EXHIBIT 10.6
 
 
 
 
 
 
 
 
 
 
 
FEDERAL HOME LOAN BANK OF
CINCINNATI                                                        
 
 
Executive Long-Term Incentive Plan
Plan Document
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of January 1, 2011
Revised February, 2011
 

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FEDERAL HOME LOAN BANK OF CINCINNATI                                    
Executive Long-Term Incentive Plan
TABLE OF CONTENTS
    
 
 
Page
1.0
Plan Objectives
1
2.0
Definitions
1
3.0
Eligibility
2
4.0
Target Award Opportunity
3
5.0
Performance Measures
3
6.0
Final Award Determination
4
7.0
Administrative Control
5
8.0
Miscellaneous Conditions
5
 
 
 
Appendix - 2011 - 2013 Performance Period
9
 
Performance Period
10
 
Target Award Opportunity
10
 
Initial Value of Performance Unit
10
 
Participants
11
 
Performance Measures & Final Value of Performance Unit
12
 
Detailed Goals & Performance Measures
13

                                            
 
 

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FEDERAL HOME LOAN BANK OF CINCINNATI                                    
Executive Long-Term Incentive Plan
PLAN DOCUMENT
1.0    Plan Objectives
1.1    The purpose of the Federal Home Loan Bank of Cincinnati Executive
Long-Term Incentive Plan (the “Plan”) is to achieve five objectives:
1.1.1    Promote the achievement of the Bank's long-term profitability and
business goals;
1.1.2    Link executive compensation to specific long-term performance measures;
1.1.3    Provide a competitive reward structure for senior officers and other
key employees;
1.1.4    Provide a vehicle for closer Board involvement and communication with
management regarding the Bank's long-term strategic plans; and
1.1.5    Promote loyalty and dedication to the Bank and its objectives.
1.2    The Plan is a cash-based, long-term incentive plan which establishes
individual Target Award Opportunities related to achievement of Bank performance
over certain three-year Performance Periods.
1.3    The Participants, the Target Award Opportunity, Performance Measures,
value of a Performance Unit at the beginning and end of a Performance Period,
and other relevant information are set forth in the attached Appendices.
2.0    Definitions
2.1    When used in this Plan, the words and phrases below shall have the
following meanings:
2.1.1    Bank means the Federal Home Loan Bank of Cincinnati;
2.1.2    Target Award Opportunity means the award that may be earned during a
Performance Period for achieving target performance levels under each
Performance Measure;
2.1.3    Board means the Bank's Board of Directors;
2.1.4    Disabled means a Participant who (i) is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or can be expected to
last for a continuous period of not less than 12

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months, or (ii) is, by reason of any medically determinable physical or mental
impairment which can be expected to result in death or can be expected to last
for a continuous period of not less than 12 months, receiving income replacement
benefits for a period of not less than three months under an accident and health
plan covering employees of the Bank.
2.1.5    Extraordinary Occurrences means those events that, in the opinion and
discretion of the Board, are outside the significant influence of the
Participants or the Bank and are likely to have a significant unanticipated
effect, whether positive or negative, on the Bank's operating and/or financial
results, including, without limit, movement in interest rates, changes in
financial strategies, or policies or significant change in Bank membership.
2.1.6    Final Award means the amount ultimately paid to a Participant under the
Plan for a Performance Period.
2.1.7    Performance Measure means each performance factor that is taken into
consideration under the Plan in determining the value of the Final Award.
2.1.8    Participant means an employee who participates in the Plan pursuant to
Section 3.1.
2.1.9    Performance Period means a certain three-year period over which Bank
performance is measured.
2.1.10    Performance Unit means a unit, the value of which shall be determined
in accordance with the applicable Appendix.
2.1.11    Personnel Committee or Committee means the Personnel Committee of the
Board.
2.1.12    Plan means this Executive Long-Term Incentive Plan.
2.1.13    Plan Award means an amount that is provisionally determined at the end
of the Performance Period subject to adjustment as provided in Section 6.
2.1.14    President means the President of the Bank.
3.0    Eligibility
3.1    A Bank employee who is nominated by the President and approved by the
Board may participate in the Plan.
3.2    Eligibility shall generally be limited to officers (i) whose functional
responsibilities encompass the establishment of strategic direction and tactical
action plans for the Bank, and (ii) who have received at least satisfactory
rankings on annual performance reviews over a Performance Period. Other

