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Exhibit 10.12

 
   
LOGO [g808293.jpg]   2003 Leadership Bonus Plan

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PLAN OVERVIEW

Washington Mutual's Leadership Bonus Plan provides eligible employees in Levels
1-8 the opportunity to earn an annual cash bonus based on performance. Target
bonuses are set as a percentage of Earned Salary and vary by Level and job.

The plan year and performance measurement period is from January 1 through
December 31. Washington Mutual must achieve a Return on Common Equity of at
least 15% for any payouts to occur. No award under this plan is earned or paid
until approved by Washington Mutual's Board of Directors.

PEFORMANCE METRICS AND WEIGHTS

The plan measures and rewards performance against established company-wide and
individual performance metrics. In 2003, company performance is determined based
on three metrics-corporate Earnings per Share (EPS), Compliance Index, and
Customer Satisfaction Index. Customer Satisfaction is assessed based on internal
and/or external customer surveys and is measured at the corporate, business
segment, or department level, depending on Executive Committee member
measurement strategies.

Each participant's target bonus is weighted as shown in the table below. Actual
payouts may range from 0-150% of the target for each component.

Performance Metrics and weights by Level
Company-wide Performance Metrics

 
   
Level

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  Earnings
Per Share

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  Compliance Index

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  Customer
Satisfaction

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  Individual
Performance

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Executive
Committee   70%   15%   15%
(Corporate)   0%
4-5
 
40%
 
15%
 
15%
(Segment or Department)
 
30%
6-8
 
30%
 
10%
 
10%
(Segment or Department)
 
50%

1

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For example, a Level 7 target bonus of $10,000 would be divided according to
column (A) below; a payout example in columns (B) and (C) is also included.

Example Level 7 Metric Weighting and Payout

Performance
Metric

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  (A)

Target Bonus

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  (B)
Example
Performance

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  (C)
Example Payout
(A times B)

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Earnings per Share (30%)   $ 3,000   105%   $ 3,150
Compliance Index (10%)
 
$
1,000
 
110%
 
$
1,100
Customer Satisfaction (10%)
 
$
1,000
 
90%
 
$
900
Individual Performance (50%)
 
$
5,000
 
95%
 
$
4,750
Total
 
$
10,000
 
 
 
$
9,900

COMPANY-WIDE PERFORMANCE TARGETS

Washington Mutual's Board of Directors established the following performance
targets for 2003 company-wide metrics.

Earnings per Share

The Earnings per Share (EPS) metric is defined as net income divided by average
number of common shares outstanding as publicly reported. The 2003 performance
standards and payout range for this measure is:

 
  CORPORATE EPS*

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  PAYOUT AS % OF
TARGET BONUS

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      + $0.30   150 %         + $0.25   140           + $0.20   130           +
$0.15   120           + $0.10   110           Board Target   100          
-$0.10   90           -$0.20   80           -$0.30   70           -$0.40   60  
        -$0.50   50           -$0.51 or less   0      

*The EPS target will be held constant as long as the average of the federal
funds interest rate is ±50 basis points from that assumed in the 2003 financial
plan. The positive or negative impacts of interest rate changes outside of this
range may result in an adjustment in the EPS target. The Director's Human
Resource Committee must approve any adjustments in targets.

2

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Compliance Index

The Compliance Index is composed of three compliance-related goals and measures.
The overall payout will equal the arithmetic average of the percent payouts for
the three measures. However, no payout will be made if the overall average falls
below 75 percent.

COMPLIANCE
GOAL

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  MEASURE

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  RESULT

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  PERCENT
PAYOUT

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  COMMENTS

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HMDA Data
Quality   Key Column
Error Rate   2.5%
3.0
3.5
4.0
4.5
5.0
>5.0   150
140
120
100
80
60
0   Measurement will be YTD through last available month in 2003.

If any single line error rate for key column data exceeds 5%, maximum percent
achievement is 100%
LMI Lending
 
WaMu LMI
Borrower
Penetration
 
22.7%
22.3
21.5
20.7
19.9
<19.9
 
150
140
120
100
80
0
 
Includes both originated and purchased/correspondent loans.

