The Director Compensation Project: Fannie Mae

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). (The NYSE recently increased this amount to $120,000).  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 Fannie Mae (FNM-NYSE) 2008 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
Stephen B. Ashley	500,000	21,802	17,732	20,125	559,659
Dennis R. Beresford	138,300	13,980	0	40,115	192,395
Kenneth M. Duberstein*	17,100	(26,090)	24,762	413,327	429,099
Louis J. Freeh	57,833	0	0	17,099	74,932
Brenda J. Gaines	109,567	20,317	0	20,209	150,093
Karen N. Horn	132,500	20,317	0	27,732	180,549
Bridget A. Macaskill	110,500	8,595	0	21,303	140,398
Joe K. Pickett*	119,500	21,802	17,732	15,889	174,923
Leslie Rahl	127,800	22,510	17,732	20,310	188,352
John C. Sites, Jr.	23,833	0	0	19,014	42,847
Greg C. Smith	136,300	32,926	2,491	20,209	191,926
H. Patrick Swygert	117,100	21,802	17,732	39,549	196,183
John K. Wulff	129,800	18,253	9,038	25,052	182,143

* Compensation amount reflects fees earned through retirement date.

Director Compensation. Fannie Mae’s board met twenty-two times in 2007. All directors attended at least 75% of the board meetings. Of the sixteen directors, all but four directors received between $110,000 and $140,000 in cash compensation. Non-employee directors averaged $84,045 in total compensation for their services. In 2007 non-management directors, including Mr. Ashley, received a one time supplemental cash retainer of $56,250 for switching over to Fannie Mae’s new director compensation package. Directors also had the opportunity to participate in a matching gifts program, where the company would match any charitable contributions made up to $10,000 in any calendar year. This program includes a 2-for-1 matching of any contributions made up to $500.

Director Tenure. Only two of the eleven active directors have served on the board prior to 2004. Mr. Ashley, who has served as the Chairman since 2004, has the longest tenure serving on the board since 1995. Several directors also sit on other boards. Karen Horn, a director since September 2006, also sits on the boards of Eli Lilly and Company, Simon Property Group, all T. Rowe Price funds and trusts, and Norfolk Southern Corporation.

CEO Compensation. Daniel Mudd, who serves as CEO and President, received $11,648,409 in total compensation for 2007. Of his total compensation, Mr. Mudd received $986,932 as base cash salary. Mr. Mudd only received 75% of his target cash bonus and 90% of his 2006 long-term incentive awards based on the less than desirable results of 2007. Due to these missed targets, Mr. Mudd received 15.4% less in 2007 than his total 2006 compensation. Still, however, Mr. Mudd received $6,840,214 in stock awards.