Freddie Mac 2012 Annual Report Download - page 337

transactions beyond the traditional charter-required mortgage insurance coverage. Two across-the-board increases in
guarantee fees occurred in 2012 and FHFA has proposed additional fee adjustments. In addition, an August 2012 amendment
to the Purchase Agreement accelerates the wind down of our mortgage-related investments portfolio. This strategy is
designed to reduce the portfolio and provide the best return to the taxpayer while minimizing market disruption.
Strengthening Our Infrastructure and Improving Overall Efficiency While Also Focusing On Retention of Key Employees
We continue to work to both enhance the quality of our infrastructure and improve our efficiency to preserve the
taxpayers’ investment. We are focusing our resources primarily on key projects, many of which are related to strategic
initiatives mandated by FHFA that will likely take several years to fully implement. We are also focused on making
significant improvements to our systems infrastructure in order to: (a) replace legacy hardware or software systems at the end
of their useful lives and to strengthen our disaster recovery capabilities; and (b) improve our data collection and
administration capabilities as well as our ability to assist in the servicing of loans.
We continued to actively manage our general and administrative expenses during 2012, while also continuing to focus
on retaining key talent. In the first half of 2012, we introduced a new compensation program for employees to help mitigate
the uncertainty surrounding compensation. Under the new program, the majority of employees have a more predictable
income, as the program either reduces or eliminates the amount of compensation that is subject to variability. Our employee
turnover moderated in 2012 compared to 2011.
Our Executive Compensation Program
Since being placed in conservatorship in 2008, the compensation of our executives has received a high level of scrutiny
from FHFA, Treasury, Congress, and the public, and our executive compensation program has been substantially redesigned,
resulting in a significant decrease in the amount of compensation paid to our executive team. Specific changes include:
• Senior executive target compensation was reduced by 10 percent in 2009 and by 10 percent again in 2012;
• Bonuses were eliminated;
• A pay freeze was instituted by FHFA for all of 2011 and 2012, providing for pay increases only for promotions and
other significant increases in responsibility;
• CEO compensation has been reduced to $600,000 annually; and
• The variable elements of compensation for our other senior executives are subject only to reduction based on the
company’s and their individual performance, with no upside potential.
As a result of these and other actions taken since entering conservatorship, the aggregate level of compensation for our
executives is now well below market levels. The aggregate level of 2012 target compensation for our executive officers as a
group was below the 25th percentile of the competitive market, our new CEO’s compensation of $600,000 is 90 percent
below his predecessor’s target compensation, and overall compensation of our senior management team has decreased by
almost 75 percent since 2008.
While the below-market compensation paid to our executives contributes to concerns about our ability to attract and
retain competent and experienced executives and employees — especially given the company’s current status and uncertain
future — our public mission and certain features of our executive compensation program have enabled us to do so despite the
challenges resulting from our unique circumstances. Our public mission to expand opportunities for homeownership and
affordable rental housing attracts employees at all levels who seek meaningful work that makes a difference during this
important time for the nation. Also, the higher proportion of fixed compensation in our executive compensation program —
only 30 percent of pay is at-risk, significantly below the levels at companies with which we compete for talent — provides a
degree of certainty that offsets, at least to some degree, the uncertain future of the company and the below market
compensation levels.
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