WASHINGTON — After soaring for years, compensation packages for the chief executives at the Federal Home Loan banks declined slightly last year.
The packages — including annual salary, bonuses, and other forms of payment — at the nine Home Loan banks without executive turnover in 2005 and 2006 dropped 0.5% last year, to $8.82 million. Meanwhile, overall profits for those banks rose 8.7%.
After years of criticizing them for throwing money at executives presiding over money-losing banks, many observers said last year's compensation packages were reasonable.
"From a business standpoint, you like" to tie pay to performance, said Geoff Bacino, a director at the Federal Housing Finance Board, which regulates the 12 Home Loan banks. "You're seeing numbers that fit with what the private sector would have."
Though the packages shrank slightly last year, compensation for running a Federal Home Loan bank has risen substantially since the Gramm-Leach-Bliley Act of 1999 took away the Finance Board's authority to review executive pay. At the 10 Home Loan banks with no turnover in 2004 or 2005, the combined CEO pay packages grew 14% in 2005, to $9.1 million.
But that turned around in 2006. Of the three banks where net income dropped last year, overall CEO compensation declined at two: Indianapolis and Dallas.
The sole exception was J. Mikesell Thomas of the Federal Home Loan Bank of Chicago, who reported the most lucrative compensation package for the second year in a row. His pay rose 4.8%, to nearly $1.4 million, though the bank's earnings dropped 23%.
A spokeswoman for the Chicago bank said the pay increase is mandated by a provision in Mr. Thomas' employment contract. This year his base salary is scheduled to increase another 4%, to $703,040.
Financial performance was not the only factor in determining CEO compensation. Home Loan bank officials said executives also can get raises by leading the Home Loan Bank System through significant policy debates.
The Home Loan Bank of Cincinnati led the charge against the Finance Board's controversial retained-earnings proposal, helping to rally the other 11 banks to oppose it. By the end of last year the Cincinnati bank's board had voted to give its CEO, David Hehman, a $50,000 bonus as part of his compensation package, which grew 12.6% from 2005, to $969,839.
Even though the bank's profits jumped 15%, Carl Wick, the bank's chairman, said it rewarded Mr. Hehman for leading the institution through the debate over retained earnings.
"If we had just made our numbers, I'm not sure the board would have voted on the bonus," Mr. Wick said. "It had to do with so much being on our plate. We were successful in making our points" that the proposal "should not be implemented as it was written at the time."
The plan, which would have forced the Home Loan banks to cut dividend payments to members until retained earnings reached $50 million plus 1% of nonadvance assets, was tabled in December. It would have hit the Cincinnati bank particularly hard, because the bank would have had to raise its retained earnings by $189 million.
Still, financial performance may have had a bigger impact on other Home Loan banks.
Martin Heger, who stepped down as the longtime head of the Home Loan Bank of Indianapolis at the end of last year, was once among the highest-paid CEOs in the system. But his compensation fell 21.6% last year, to $798,269, while advances at his bank fell more than at any other Home Loan bank, and its earnings dropped 22.8%.
Paul Clabuesch, the Indianapolis bank's chairman, said Mr. Heger lived up to his job responsibilities and received fair compensation.
"While profits were down, profits were made," he wrote in a letter to American Banker. "The board believes that Mr. Heger met the responsibilities of his contract and was compensated accordingly."
At the Home Loan Bank of Dallas, Terry Smith's compensation shrank 6.2%, to $927,282. He did not receive a bonus last year, a spokeswoman for the bank said. Its profits dropped 49.6%, and advances fell 11.6%.
Still, the spokeswoman insisted that the compensation drop "is not a reflection of the bank's financial stability" and does not signal concern within the board that financial problems are in store for the bank.
Some CEOs received lower pay despite good earnings at their banks.
Raymond Christman, the former CEO of the Home Loan Bank of Atlanta, was the lowest-paid chief executive last year. His package fell 27.4%, to $634,045, and did not include a bonus.
Though he steered his bank to a 20% profit increase last year, he unexpectedly resigned in January after his relationship with the board reportedly soured and he became frustrated with what he saw as the Home Loan Bank System's departure from housing issues.
A spokesman for the Atlanta bank said the board reviewed Mr. Christman's performance according to long- and short-term goals, his implementation of effective business strategies, and other factors.
