Oversight of GSE compensation fell short, inspector general finds

Shifting personnel and duties at the Federal Housing Finance Agency led to a situation where it failed to properly monitor executive compensation at Fannie Mae, according to the regulator’s inspector general.

The inspector general’s report was initiated by an October 2021 whistleblower complaint in which an executive was due to receive a $250,000 “retention award.” The move allegedly violated the STOCK Act’s prohibition on bonus compensation for senior executives while in Fannie is conservatorship.

The report questions how the “award,” which FHFA stopped from being paid after reviewing the whistleblower complaint, wasn’t noticed by agency staff specifically assigned to review compensation at an earlier point in the process. The IG concluded that oversight lapsed during a period of turnover and reorganization that affected the office involved.

“Since 2019, the leadership of the Enterprise executive compensation function has changed twice, most of the staff performing the reviews have turned over, and the function has been moved three times among three divisions and the Office of the Director,” the IG said in a report released Wednesday.

The inspector general’s investigation also found that the FHFA’s procedures for making GSE executive compensation reviews did not reflect the current decision making structure and its roles and responsibilities.

“As a result, the procedures do not define the agency’s minimum requirements for reviews of enterprise executive compensation, such as the factors that must be applied during the review of whether proposed compensation is not reasonable and comparable,” the report continued. “Nor do they set forth detailed requirements for the documentation of the compensation review and analysis in staff analysis memoranda.”

The FHFA’s Division of Conservatorship Oversight and Readiness, which staff overseeing executive compensation are currently part of, indicated backlogs and personnel shortages persist in a response contained within the report. The division also acknowledged the need to update its procedures and plans to have revisions in place by the end of October.

The report made three recommendations, which the FHFA agreed to in its response to the report.

First, it called for the agency to update its procedures to include minimum requirements for the scope of compensation reviews that would include specifications for analytical work and documentation. The FHFA agreed to do this by Feb. 28, 2023.

Secondly, it called for procedures that reflect the roles and responsibilities of the individuals and entities involved in the review process.

Finally it needs to determine whether, and ensure that, it has sufficient human capital resources to handle its oversight of GSE executive compensation.

This is not the first time that FHFA-OIG has complained about lax oversight of the government-sponsored enterprises because of staffing shortages; for example, it brought up the issue in a 2011 report.

Meanwhile, in 2019, the OIG claimed the FHFA circumvented its own controls on executive compensation as both Fannie Mae and Freddie Mac implemented succession plans as their respective CEOs, Timothy Mayopoulos and Donald Layton left their positions. In that report, the FHFA agreed to “establish a process for maintaining and monitoring sensitive conservator requests in its tracking system,” but disagreed with the recommendation regarding the compensation for Fannie Mae President David Benson, at the time newly promoted to the job.