 2002 alone. I'm sorry, but harvesting a massive payoff for $9 billion in accounting irregularities doesn't constitute accepting responsibility for the errors.

This is all beginning to smell like the Richard Grasso pay and severance scandal at the New York Stock Exchange, with the massive payouts and cozy relationships between management and directors. There, too, a quasipublic institution lavished unseemly benefits on its top officer and is still embroiled in litigation and reform efforts meant to regain public trust.

Like the NYSE, the Fannie Mae affair goes to the heart of a serious problem, which is that a quasipublic institution that enjoys protection from the usual risks of the market, in the name of public service, has insisted on treating its top officers like their most highly paid peers in the far-riskier private sector."