Compensation for Michael Jessee, the CEO of the Home Loan Bank of Boston, dropped 2.9%, to $967,293, despite a 44.8% profit increase. A spokesman for the bank attributed the decline to unusually large payments Mr. Jessee received in 2005, including $203,811 for unused vacation time.
Mr. Thomas, John Price of the Home Loan Bank of Pittsburgh, and Dean Schultz of the Home Loan Bank of San Francisco were the only CEOs whose compensation package topped $1 million.
Mr. Schultz's compensation grew 8.5%, to $1.28 million, the second-largest among the bank CEOs. The San Francisco bank's earnings continued to grow, rising 46.9% last year. Advances grew 12.8%, but dividend payments to members declined, because the bank diverted money into its retained earnings fund, which remains one of the system's smallest.
A spokeswoman for the San Francisco bank would not discuss the pay raise, but in its annual report, the bank said its pay packages are "intended to focus the executives on achieving the bank's mission, increasing member business, and encouraging teamwork, and to associate executive pay with the bank's short-term and long-term strategic goals and performance targets."
Mr. Price joined the Pittsburgh bank at the beginning of last year, and his $1.25 million compensation package was 23.3% higher than the 2005 compensation for his predecessor, James Roy. The bank's profits jumped 12.9% last year, and advances increased 3.9%.
In its annual report, the Pittsburgh bank said it benchmarked Mr. Price's pay against packages at other Home Loan banks and private financial institutions with less than $25 billion of assets.
Andrew Jetter's paycheck grew the fastest among CEOs who have led a Home Loan bank during the past two years. His compensation for running the Home Loan Bank of Topeka grew 27%, to $878,956.
A spokeswoman for the Topeka bank said its compensation is not based solely on the bank's profitability. "The board of directors considers the overall profitability of the FHLBank and its success in accomplishing its mission and the goals and objectives, which the board of directors establish."
Conclusions about executive compensation are harder to draw at the Home Loan banks of Des Moines and Seattle, which both have CEOs who joined the bank in the middle of 2005 or 2006.
James Gilleran's compensation for running the Home Loan Bank of Seattle grew 32.7%, to $840,966. But he was paid just $565,749 in 2005, because he did not arrive until July of that year. The former Office of Thrift Supervision director said in February that he will resign April 30, turning over the bank's leadership to Richard Riccobono, its chief operating officer.
Last year the Home Loan Bank of Des Moines paid Richard Swanson $438,731, or 24.2% less than the previous CEO, Patrick Conway, was paid in 2005.
The compensation figures do not include changes in pension values, which the banks reported for the first time last year as a result of a new rule from the Securities and Exchange Commission.
If pension income were included, Mr. Heger would have been the highest-paid CEO. His $1.9 million of pension income would raise his total compensation to $2.7 million.
Mr. Heger spent nearly 15 years leading the Indianapolis bank, making his pension much more valuable than that of his counterparts at other banks, whose pension income was valued at between $111,000 and $744,000.
CEO compensation, which American Banker analyzes every year, is a touchy topic for the Home Loan banks. Critics say that the executives are paid too much to run a government-sponsored enterprise dedicated almost exclusively to one line of business: advances.
"I'm sure a small banker will think a Federal Home Loan banker makes a ton of money," said a source familiar with the industry and the Home Loan banks, who asked not to be identified.
But others argue that as the Home Loan banks grow and face more regulation, they need top-tier managers accustomed to private-sector paychecks.
"There has been a focus of the banks to ensure they hire management with seasoned knowledge, strong skill sets and leadership that allow the Home Loan banks to continue to grow," said Brian Harris, an analyst for Moody's Investors Service Inc.
The Home Loan banks themselves say they are caught in a difficult position as a GSE competing for top talent.
"The executive roles of our named executive officers are as complex and sophisticated as those at other similar-sized financial services and banking firms, but our bank may have a narrower focus," according to the San Francisco bank's annual report. "Our named executive officers are required to have the depth of knowledge and experience that is required by comparable financial services and banking firms, but unlike some of these comparable companies with multiple lines of business, our focus is limited to certain lines of business. Our focus is more like that of a specific subsidiary, division, or business unit of comparable companies with multiple lines of business."
But Mr. Bacino of the Finance Board said larger salaries are justified because the Home Loan banks are complicated organizations.
"In many cases, they're every bit as complex" as private-sector banking companies, he said.
