Michael Appleton for The New York TimesBenjamin M. Lawsky, the New York superintendent of financial services, is said to have advised against MBIA bonuses.MBIA did not award bonuses to its top executives in 2011, but only after its regulator pressured the beleaguered bond insurer to withhold the payouts, people briefed on the matter said.
Jay Brown, the company’s chief executive, and three other senior executives, did not receive any cash bonus or long-term stock awards for 2011, according to a filing with the Securities and Exchange Commission on Monday.
The decision by the company followed discussions with its primary regulator, the New York State Department of Financial Services. Mr. Brown and his colleagues concluded that “it was in the best interest” of the company not to take any bonuses.
Benjamin M. Lawsky, the head of the department, told the company that bonuses were inappropriate given the state’s assistance provided to the company during the financial crisis, these people said.
A spokesman for MBIA declined to comment.
MBIA, via Bloomberg News
Jay Brown, chief executive of MBIA.
The clash over MBIA’s bonuses – or lack thereof – is the latest dust-up in the debate over the government’s role in regulating executive compensation, especially at companies that received assistance from the government during the crisis. Lawmakers and regulators have sought to rein in compensation at financial firms, blaming large incentive-based pay packages for the questionable risk-tasking during the market boom.
J.B. Reed/Bloomberg News
The headquarters of MBIA in Manhattan.
Earlier this month, the regulator for Fannie Mae and Freddie Mac slashed salaries for the heads of the two agencies and blocked most executives’ bonuses. Both the Securities and Exchange Commission and the Federal Deposit Insurance Corporation have floated proposals that would give them more oversight over compensation at financial firms.
In New York, the state attorney’s general’s office, where Mr. Lawsky served as a special assistant, has also played a role in scrutinizing bonuses paid by companies that received bailout money.
Some compensation experts have criticized the regulators for insinuating themselves into compensation decisions rather them leave them to a company’s board and its shareholders.
“It’s a messy situation,” said Alan Johnson of Johnson Associates, which advises companies on their pay plans. “I’m not saying that the government has no role here, but these decisions can often appear haphazard and politically driven.”
New York’s clash with MBIA has its origins in 2009, when the insurance division of the state’s financial services department effectively rescued the company. The department authorized a split of MBIA into two operations, separating its traditional municipal bond insurance business from its crippling exposure to toxic mortgage-backed securities.
MBIA, which is based in Armonk, N.Y., has been mired in litigation ever since that controversial restructuring. A group of banks sued the insurer, accusing it of fraud when it restructured. MBIA has also filed several lawsuits, including an action against Bank of America and its Countrywide unit, claiming that they lied to MBIA about the quality of the mortgages that were bundled into securities that the company insured.
New York’s financial services department has helped broker settlements with some of the banks that sued MBIA, including a pact with Morgan Stanley in which the bank received a $1.1 billion payment from the insurer.
The department began reviewing the bonus issue while engaged in those settlement discussions, say people familiar with the matter. Mr. Lawsky took the view that the state’s approval of MBIA’s split, and the department’s work to protect the insurer’s policyholders, was not meant to enrich company management, these people said.
Executives at MBIA were paid bonuses in 2009 and 2010, according to securities filings. Mr. Brown, the chief executive, received $1.8 million last year as part of a non-equity incentive plan, and about $4.5 million in awards and incentive payments the year before.
MBIA initially resisted the state’s recommendation to abandon bonuses, but eventually capitulated, these people said. But in Monday’s securities filing, MBIA hinted at its disappointment with the state’s interference with how much it paid its executives.
The decision to withhold bonuses, said the company, “introduces the risk that our compensation program will no longer be effective in meeting our objectives” of attracting and retaining employees.
MBIA added that while the board’s compensation committee supported the executives’ decision, “this was not a reflection of the compensation’s committee’s views of their individual performances for 2011.”