Fannie Mae 2012 Annual Report Download - page 184

179
executive compensation program for each of our current named executives was more than 30% below the market median for
comparable firms and, in the case of our Chief Executive Officer, was more than 70% below the market median.
In addition to reducing pay for our current executives, where appropriate, we also seek to compensate newly hired executives
at lower amounts than the executives they are replacing. Our aggregate salary and employee benefit expense as a percentage
of our net revenues was 5.2% in 2012.
Attract and Retain Executive Talent
Another primary objective of the 2012 executive compensation program is to attract and retain executive talent with the
specialized skills and knowledge necessary to effectively manage a large financial services company. Executives with these
qualifications are needed for the company to continue to fulfill its important role in providing liquidity to the mortgage
market and supporting the housing market, as well as to prudently manage our $3.1 trillion book of business and be an
effective steward of the government’s and taxpayers’ support.
We and FHFA recognize that the current levels of our executive compensation and other factors put pressure on our ability to
attract and retain executive talent with the necessary skills and knowledge. We face competition from both within the
financial services industry and from businesses outside of this industry for qualified executives. If we are unable to attract
and retain qualified executives, it could threaten our ability to continue to provide liquidity and stability to the mortgage
market, result in costly operational failures, and heighten safety and soundness risks. See “Risk Factors” for a discussion of
the risks associated with executive and employee retention. To encourage retention, the fixed portion of each named
executive’s deferred salary is subject to reduction if an executive leaves the company before January 31, 2014.
Reduce Pay if the Conservator’s Goals Are Not Achieved
In order to support FHFA’s goals for our conservatorship and encourage corporate and individual performance in furtherance
of these goals, 30% of each named executive’s total target direct compensation consists of “at-risk” deferred salary, which is
subject to reduction based on corporate and individual performance.
Impact of Conservatorship and Other Legal Requirements
As discussed in “Business—Conservatorship and Treasury Agreements—Conservatorship,” we have been under the
conservatorship of FHFA since September 2008. The conservatorship has had a significant impact on the compensation
received by our named executives, as well as the process by which executive compensation was determined. Regulatory and
other legal requirements affecting our executive compensation include the following:
• Our directors serve on behalf of FHFA and exercise their authority subject to the direction of FHFA. More
information about the role of our directors is described in “Directors, Executive Officers and Corporate Governance
—Corporate Governance—Conservatorship and Delegation of Authority to Board of Directors.”
• While we are in conservatorship, FHFA, as our conservator, has retained the authority to approve and to modify both
the terms and amount of any executive compensation. FHFA, as our conservator, has directed that management
consult with and obtain FHFA’s written approval before entering into new compensation arrangements or increasing
amounts or benefits payable under existing compensation arrangements of executives at the senior vice president
level and above, and other executives as FHFA may deem necessary to successfully execute its role as conservator.
FHFA has also directed that management consult with and obtain FHFA’s written approval before establishing or
modifying performance management processes for executives at the senior vice president level and above and any
executives designated as “officers” pursuant to Section 16 of the Exchange Act, and before assessing our
performance against a conservator scorecard.
• During the conservatorship, FHFA, as our conservator, has all powers of the shareholders. Accordingly, we have not
held shareholders’ meetings since entering into conservatorship and have held no shareholder advisory vote on
executive compensation.
• FHFA, as our regulator, must approve any termination benefits we offer to our named executives and certain other
officers identified by FHFA.
• Under the terms of the senior preferred stock purchase agreement with Treasury, we may not enter into any new
compensation arrangements with, or increase amounts or benefits payable under existing compensation
arrangements of, any named executives or executive officers without the consent of the Director of FHFA, in
consultation with the Secretary of the Treasury.
• Under the terms of the senior preferred stock purchase agreement, we may not sell or issue any equity securities
without the prior written consent of Treasury, other than as required by the terms of any binding agreement in effect