Corporate Governance

The Director Compensation Project: Fannie Mae

By Joseph Aguilar

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2007’s Fortune 100 and using information found in their 2008 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence. While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting.

Under NYSE Rule 303A.01, all listed companies must have a majority of independent directors sitting on their boards. Directors are not independent if they received over $100,000 in direct compensation, other than director’s fees, in any one year period over the last three years pursuant to Rule 303A.02(b)(ii). This is a looser restriction than the equivalent NASDAQ Rule, 4200(a)(15), which includes all compensation. Rule 303A.06 requires that, in addition to the general independence standards, audit committee members must comport with the requirements of Exchange Act Rule 10A-3 (C.F.R. §240.10A-3), also know as SOX 301. One can see some of the effects of these rules when looking at the director compensation table from Fannie Mae (FNM-NYSE) 2008 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

* Compensation amount reflects fees earned through retirement date.

Director Compensation. Fannie Mae’s board met twenty-two times in 2007. All directors attended at least 75% of the board meetings. Of the sixteen directors, all but four directors received between $110,000 and $140,000 in cash compensation. Non-employee directors averaged $84,045 in total compensation for their services. In 2007 non-management directors, including Mr. Ashley, received a one time supplemental cash retainer of $56,250 for switching over to Fannie Mae’s new director compensation package. Directors also had the opportunity to participate in a matching gifts program, where the company would match any charitable contributions made up to $10,000 in any calendar year. This program includes a 2-for-1 matching of any contributions made up to $500.

Director Tenure. Only two of the eleven active directors have served on the board prior to 2004. Mr. Ashley, who has served as the Chairman since 2004, has the longest tenure serving on the board since 1995. Several directors also sit on other boards. Karen Horn, a director since September 2006, also sits on the boards of Eli Lilly and Company, Simon Property Group, all T. Rowe Price funds and trusts, and Norfolk Southern Corporation.

CEO Compensation. Daniel Mudd, who serves as CEO and President, received $11,648,409 in total compensation for 2007. Of his total compensation, Mr. Mudd received $986,932 as base cash salary. Mr. Mudd only received 75% of his target cash bonus and 90% of his 2006 long-term incentive awards based on the less than desirable results of 2007. Due to these missed targets, Mr. Mudd received 15.4% less in 2007 than his total 2006 compensation. Still, however, Mr. Mudd received $6,840,214 in stock awards.

Full post as published by The Race to the Bottom on October 25, 2008 (boomark / email).