The open question is whether this is good news or bad news. Fannie Mae’s decision to cancel $44.4 million in top officer bonuses for 2001 through 2003 because they were based on earnings overstatments produced by violations of accounting rules is unquestionably the right thing to do. No one should profit from a fraud they had a hand in creating. But the fact that this is a newsworthy, and that Thomas Palley had to list rescinding incentive payments if financial statements were later revised downward as a post Sarbox reform says corporate practice has a long way to go. It also remains to be seen whether any of the executives is shameless enough to pull a Grasso and fight the decision.
Fannie Mae said on Tuesday that it won’t pay $44.4 million in bonuses to former and current executives because the mortgage giant’s accounts were faulty when the payouts were set.
Before an accounting scandal rocked the company, Fannie (FNM) had set up an incentive program for executives that was based on performance targets such as earnings growth.
The Securities and Exchange Commission ordered Fannie to restate earnings in 2004 after determining that the Washington-based company broke accounting rules. The company’s federal regulator said in a report last year that senior Fannie executives manipulated earnings to trigger bonuses for themselves from 1998 to 2004. Fannie Mae didn’t admit or deny wrongdoing but paid a $400 million fine to the government. See full story.
After reviewing Fannie’s restated results, the company’s directors decided against paying the second installment of a bonus based on performance during the three years ending Dec. 31, 2003 to 18 former and current officers, Fannie said in a filing with the SEC on Tuesday.
The board also decided not to pay bonuses to 21 current and former executives who were part of the three-year program that ended on Dec. 31, 2004, Fannie added in the filing.
Fannie also said its board has yet to decide payouts based on bonus programs that expired at the ends of 2005 and 2006.