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employees may also be eligible to participate as defined by competitive
compensation practices within the Bank's labor market.
3.3    Due to its unique role for the Bank and reporting relationship to the
Board, the Director of Internal Audit will not be included as an eligible
position under the Plan, but will be eligible for a similar plan administered by
the Audit Committee of the Board.
4.0    Target Award Opportunity
4.1    At the beginning of each Performance Period, the Bank will provide a
Target Award Opportunity to Participants. The Target Award Opportunity is equal
to a percentage of each Participant's annual base salary at the beginning of the
Performance Period as described in the applicable Appendix. Certain executive
positions have a greater and more direct impact than others on the annual
success of the Bank; therefore, these differences are recognized by varying
award opportunities for each Participant level.
4.2    Each Participant in a Performance Period shall be granted a number of
Performance Units for that Performance Period determined by dividing the Target
Award Opportunity by the value of a Performance Unit at the beginning of a
Performance Period as described in the applicable Appendix.
4.3    There will be four levels of award opportunities:
Level I
President
 
 
Level II
Executive Vice President
 
 
Level III
Senior Vice Presidents
 
 
Level IV
Vice Presidents

5.0    Performance Measures
5.1    Three achievement levels will be established for each Performance
Measure:
Threshold
The minimum achievement level accepted for the Performance Measure.
Target
The planned achievement level for the Performance Measure.
Maximum
The achievement level for the Performance Measure that substantially exceeds the
planned level of achievement.

5.2    At the beginning of each Performance Period, Performance Measures for a
Performance Period and Performance Units and their initial values will be
established by the Personnel Committee with Board approval.

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5.3    When establishing Performance Measures, the Threshold level should
reflect a 90 percent success rate; the Target level should reflect a 75 to 80
percent success rate; and the Maximum level should reflect a 10 to 15 percent
success rate.
6.0    Final Award Determination
6.1    Plan Awards will be based on the achievement level for each of the
three-year Performance Measures. However, if the Bank fails to achieve the
Threshold level for a Performance Measure other than the Mission Goal, no award
will be payable for that specific Performance Measure. If the Bank fails to
achieve the Threshold level for the Mission Goal Performance Measure, no award
will be payable under the Plan for the Performance Period.
6.2    A Participant's Plan Award for a Performance Period equals the number of
his or her Performance Units for that Performance Period multiplied by the value
of a Performance Unit at the end of the Performance Period as determined in
accordance with the applicable Appendix.
6.3    In the event that a Federal Housing Finance Agency (FHFA) examination
identifies a Composite Four (4) Rating (as defined in the FHLBank Rating System)
indicating the Bank has been found to be operating in an unacceptable manner,
exhibits serious deficiencies in corporate governance, risk management or
financial condition and performance, or in substantial noncompliance with laws,
FHFA regulation or supervisory guidance in a Participant's area of
responsibility, the Participant will not be eligible for an award under the Plan
for the Performance Period in which the Composite Four Rating existed.
6.4    Promptly after a Performance Period, Plan Awards for the Performance
Period shall be determined by the Board in its sole discretion based upon the
Plan Award determined pursuant to Section 6.2.
6.5    President's Award. In addition to the Plan Award, in determining a
Participant's Final Award, the Executive Vice President, Senior Vice Presidents,
Vice Presidents and other employees (e.g., new hires and highly valued existing
employees) may be nominated by the President for a discretionary allocation of
Performance Units, to be approved by the Board, to recognize extraordinary
performance and/or to address competitive compensation practices within the
Bank's labor market (the “President's Award”).
6.6     The value of a Performance Unit under the President's Award will be
equal to the value of a Performance Unit under the Target Award Opportunity.
6.7    For a Performance Period, the total value of Performance Units granted
under the President's Award shall not exceed ten (10) percent of the total
Performance Units granted under the Target Award Opportunity.
6.8    The Board may also authorize the President to receive a discretionary
allocation of Performance Units to recognize extraordinary performance and/or to
address

