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Are Retention Bonuses Still Fair during a Recession?

Fannie Mae and Freddie Mac are taking every opportunity to keep their top men.

Is it still reasonable to keep top executives from leaving a company? Apparently, the folks at Fannie Mae think so. According to CNN, “Troubled mortgage giant Fannie Mae planned to pay four top executives retention bonuses ranging from $470,000 to $611,000, according to a February SEC filing. Executive vice presidents Kenneth Bacon, David Hisey, Michael Williams and Thomas Lund will be receiving bonuses of close to half a million dollars each. By contrast, Fannie Mae CFO David Johnson received no bonus on top of his salary of $625,000, while CEO Herb Allison received no compensation or bonuses in 2008 or 2009.”

While it is necessary and a natural part of private businesses to offer attractive financial perks and stock options to its top management, what earns the ire of most is the period when these bonuses are allotted. There’s the public clamor for austerity measures especially to those institutions that have received the bailout fund mainly because the taxpayers’ money is at stake.

The heavy criticism against company sponsorships, executive travel and profligate company parties became rampant during the third quarter of last year when America was formally informed that it is currently in recession. Some executives took some effort in tidying up their reputation by refusing to receive year-end bonuses. Others, however, refused to take heed.

Last Tuesday, Harlem Rep. Charles Rangel, chairman of the House Ways and Means Committee, announced a legislation that would tax employee bonuses of up to 90 percent for earnings worth more than $250,000. This applies to companies that have received $5 billion of bailout funds. In a report by the New York Post, the affected banks would include Citibank, JPMorgan Chase, Goldman Sachs and Morgan Stanley. There was no mention of any of the two housing GSEs. But the report posted by CNN included Fannie Mae and Freddie Mac in the legislation’s coverage.

Another NYP report quotes James Lockhart, director of the Federal Housing Finance Agency on the reason behind the bonuses for Fannie Mae’s top men, “It’s a reasonable and well-thought-out plan. Keeping personnel of Fannie and Freddie Mac was critical when the two mortgage-finance companies were taken over in September. The extra money is necessary to protect taxpayers’ investment in the mortgage-finance companies.”

Yes, Lockhart has a point but it’s definitely not appropriate this time. For the sake of troubled homeowners, they should be taking sacrifices.

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