Corporate Governance

The Director Compensation Project: Freddie Mac

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 Freddie Mac (FRE-NYSE) 2008 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

* Compensation amount reflects fees earned through retirement or resignation date.

** Mr. Retsinas joined the board on June 8, 2007.

Director Compensation. Freddie Mac’s board met thirteen times in 2007. All of the directors attended at least 75% of the meetings of the board. Of the directors who served for all of the 2007 fiscal year, total compensation averaged $320,772. Six directors elected to defer all or a portion of their 2007 cash fees into deferred stock or common stock. Of non-employee directors, stock awards ranged from 18-40% of total compensation packages for individual directors, which are considered director’s fees for purposes of complying with exchange rules.

Director Tenure. Only two directors have served on the board of Freddie Mac before 2003. A new director, Jerome P. Kenney, is up for nomination to the board. Several directors sit on other boards. Stephen Ross is the most senior director, appointed to the board in 1998. Thomas Johnson, a director since 2004, also serves as a director for Alleghany Corporation, RR Donnelley & Sons, Inc.; and the Phoenix Companies.

CEO Compensation. Richard F. Syron, CEO and Chairman, received $18,289,575 in total compensation for 2007. Mr. Syron received a $3,450,000 bonus, of which $1,250,000 was for his agreement to extend his employment with Freddie Mac. Stock awards and option awards comprised two-thirds ($12,133,927) of Mr. Syron’s total compensation package. Only 4% of Mr. Thompson’s compensation is in the form of other compensation.

Full post as published by The Race to the Bottom on October 27, 2008 (boomark / email).