While everyone assails AIG for using less than 0.1% of the taxpayer-bailout money it received to meet contractual obligations in compensation through retention bonuses, another recipient of government largesse has its own bonus program in operation.  According to their annual report, Freddie Mac has a generous retention bonus plan built into its operation for the next year.  Eligibility includes all of the senior and executive VPs.  It comes in four payouts, and only the last has any connection to company performance.

Exhibit 10-4 on page 414-5 lays out the program:

Objective To retain as many people as possible for 18 months (through March, 2010) in order to:

  • Maintain maximum operational stability
  • Allow time to evaluate the fundamental business model
  • Fulfill Freddie Mac’s goal of re-establishing stability and liquidity to the mortgage market

Retention Period Retention Period runs from September 2008 through March 2010.

General Eligibility All Senior Vice Presidents and Executive Vice Presidents who are employees of Freddie Mac on or after September 1, 2008 are eligible to participate in the program.

Freddie Mac pays the bonus on a quarterly basis for simply sticking around, at least until the final quarter:

Payout Timing The aggregate retention award for each individual will be paid in the regular payroll cycle occurring immediately after the following dates …

  • 1     20%     December 15, 2008
  • 2     20%     August 1, 2009
  • 3     25%     December 15, 2009
  • 4     35%     March 15, 2010

Payment Numbers 1, 2, and 3 will be based solely in the individual’s continued employment with Freddie Mac the through the indicated payment dates.

Performance Requirements Payment Number 4 will be conditioned upon achievement of specific performance objective(s) that will be determined during the upcoming businessplanning process.

That sounds a lot like the AIG retention bonus plan, although Freddie Mac does have a disclaimer stating that they can modify or end the program at their discretion.  Since Freddie Mac and her sister Fannie Mae got over $200 billion in a pre-TARP bailout, more than the private AIG got (at least in the aggregate), one might ask why Freddie Mac built in retention bonuses in this November filing — two months after the taxpayer bailout.

If AIG’s retention bonuses are a problem, why aren’t Freddie Mac’s?

Update: The Wall Street Journal is also on the case:

Fannie Mae is due to pay retention bonuses of as much $470,000 to $611,000 this year to some executives despite enormous losses at the government-backed mortgage company. Fannie’s main rival, Freddie Mac, also plans to pay such bonuses but hasn’t yet provided details.

Fannie’s bonuses are smaller than ones paid by American International Group Inc. that have caused a political firestorm for that company. Many AIG executives got retention payments of more than $1 million recently.

But the Fannie bonuses are still considerable and come at a time when Fannie and Freddie are receiving increasing amounts of funding from the Treasury. For 2008, Fannie and Freddie reported combined losses of about $108 billion, largely stemming from a surge in home-mortgage defaults. The U.S. Treasury has agreed to provide as much as $200 billion of capital apiece to Fannie and Freddie in exchange for senior preferred stock. The two companies already have said they will need a combined $60 billion of that money to cover their losses so far.

Looks like James Hagerty was working on this independently, and did a good job of digging up the actual size of the bonuses.