The Director Compensation Project: Federal Home Loan Mortgage Corporation (“Freddie Mac,” or “FMCC”)

This post is part of an ongoing series that examines the way stock exchange independence rules relate to director compensation. We are for the most part including companies from 2016’s Fortune 500 and using information found in their 2016 proxy statements.

NASDAQ and the NYSE have similar rules with respect to director independence. NYSE Rule 303A.01 requires that each listed company’s board of directors be comprised of a majority of independent directors. A director does not qualify as “independent” if he or she has a “material relationship with the company.” NYSE Rule 303A.02(a). In addition, the director is not considered independent under NYSE Rule 303A.02(b)(ii) if the director received more than $120,000 in direct compensation, other than director’s fees, during any of the previous three years. The NYSE imposes a higher independence standard for directors serving on the company’s audit committee by requiring them to comport with Rule 10A-3 (C.F.R. §240.10A-3) (see Rule 303A.06) and requires consideration by the board of directors of certain specified factors in designating directors for the Compensation Committee.  See NYSE Rule 303A.02(a)(ii).

Finally, as the Commission has noted with respect to director independence:

All compensation committee members must meet the general independence standards under NYSE’s rules in addition to the two new criteria being adopted herein. The Commission therefore expects that boards, in fulfilling their obligations, will apply this standard to each such director’s individual responsibilities as a board member, including specific committee memberships such as the compensation committee. Although personal and business relationships, related party transactions, and other matters suggested by commenters are not specified either as bright-line disqualifications or explicit factors that must be considered in evaluating a director’s independence, the Commission believes that compliance with NYSE’s rules and the provision noted above would demand consideration of such factors with respect to compensation committee members, as well as to all Independent Directors on the board.

Exchange Act Release No. 68639 (Jan. 11, 2013); see also Exchange Act Release No. 68641 (Jan. 11, 2013).

Independent directors are compensated for their service on the board. The amount of “total compensation” can be seen from examining the director compensation table from the Federal Home Loan Mortgage Corporation’s (OTCMKTS: FMCC) 2015 10-K. According to the 10-K, the company paid the directors the following amounts:

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards($)	All Other Compensation ($)	Total ($)
Christopher S. Lynch*	292,167	0	0	0	292,167
Raphael W. Bostic**	157,778	0	0	0	157,778
Carolyn H. Byrd	185,000	0	0	0	185,000
Lance F. Drummond**	79,375	0	0	0	79,375
Thomas M. Goldstein	170,000	0	0	0	170,000
Richard C. Hartnack	170,000	0	0	0	170,000
Steven W. Kohlhagen	175,000	0	0	0	175,000
Donald H. Layton	0	0	0	0	0
Sara Mathew	170,000	0	0	0	170,000
Saiyid T.  Naqvi	160,000	0	0	0	160,000
Nicolas P. Retsinas	160,000	0	0	0	160,000
Eugene B. Shanks, Jr.*	177,833	0	0	0	177,833
Anthony A. Williams*	172,167	0	0	0	172,167

* In March 2015, Mr. Lynch and Mr. Williams left, and Mr. Shanks joined, the Audit Committee.

** Mr. Bostic joined the Board in January 2015. Mr. Drummond joined the Board in July 2015. The amount of Mr. Drummond's compensation includes partial annual compensation for the period he served on the Audit Committee during 2015.

*** Because Freddie Mac does not have pension or retirement plans for their non-employee directors and all compensation is paid in cash, “Change in Pension Value and Non-qualified Deferred Compensation Earnings” and “All Other Compensation” columns have been omitted.

Director Compensation. Board members receive compensation in the form of cash retainers only, paid on a quarterly basis. Non-employee directors are reimbursed for reasonable out-of-pocket costs for attending meetings of the Board or a Board committee of which they are a member and for other reasonable expenses associated with carrying out their responsibilities as directors.

Director Tenure. Mr. Retsinas is the longest serving director, having served since June of 2007. Mr. Drummond began as a director in July of 2015 and is the newest member of the board. Only six of the thirteen directors hold directorships with other companies. Ms. Byrd serves as a director of Popeyes Louisiana Kitchen, Inc. and Regions Financial Corporation. Mr. Hartnack serves as a director of Synchrony Financial. Mr. Kohlhagen serves as a director for AMETEK, Inc. and GulfMark Offshore, Inc. Mr. Lynch serves as a director for American International Group Inc. Ms. Mathew serves as a director for Avon Products, Inc., Campbell Soup Company, and Shire plc. Mr. Shanks, Jr. serves as a director for ACE limited.

Executive Compensation. Mr. Layton has served as Chief Executive Officer and a member of the Board since May 2012. Mr. Layton received an annual base salary of $600,000, “a level established by FHFA.” Mr. Layton has a cumulative Target Total Direct Compensation (“TDC”) for 2015 of $5,200,000.  Mr. Layton is eligible to participate in all employee benefit plans offered to Freddie Mac’s other senior executives. Mr. Mackey has served as the Chief Financial Officer since November 2013. Mr. Mackey has an annual Target TDC opportunity of $3,000,000, consisting of a base salary of $500,000 and Deferred Salary of $2,500,000; and the opportunity to participate in all employee benefit plans offered to Freddie Mac’s executive officers. Mr. Mackey was also provided with a cash sign-on award of $960,000 in recognition of the forfeited compensation at his prior employer and commuting expenses during the first several months of his employment.