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Is it ethical for failed CEOs to accept big exit pay packages?
By Lauren | September 10, 2008
Today, the federal government announced its conservatorship plan to bail out mortgage finance giants Fannie Mae and Freddie Mac. In all honesty, the government probably didn’t have much choice in the matter, because the two companies own or guarantee almost half of the mortgages in the United States. If either or both were to go under, the U.S. housing market would crumble like a piece of stale bread and the world economy would probably follow. That’s a calamity that no sane person could accept.
So, let’s summarize. Homeowners have watched the value of their houses plummit, regular shareholders in Fannie and Freddie have seen their stock price take a terminal dive, American taxpayers are now potentially on the hook for as much as $100 billion dollars if the housing market continues to deteriorate (although the Congressional Budget Office thinks the most likely amount is a mere $25 billion), and the Fannie and Freddie employees who were unlucky enough to invest a significant amount of pension money in the firms’ stock may end up flipping burgers well into their eighties. It’s an utter mess, and the two CEOs involved – Fannie Mae’s Daniel Mudd and Freddie Mac’s Richard Syron – have deservedly lost their jobs.
They’re also going to receive millions of dollars apiece for doing everyone involved the favor of walking away.
According to National Public Radio, Mudd could collect about $7 million for leaving Fanny Mae, while Syron’s exit pay package from Freddie Mac could top $13 million. Admittedly, their severance packages are relatively modest compared to those of other Wall Street CEOs who’ve left or been removed from their jobs in the wake of the subprime mortgage debacle. Nonetheless, Mudd and Syron were both paid very well indeed to guide their firms away from such a disaster, and I can’t believe that either one of them honestly thinks he deserves another dime in compensation for the lousy job he’s done.
Big exit pay packages may be nothing more than business as usual on Wall Street when a CEO messes up. Still, just think how refreshing it would be for Mudd and Syron to step up, admit they blew it, apologize to the people they’ve injured, and give the money back. No time like the present, guys.
Topics: Apologies, Business Ethics, Corporate Governance, Personal Ethics, ethics |
September 10th, 2008 at 12:17 pm
Lauren,
You are absolutely right. Executives who perform should be rewarded appropriately. Those that don’t should also be rewarded appropriately - with extremely modest severance packages - particularly given the burden which their mismanagement has placed upon American taxpayers.