EXHIBIT 10.4

FHLBank San Francisco

2009 AUDIT EXECUTIVE INCENTIVE PLAN

PLAN PURPOSE

To optimize individual and Internal Audit Department performance in
accomplishing Audit Committee-approved goals and objectives.

PLAN OBJECTIVES

To motivate the Bank’s Internal Audit Department senior executive to exceed
individual and Internal Audit Department goals that support the overall internal
audit plan. To attract and retain an outstanding executive by providing a
competitive total compensation program, including an annual incentive award
opportunity.

ELIGIBILITY

The participant is a Bank senior executive whose performance has a major impact
on the Internal Audit Department’s success. The 2009 participant is the
incumbent in the Internal Audit Department’s senior executive position:

Senior Vice President, Enterprise Risk Management & Director of Internal Audit

The participant must be employed by the Bank through December 31st to be
eligible for an incentive award under the 2009 plan. A participant hired,
promoted, or who has a leave of absence during the plan year is eligible to
participate on a pro-rata basis. A participant hired or promoted on or after
October 1st will not be eligible to participate during the current plan year.

INCENTIVE GOALS AND MEASURES

Incentive Goals

There are individual goals and Internal Audit Department goals, which are
weighted. The individual goals support the Internal Audit Department goals and
objectives and are assessed by the Audit Committee.

The Internal Audit Department senior executive goals for 2009 are:

 

1. Complete the 2009 Internal Audit Plan.

 

2. Enhance the Internal Audit Standards Manual.

An outline of the Internal Audit Department and individual goal weights and
measures are attached as Exhibit A.

Incentive Goal Achievement Measures

The plan rewards levels of goal achievement, as follows:

 

Achievement Level   Measure Definition 200% of target   The most optimistic
achievement level that far exceeds levels forecasted from expected business.
150% of target   An optimistic achievement level that exceeds levels forecasted
from expected business. Target (100%)   Performance that is expected under the
Bank’s Plan. Threshold (75% of target)   Minimum level of performance that must
be achieved for awards to be paid.

The percentages above represent aggregated achievement levels, not percentages
of base pay.

INCENTIVE AWARD POOL

The Board approves an incentive award pool for the Bank’s senior executives at
the beginning of the annual plan period, which includes the Bank’s Internal
Audit Department senior executive. Portions of this pool may be allocated by the
Audit Committee to the plan participant at the end of the plan period based upon
the overall goal achievement levels. The Audit Committee and the Board of
Directors have full discretion to modify any and all incentive payments.

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AWARD DETERMINATION

Awards will be based on success in achieving individual and Internal Audit
Department goals. At yearend, accomplishments will be assessed, and a percentage
of achievement will be determined for each goal. Any award determination will be
at the discretion of the Audit Committee and Board of Directors.

 

Percentage of Achievement Scale    Achievement Levels        0% - 200%    200 % 
  = Far Exceeds Target    150 %    = Exceeds Target    100 %    = Target   
75-99 %    = Threshold

For each goal, the percentage of achievement will be multiplied by the
applicable goal weights. Each weighted achievement will then be added to
determine the total weighted achievement. The basis for award opportunity is
total weighted achievement. Performance from 75-99% (threshold level) is below
the target achievement level and, therefore, may result in an award less than
one granted for achieving target. Performance below the threshold achievement
level normally will not result in an incentive award. The Audit Committee and
Board of Directors have full discretion to modify any and all incentive
payments.

APPROVAL OF INCENTIVE AWARDS

All incentive awards must be approved by the Audit Committee and Board of
Directors prior to payment. The Audit Committee and Board of Directors have the
discretion to approve awards for achievement below 75% total weighted
achievement. Award recommendations will be considered by the Audit Committee and
Board of Directors at the January 2010 Board meeting, or as soon thereafter as
reasonably practicable.

PLAN ADMINISTRATION AND IMPLEMENTATION

The Audit Committee is responsible for overseeing the administration and
interpretation of the Plan.

Payments under this plan are subject to approval by the Audit Committee and
Board of Directors. Any awards will be distributed as soon as administratively
possible following the effective date of Audit Committee and Board approval. All
compensation and incentive plans are subject to review and revision at the
Bank’s discretion. Such plans are reviewed regularly to ensure they are
competitive and equitable. Internal Audit Department Executive Officer
compensation and benefit programs are subject to Federal Housing Finance Agency
review and oversight, and payments made under such programs may be subject to
the Agency’s approval under applicable laws and regulations in effect from time
to time.

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EXHIBIT A

2009 Audit Executive Incentive Plan

Goal Weights and Measures

 

Senior Vice President, Enterprise Risk Management & Director of Internal Audit

Goal Weights

    

Internal Audit Department

Goal

Weights

 

Goal Weight

(includes individual

goals)

Individual

  N/A   10%

Internal Audit Plan

  75%   67.5%

Internal Audit Standards Manual

  25%   22.5%

TOTAL

  100%   100%

Individual Goal (10%): Provide effective leadership and direction to the Bank’s
Internal Audit Department.

Goal Measure: Qualitative assessment by the Audit Committee.

Internal Audit Plan Goal (67.5%): Complete the 2009 Internal Audit Plan.

Goal Measure: Qualitative assessment by the Audit Committee.

Internal Audit Standards Manual (22.5%): Enhance the existing Internal Audit
Standards Manual to include the following:

  •  

Capture industry and internal audit professional “better practices”; and,

  •  

Document the current role of team members, the Internal Audit methodology, the
internal audit planning and risk assessment process, and the internal audit
project lifecycles.

Goal Measures:

Plan (Target): The current Internal Audit Standards Manual is 23 pages. This
enhancement would expand on existing documented standards and include a variety
of new areas. When complete the Standards Manual would include approximately 60
pages.

Specific areas to enhance are:

  a. Roles and responsibilities of Internal Audit team members

  b. Job descriptions, by level, related to responsibilities

  c. Standards in audit practices referencing governance standards per the
Institute of Internal Auditors, Committee of Sponsoring Organizations and
Corporate Operating Policies such as the Code of Ethics

  d. Summary description of the Internal Audit Methodology

Areas to add, but are not limited to, are the following:

  a. Specific guidance and considerations when executing Internal Audit Projects

  i. Assessing risks and controls

  ii. Completing Internal Audit Risk Assessment and Internal Audit Program

  iii. Internal audit techniques and better practices

  iv. Working paper techniques and review

  b. Process and activities related to managing a co-source relationship

  c. Quality Assurance Reviews

In addition, an organized roll-out/training session would be required to help
ensure change management and an appropriate level of communication.

Above Plan (Exceeds): Include specific guidance and considerations when
executing Internal Audit Projects regarding:

  a. Aligning and enhancing the Internal Audit process documentation to include
the financial reporting controls and assertions consistent with the
Sarbanes-Oxley documentation

  b. Assessing controls identified as key controls and the related assertions in
the Sarbanes-Oxley documentation

  c. Including certain key Sarbanes-Oxley controls in the scope of audit testing

  d. Leveraging subject matter specialist to help identify risks and develop
internal audit program

Stretch (Far Exceeds): Include specific guidance and considerations when
executing Internal Audit Projects regarding:

  a. Design internal audit risk assessment template that addresses the range of
enterprise risk management objectives