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competitive compensation practices within the Bank's labor market. Any
discretionary allocation of Performance Units granted to the President under
this section will not exceed ten (10) percent of the total Performance Units
granted to the President under the Target Award Opportunity.
6.9    A Participant's Final Award will consist of his or her Plan Award plus
any additional discretionary award granted under Section 6.5 or 6.8.
7.0    Administrative Control
7.1    The Bank's Director of Human Resources will assist, as requested, the
President and the Committee in the administration of the Plan, however, the
Board will have the ultimate authority over the Plan.
7.2    In addition to the authority expressly provided in the Plan, the Board
shall have such authority in its sole discretion to control and manage the
operation and administration of the Plan and shall have all authority necessary
to accomplish these purposes, including, but not limited to, the authority to
interpret the terms of the Plan, and to decide questions regarding the Plan and
the eligibility of any person to participate in the Plan and to receive benefits
under the Plan. The Board's determinations and interpretations regarding the
Plan shall be final, binding, and conclusive.
8.0    Miscellaneous Conditions
8.1    Except as provided in Section 8.4, Participants must be employed by the
Bank on the last day of the Performance Period in order to become eligible to
receive a Final Award. A Participant will not become vested in an award under
this Plan until the date the Board authorizes the payment of the Participant's
Final Award.
8.2    In the event a Participant voluntarily or involuntarily terminates
employment during the Performance Period, no award will be made to the
Participant, except as provided in Section 8.4 below.
8.3    Employees of the Bank who are hired, transferred, or promoted into an
eligible position during a Performance Period may be nominated for participation
in the Plan in accordance with Section 3.1, and receive a prorated Target Award
Opportunity.
8.4    A Participant who retires, dies or becomes disabled during the
Performance Period may receive a prorated Plan Award, but only if the President
nominates and the Board approves such action. For purposes of this Section, the
term “retires” means the Participant has (i) been employed with the Bank for at
least five (5) years and (ii) reached at least age 62 when he or she retires
from the Bank. If a Participant becomes vested to receive a prorated award under
this Section, the prorated Final Award will be paid to the Participant no later
than 2½ months following the calendar year in which such vesting occurred. If a
Participant terminates service with the Bank for any reason other than

5

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retirement, death, or disability during the Performance Period, the Participant
will not be eligible to receive an award under the Plan.
8.5    The amount of any prorated award will be determined by dividing the
number of months the Participant was employed by the Bank during the Performance
Period by 36 and multiplying such quotient by the Plan Award.
8.6    If a Participant ceases employment after the Performance Period but
before the Board approves the Final Award for that Performance Period, the
President may nominate and the Board may approve the Participant to receive an
award. However, if the President fails to make such a recommendation or the
Board fails to approve such action, the Participant will not be entitled to an
award.
8.7    Notwithstanding any Plan provision to the contrary, mere participation in
the Plan will not entitle a Participant to an award.
8.8     The designation of an employee as a Participant in the Plan does not
guarantee employment. Nothing in this Plan shall be deemed (i) to give any
employee or Participant any legal or equitable rights against the Bank, except
as expressly provided herein or provided by law; or (ii) to create a contract of
employment with any employee or Participant, to obligate the Bank to continue
the service of any employee or Participant, or to affect or modify any
employee's or Participant's term of employment in any way.
8.9    The right of the Bank to discipline or discharge a Participant shall not
be affected by reason of any provision of this Plan.
8.10    All Final Awards will be paid out in cash and will be subject to
applicable payroll tax withholdings.
8.11    No Final Award received by a Participant shall be considered as
compensation under any employee benefit plan of the Bank, except as otherwise
determined by the Bank.
8.12    Final awards will be made no later than 2 ½ months following the
calendar year which the Participant became vested in the Final Award.
8.13    The Board has the right to revise, modify, or terminate the Plan in
whole or in part at any time or for any reason, and the right to modify any
recommended award amount (including the determination of a greater or lesser
award, or no award), for any reason, without the consent of any Participant. Any
payments under the Plan may be impacted by extraordinary events, a failure to
meet certain minimum financial performance or control requirements and may be
subject to a claw back provision.
 
Extraordinary events may include changes in business strategy, impact of severe
economic fluctuations, significant growth or consolidation of the membership
base or other factors that impact the Bank or Bank System. Any undue incentives
paid to an officer of the Bank based on achievement of financial or operational
goals within this Plan that subsequently are deemed to

6

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be inaccurate, misstated or misleading shall be recoverable from the officer by
the Bank. Inaccurate, misstated and/or misleading achievement of financial or
operational goals includes, but is not limited to, overstated revenue, income,
capital, return measures and/or understated credit risk, market risk,
operational risk or expenses. The value of any benefits delivered or accrued
related to the undue incentive (the amount of the incentive over and above what
should have been paid barring inaccurate, misstated and/or misleading
achievement of financial or operational goals) shall be reduced and/or recovered
by the Bank to the fullest extent possible.
 