Measurement will be the arithmetic average of the penetration rates for each of
the first three quarters of 2003.
Compliance
Exam
 
Compliance
Exam Rating
 
1
 
150
 
 
 
 
 
 
2+
 
125
 
Rating denotes leadership acknowledged in report.
 
 
Note:
Interpretation
of measures
will be by the
Board of
Directors.
 
2
 
100
 
Rating denotes significant progress and upgrade.
 
 
 
 
3+
 
90
 
Rating denotes report recognizes significant progress, but finds upgrade
premature.
 
 
 
 
3
 
80
 
Rating denotes continuing problems or major new issues need to be addressed.
 
 
 
 
3-
 
0
 
Rating denotes performance has deteriorated.
Overall Payout Equals:
 
Average of
three scores
above
 
 

3

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Customer Satisfaction Index

The Customer Satisfaction Index is composed of internal and/or external customer
satisfaction survey results. The Quality Services Management team will work with
Executive Committee members to determine for their areas:

•Where customer satisfaction is measured, either at the business segment level
or department level, and

•Weighting between internal customer satisfaction and external customer
satisfaction. This may vary by business segment.

For 2003, the scale for measuring external survey results will be changed to
mirror the internal survey scoring scale, as shown below:

COMBINED INTERNAL & EXTERNAL SURVEY RESULTS
(the weighting between internal and external results may vary by business
segment)

 
  Score

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  Payout

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    4.5 or above   150%         4.4   140%         4.3   130%         4.2   120%
        4.1   110%         4.0   100%         3.9   90%         3.8   80%      
  3.7   70%         3.6   60%         3.5-3.0   50%         2.9 and below   50%
if 20 basis point improvement    

The Quality Services Management team collects and compiles all customer
satisfaction survey results during the plan year. The QSM team calculates the
final scores, weightings, and payout percentages in January for the prior year.
Survey scores are rounded to the nearest tenth.

Individual Performance

Payouts for individual performance are based on an evaluation by the
participant's manager. In determining a performance rating, managers should
consider what is actually achieved (results) in addition to how results are
achieved (leadership competencies). Performance goals should be set early in the
year through a collaborative process between the participant and manager.

2003 Compliance Requirements

In 2003, participants with material impact on compliance results must have at
least 25% of individual performance goals devoted to compliance related
measures, tailored to fit the manager's job responsibilities. Copies of
compliance goals should be forwarded to the division Business Unit Compliance
Officer. More information about setting compliance goals may be found at the
following link: http://home.wamu.net/corpHR/GoalSettingGuide.jsp.

4

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EXAMPLE LEADERSHIP BONUS CALCULATION

Name: Jane Smith Level: 6 Earned Salary: $100,000 Target Bonus %: 25%

PERFORMANCE RESULTS AND PAYOUT AS % OF TARGET AWARD

Company Goals

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  Goal
Weight
(A)

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  Results

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  Percent of
Target Award
Achieved
(B)

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  Weighted
Target Award
Payout
(A) X (B)

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Earnings per Share   30%   +$0.10   110%   33%
Compliance Index
 
10%
 
See Below
 
103.3%
 
10.3%
Customer Satisfaction
 
10%
 
3.9
 
90%
 
9%
Individual Performance
 
50%
 
Meets Rating
 
95%
 
47.5%
Total
 
100%
 
 
 
 
 
99.8%

Compliance Index Payout Calculation

Compliance Index Measure

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  Results

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  Percent Payout

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HMDA Data Quality   3.5   120%
LMI Lending
 
20.7
 
100%
Compliance Exam
 
3+
 
90%
Average:
 
103.3%

Bonus Payout Calculation

Target Bonus %

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  ×

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  Earned Salary

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  ×

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  Total Bonus
Payout %

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  =

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  Bonus Payout

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25%   ×   $100,000   ×   99.8%   =   $24,950

OTHER PLAN DETAILS

Eligibility—Employees as of December 31 of the plan year in jobs assigned to
Levels 1-8 before October 1 of the plan year who do not participate in other
cash incentive or bonus plans are eligible. Contract staff and temporary
employees are not eligible for this plan.

