Fannie Mae 2013 Annual Report Download - page 51

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assets and return us to a sound and solvent condition, the purpose of a receivership is to liquidate our assets and resolve
claims against us.
To the extent we are placed into receivership and do not or cannot fulfill our guaranty to the holders of our Fannie Mae MBS,
the MBS holders could become unsecured creditors of ours with respect to claims made under our guaranty, to the extent the
mortgage collateral underlying the Fannie Mae MBS is insufficient to satisfy the claims of the MBS holders.
In the event of a liquidation of our assets, only after payment of the administrative expenses of the receiver and the
immediately preceding conservator, the secured and unsecured claims against the company (including repaying all
outstanding debt obligations), and the liquidation preference of the senior preferred stock, would any liquidation proceeds be
available to repay the liquidation preference on any other series of preferred stock. Finally, only after the liquidation
preference on all series of preferred stock is repaid would any liquidation proceeds be available for distribution to the holders
of our common stock. We believe that in the event of a liquidation of our assets it is unlikely that there would be sufficient
proceeds to make any distribution to holders of our preferred stock or common stock, other than to Treasury as a holder of
our senior preferred stock.
Our business and results of operations may be materially adversely affected if we are unable to retain and hire qualified
employees.
Our business processes are highly dependent on the talents and efforts of our employees. The conservatorship, the uncertainty
of our future, limitations on employee compensation and negative publicity concerning the GSEs have had and are likely to
continue to have an adverse effect on our ability to retain and recruit well-qualified employees. Turnover in key management
positions and challenges in integrating new management could harm our ability to manage our business effectively and
ultimately adversely affect our financial performance.
Actions taken by Congress, FHFA and Treasury to date, or that may be taken by them or other government agencies in the
future, may have an adverse effect on the retention and recruitment of senior executives, management and other employees.
We are subject to significant restrictions on the amount and type of compensation we may pay our executives and other
employees under conservatorship. For example, in April 2012, the STOCK Act was enacted, which includes a provision that
prohibits senior executives at Fannie Mae and Freddie Mac from receiving bonuses during any period of conservatorship on
or after the date of enactment of the law. In addition, we are unable to offer equity-based compensation.
The compensation we pay our senior executives is significantly less than executives’ compensation at many comparable
companies. As discussed more fully in “Executive Compensation—Compensation Discussion and Analysis—Other
Executive Compensation Considerations—Comparator Group and Role of Benchmark Data,” total target direct compensation
for 2013 for each of our executives identified as a named executive was more than 30% below the market median for
comparable firms and, in the case of our Chief Executive Officer, was more than 90% below the market median.
Congress has considered other legislation in the past that would alter the compensation for Fannie Mae and Freddie Mac
employees. In 2011, the Financial Services Committee of the House of Representatives approved a bill that would put our
employees on a federal government pay scale. Although this legislation was not passed by the House or the Senate, if similar
legislation were to become law, our employees could experience a sudden and sharp decrease in compensation, which would
harm our ability to retain and recruit employees.
We face competition from within the financial services industry and from businesses outside of the financial services industry
for qualified employees. Additionally, an improving economy may put additional pressures on turnover, as attractive
opportunities become available to our employees. Our competitors for talent are generally not subject to the same limitations
on employee compensation. The constraints on our compensation could adversely affect our ability to attract qualified
candidates. While we engage in succession planning for our senior management and other critical positions and have been
able to fill a number of important positions internally, our inability to offer market-based compensation may limit our ability
to attract and retain qualified employees below the senior executive level that could fill our senior executive level positions if
there is an increase in turnover.
If we are unable to retain, promote and attract employees with the necessary skills and talent, we would face increased risks
for operational failures. Our ability to conduct our business and our results of operations would likely be materially adversely
affected.
Our business activities are significantly affected by the conservatorship and the senior preferred stock purchase
agreement.
We are currently under the control of our conservator, FHFA, and we do not know when or how the conservatorship will
terminate. As conservator, FHFA can direct us to enter into contracts or enter into contracts on our behalf, and generally has