8.14    Since no employee has a guaranteed right to any award under this Plan,
any attempt by an employee to sell, transfer, assign, pledge, or otherwise
encumber any anticipated award shall be void, and the Bank shall not be liable
in any manner for or subject to the debts, contracts, liabilities, engagements
or torts of any person who might anticipate an award under this program.
8.15    This Plan shall at all times be entirely unfunded and no provision shall
at any time be made with respect to segregating assets of the Bank for payment
of any award under this program.
8.16    The Plan shall be construed, regulated and administered in accordance
with the laws of the state of Ohio, unless otherwise preempted by the laws of
the United States.
8.17    If any provision of the Plan is held invalid or unenforceable, its
invalidity or unenforceability shall not affect any other provision of the Plan,
and the Plan shall be construed and enforced as if such provision had not been
included herein.
8.18     If a Participant dies before receiving his or her award, any amounts
determined to be paid under this Plan shall be paid to the Participant's
surviving spouse, if any, or if none, to the Participant's estate. The Bank's
determination as to the identity of the proper payee of any amount under this
Plan shall be binding and conclusive and payment in accordance with such
determination shall constitute a complete discharge of all obligations on
account of such amount.
8.19    Claims and Appeals Procedures. A Participant (such Participant being
referred to below as a “Claimant”) may deliver to the Personnel Committee a
written claim for a determination with respect to any claim as to which the
Personnel Committee has jurisdiction under this Plan. If such a claim relates to
the contents of a notice received by the Claimant, the claim must be made within
sixty (60) days after such notice was received by the Claimant. The claim must
state with particularity the determination desired by the Claimant.
The Personnel Committee shall consider a Claimant's claim within a reasonable
time, but no later than ninety (90) days after receiving the claim. If the
Personnel Committee determines that special circumstances require an extension
of time for processing the claim, written notice of the extension shall be
furnished to the Claimant prior to the termination of the initial ninety (90)
day

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period. Upon reaching its decision, the Personnel Committee shall notify the
Claimant in writing.
On or before sixty (60) days after receiving a notice from the Personnel
Committee that a claim has been denied, in whole or in part, a Claimant (or the
Claimant's duly authorized representative) may file with the Committee a written
request for a review of the denial of the claim. The Committee shall render its
decision on review promptly, in writing, and deliver it to the Claimant no later
than sixty (60) days after it receives the Claimant's written request for a
review of the denial of the claim.
8.20    Any agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter of this Plan which are not contained
herein will have no effect or enforceability.
 
 
 
 
 
 
 
 
 
 

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APPENDICES                                                                        
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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FEDERAL HOME LOAN BANK OF CINCINNATI                                    
Executive Long-Term Incentive Plan
APPENDIX
2011 - 2013 Performance Period
Performance Period
The Performance Period described in this Appendix shall be January 1, 2011
through December 31, 2013.
Target Award Opportunity
The Target Award Opportunity (as a percentage of January 1, 2011 base salary)
for Levels I, II, III, and IV are:
Level
 
I
30%
II
25%
III
20%
IV
15%

 
Initial Value of Performance Unit
The value of a Performance Unit at the beginning of this Performance Period
equals $100.
 

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Plan Participants:
 
The Level I, II, III and IV Participants for the 2011 - 2013 Performance Period
are:
Level
Name
Title
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 

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Performance Measures
1.    
After the Performance Period ends, evaluate actual Bank performance against the
Performance Measures stated below.

 
2.    
Determine the value of the Performance Unit based on the minimum, target, and
maximum awards for the Operating Efficiency, Risk Adjusted Profitability, Market
Capitalization Ratio and Market Penetration achievements according to the
following table:

 
 
Threshold
Target
Maximum
Operating Efficiency
3rd Quartile
2nd Quartile
1st Quartile
Dollar Value at Hurdles
 
 
 
Weight
0.25
0.25
0.25
Operating Efficiency Value
 
 
 
 
 
 
 
Risk Adjusted Profitability
3rd Quartile
2nd Quartile
1st Quartile
Dollar Value at Hurdles
 
 
 
Weight
0.25
0.25
0.25
Risk Adjusted Profitability Value
 
 
 
 
 
 
 
Market Capitalization Ratio
 
 
 
Dollar Value at Hurdles
 
 
 
Weight
0.25
0.25
0.25
Market Capitalization Value
 
 
 
 
 
 
 
Market Penetration
 
 
 
Dollar Value at Hurdles
 
 
 
Weight
0.25
0.25
0.25
Market Penetration Value
 
 
 
 
 
 
 
Total Value
 
 
 

 
3.    
The value of the Performance Unit at the end of the Performance Period equals
(a) the dollar value determined by achievement of the goals (as illustrated
above) multiplied by (b) a “Mission” goal multiplier (i.e., Percent of
Participating Members using one or more HCI Programs):

Percent of Participating Members Using One or More HCI Programs
Multiplier
Maximum
 
1.1
Target
 
1.0
Threshold
 
0.9
Minimum
 
0.0

 
 
Detailed descriptions of the performance measures on the next page.

