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Freddie chief's jackpot

The mortgage giant steps closer to a big capital-raising move that could help its CEO keep his healthy paycheck.

By Colin Barr, senior writer
July 18, 2008: 5:03 PM EDT

NEW YORK (Fortune) -- Freddie Mac chief Richard Syron wants to avoid a government bailout for many reasons. A filing the struggling mortgage giant made Friday lists over 10 million of them.

Syron made $10.6 million last year, according to Freddie Mac's latest report with the Securities and Exchange Commission. The company disclosed the information in a filing that clears the way for Freddie (FRE, Fortune 500) to raise $5.5 billion from investors to shore up its balance sheet.

A spokeswoman says the company has no immediate plan to raise capital. But a new slug of investor funds, whenever they come, could go a long way toward easing fears that the company could be headed for a government bailout - and reduce uncertainty about the ramifications of the mortgage crisis for Freddie's execs, employees and investors.

Syron made by far the biggest sum at the Reston, Va., company, pulling down a $1.2 million salary and a $3.45 million cash bonus, in addition to millions more in stock awards and other compensation for a total of $10.6 million.

Using a pay-disclosure measure that the SEC prefers, which treats the value of stock and options differently, Syron's pay for 2007 was $18.3 million, up 24% from a year ago.

Syron is hardly the only executive making out at Freddie. Six other executives or former executives made at least $2 million last year, the filing shows: Finance chief Anthony Piszel, business chief Patricia Cook, technology exec Michael Perlman, multifamily sourcing exec Michael May, former operating chief Eugene McQuade and ex-technology officer Joseph Smialowski.

Freddie spokeswoman Sharon McHale says the company's board sets pay with the help of consultants who review the compensation at similar financial companies.

"The board looks at a number of factors," she says, listing some of the criteria - including market share gains and improved financial disclosure - that are laid out in the filing.

Critics of the company and its larger sibling, Fannie Mae (FNM, Fortune 500), have long called for the so-called government-sponsored enterprises, or GSEs, to scale back their operations in the name of reducing the risk to the taxpayers who are understood to implicitly stand behind the companies' multitrillion-dollar debt obligations. The companies have been able to brush off those calls so far, and indeed they have been expanding their share of the mortgage market amid a historic downturn in the housing market.

But any use of federal funds to support the companies could expose them to much greater oversight. Rep. Barney Frank told The Wall Street Journal that using taxpayer funds could cause Fannie or Freddie to seek government clearance "before it can even pay its water bill for the toilet."

Big pay days under attack

A tougher watchdog could get involved with the companies' executive pay practices. Early last year, Sen. Chuck Hagel questioned Fannie chief Daniel Mudd's $14 million paycheck for 2006, noting that Fannie at the time was still struggling to bring its books up to date. In May, regulators said Fannie had "substantially completed its remediation."

Even shy of a government infusion, the companies could soon face tighter pay oversight. A housing bill recently approved in the Senate would create a more powerful new regulator for the companies, with greater oversight of pay practices than the current regulator, the Office of Federal Housing Enterprise Oversight.

Calls for executive pay to be reined in at Fannie and Freddie have re-emerged since Treasury Secretary Henry Paulson announced last Sunday that he would seek congressional support for a measure that would authorize the Treasury to buy the companies' stock and increase their credit lines.

The possibility of taxpayer support for Fannie and Freddie caused Chris Whalen, who covers the banking industry for the Institional Risk Analytics investment research firm, to say the government should nationalize Fannie and Freddie, wiping out existing shareholders and making explicit the government's backing of the firms' debt.

After that, he wrote in a report this past week, the firms should be "merged and slowly shrunk down to the minimum size required to operate the two pieces of the business that actually support the housing mission."

Paulson has said he wants the companies to retain their current form, so for now there is no prospect of proposals like that coming to fruition.

Still, there is some sense that perhaps top execs are making too much, given the companies' financial ills. Sen. Joe Lieberman, appearing on a morning talk show on MSNBC, was asked how the companies can pay their leaders millions of dollars annually if taxpayers are being asked to support them.

"I don't know that we can pay them like we pay a normal civil servant because they these are big trillion-dollar operations," Lieberman said in his July 16 appearance on the cable channel's "Morning Joe" show. "But we're going to have a right on behalf of the taxpayers to go in there and set some limits on the salaries that executives of these two institutions have. I've looked at them and they're outrageous." To top of page

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