Earned Salary—Earned Salary is the base salary actually received while eligible
for the plan during the plan year. Earned Salary includes sick and vacation pay,
but excludes allowances, disability pay, relocation, performance bonuses,
sign-on bonuses, overrides, commissions, draws, or any other type of non-salary
compensation. Earned Salary is used for the calculation of target awards, which
are calculated by multiplying Earned Salary by target bonus percent.

New Hires—New employees may earn a bonus award based on their Earned Salary from
date of hire as documented by Human Resources.

Mid-Year Job Changes—Employees newly meeting eligibility requirements mid-plan
year may earn a bonus award based on Earned Salary from the date of the Human
Resources documented job change.

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Participants transferring to a position that is eligible for a different cash
incentive or bonus plan during the plan year lose eligibility for this plan and
may earn a bonus award based on Earned Salary up to the last day of eligibility.

Temporary Leave of Absence—Employees on a leave of absence may earn a bonus
award based on their Earned Salary during the plan year. Awards are paid as
designated below.

Prorated Target Bonus—Employees who have job or status changes during the plan
year that impact their target bonus percent will have their target bonus amounts
based on their business days in position according to the effective date of the
Human Resources approved and documented change.

Separation—Employees who:

•Voluntarily separate prior to the end of the plan year are not eligible for a
payout.

•Voluntarily separate after the end of the plan year are eligible for a payout
under the normal terms and conditions of this plan. Awards are paid as
designated below.

•Involuntarily separate prior to the end of the plan year for performance or
other reasons not specified below are not eligible for a payout.

•Separate prior to the end of the plan year as a result of a reduction in work
force are eligible to earn an award based on Earned Salary through the effective
date of separation. At the discretion of the Company, special provisions for a
workforce reduction may wholly or partly supercede this provision.

•Separate prior to the end of the plan year due to death, permanent disability,
or approved retirement are eligible to earn an award based on Earned Salary up
to the last day of active employment. Awards are paid as designated below.

Performance Requirements—Bonuses are awarded at the discretion of Management and
the Board of Directors. As such, employees with performance problems (as
determined by their Manager), including but not limited to those rated "At Risk"
or "Needs Development," or who engage in conduct that violates Washington
Mutual's Code of Conduct, may be determined by Management to be ineligible for
all or part of any potential bonus.

Payouts—Awards under this plan are earned on the date the Board approves the
payouts and are targeted to be paid in the last paycheck in January following
the plan year. Participants have no right or entitlement to bonuses until the
amounts are earned on the Board's approval date. Plan payments are subject to
all applicable taxes and withholdings in the year paid.

Deferral—Participants eligible for the Washington Mutual Deferred Compensation
Plan may defer some or all of any bonus payout subject to the provisions of that
plan. Contact the Employee Service Center and request Stock Administration for
enrollment information.

At-Will Employment—Nothing in the Plan is intended to modify participants'
at-will employment status. Employment at Washington Mutual is subject to the
mutual consent of each employee and Washington Mutual, and either party may
terminate employment at any time, for any reason, without cause or prior notice.

Not A Contract—The terms and provisions of this bonus plan are not intended to
be a contract, are not contractually enforceable, and are not intended to
promise specific treatment in specific circumstances. Rather, they are
guidelines that Washington Mutual reserves the right to amend or terminate
without prior notice, and to apply and interpret within its sole discretion.

Equal Employment Opportunity—This plan is administered and bonus compensation
paid on an equal opportunity basis without regard to race, religion, sex, age,
national origin, physical or mental disability, marital status, sexual
orientation, or any other characteristic that is protected by applicable law.

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Prohibition against Commissions—It is Washington Mutual policy that no officer
or employee who has or exercises final authority with respect to any loan or
investment shall receive any commission on such loan or investment. "Commission"
is defined as compensation that varies in amount proportionately to the amount
of such loan or investment. The purpose of this policy is to avoid creating
incentives for such decision-makers to offer or approve imprudently large loans
or investments.

Acknowledgement of Terms and Conditions—By participating in and accepting
compensation under this plan, participants agree that if a dispute arises
concerning the application or interpretation of the plan or any compensation
paid under the plan, and if the dispute results in litigation or arbitration,
the substantially prevailing party in any such arbitration or litigation shall
be entitled to recover reasonable attorney's fees and costs.

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Exhibit 10.12