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Detailed Goals & Performance Measures
Performance Measures
Threshold
Target
Maximum
OPERATING EFFICIENCY - Incentive Weight: 25%
Ranking of Operating Efficiency Ratio in comparison to other FHLBanks 1
 
 
 
 
 
 
 
RISK ADJUSTED PROFITABILITY - Incentive Weight: 25%
Ranking of Risk Adjusted Profitability in comparison to other FHLBanks 2
 
 
 
 
 
 
 
MARKET CAPITALIZATION RATIO - Incentive Weight: 25%
Ratio of Market Value of Equity (MVE) to Par Value of Regulatory Capital Stock 3
 
 
 
 
 
 
 
MARKET PENETRATION - Incentive Weight: 25%
Ratio of Member Advances to Member Assets in comparison to other FHLBanks 4
 
 
 
 
 
 
 
AFFORDABLE HOUSING/COMMUNITY INVESTMENT - Incentive Multiplier: +/- 10%
Percent of Participating Members using one or more HCI Programs 5
 
 
 

 
1 The Operating Efficiency goal is defined as a ratio of the FHLBank's total
operating expenses divided by the sum of net interest income after loan loss
provision and other income reported on the Statement of Income to the Finance
Agency. The Operating Efficiency Ratio for calendar year 2011, 2012 and 2013
will be calculated at each year-end and each year's results summed and divided
by three to determine the average Ratio during the three year performance
period. The FHLBank's three-year average Ratio will be compared to an identical
calculation for each of the other FHLBanks to determine the final ranking in
ascending order.
 
2 The Risk Adjusted Profitability (RAP) goal is defined in terms of the
FHLBank's Return on Equity which will be risk-adjusted for earnings volatility
as measured by the Sharpe ratio. The Sharpe ratio is defined as average return
on equity minus three-month LIBOR divided by the standard deviation (which
measures the volatility). It indicates how well the FHLBank's return on capital
compensates for the risk assumed and indicates the quality or stability of
profitability relative to the level of risk. This FHLBank's RAP will be
calculated using the monthly average result (36 data points). The FHLBank's
three-year average RAP will then be compared with an identical calculation for
each of the other FHLBanks to determine final ranking in descending order.
 
3 The Market Capitalization Ratio (MCR) is defined as the ratio of Market Value
of Equity (MVE) to Par Value of Regulatory Capital Stock. This goal provides in
certain circumstances a theoretical measure of stock impairment (it shows the
ability of the market value of equity to hypothetically protect the par value of
stock) and long-term earnings levels. It will use the lower MCR for an up 200
basis points interest rate shock and a down 100 basis points shock measured at
each month-end during 2011-2013 with the resulting monthly ratios averaged for
each year.
 
4 The Market Penetration goal is designed to enhance the franchise value of
FHLBank membership by demonstrating the extent to which Advances serve as a
valuable, competitive source of funding for all Members. This goal will be
calculated by dividing each Member's month-end Advances during 2011, 2012 and
2013 by the Member's total assets. The total assets used will lag the Advance
balances used by one quarter, e.g., Advances for January through March of 2011
would be divided by Members assets as of December, 2010. A monthly average
Advances to Assets ratio will be produced for each Member and the monthly ratios
will be summed and divided by the total number of Members to determine the
average Advances to Assets ratio. Monthly averages will be summed and divided by
the 36 months in the performance period to determine the final results. This
calculation provides equal weighting for each Member's monthly Advances to Asset
ratio with no weighting applied for a Member's asset size.
 
5 The Affordable Housing/Community Investment goal is intended to increase
participation in the FHLBank's Housing and Community Investment (HCI) programs.
For this goal, a Participating Member is defined as a Member who submits an
application to participate in any HCI program (AHP, Welcome Home, CIP, EDA, ZIF
or a new HCI program) and will be counted only once per calendar year. The
percent of participation will be calculated by dividing the actual number of
Participating Members in 2010, 2011 and 2012 by the total number of Members from
the previous year-end (2009, 2010 and 2011 respectively). The average for each
calendar year will then be summed and divided by three years to determine the
final average.
 

13