Exhibit 10.1
Federal Home Loan Bank
of
Des Moines
(FHLB LOGO) [c00508c0050800.gif]
2010 Annual Incentive Plan Document

 

 

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CONTENTS

                    I. Purpose     2  
 
        II. Responsibility for Plan Administration     8  
 
        III. Eligibility     9  
 
        IV. Plan Goals     9  
 
        V. Payout Opportunity     9  
 
        VI. Payout Determination     10  
 
        VII. Miscellaneous Provisions     11  
 
       

 

 

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I. PURPOSE
The purpose of this Annual Incentive Plan (“Plan”) is to focus the efforts of
all employees of the Federal Home Loan Bank of Des Moines (“Bank”) on the
following:

  •   Fulfilling the Bank’s mission and vision within a safe and sound framework
and in a manner consistent with the Bank’s shared values

  •   Recognizing Bank employees for their individual and/or team contributions
to the Bank’s achievement of the Strategic Imperative Strategies and detailed
Action Items listed in the Strategic Business Plan (“SBP”) for the calendar year
for which a payout under the Plan is made

  •   Providing incentive awards that when combined with base salaries provide
competitive total cash compensation to Bank employees

The Program is effective for the calendar year 2010.
Summary of the Plan
The Plan has two sets of goals: Bankwide performance goals (referred to as
“Part I” goals) and individual/team goals (referred to as “Part II” goals).
Part I goals are given greater weight for higher level employees, the logic
being that higher level employees have a greater ability to influence Bankwide
performance than lower level employees.
Part I Bankwide performance goals include:

•   Business with Members as measured by Member Borrowing Penetration; Member
Product Usage; Business with Creditworthy Members; and Customer Satisfaction.  
•   Profitability as measured by Net Interest Spread (NIS) and the Spread
between Adjusted Return on Capital Stock (AROCS) and average 3 month LIBOR. NIS
measures the core earnings potential of the Bank, while the Spread between AROCS
and average 3 month LIBOR is a proxy for efficiency and potential return to
shareholders.   •   Enterprise Value as measured by Economic Value of Capital
Stock averaged over the year.   •   Risk Management as measured by Sox 404
Status and the Quality of Risk Management as assessed by the Board’s Risk
Management Committee.

The combination of objectives for Profitability and Business with Members
reflects the Bank’s cooperative structure whereby the Bank needs to satisfy the
expectations of members as both shareholders and customers. Fulfilling that
cooperative mission must be done in a prudent manner so as to preserve the par
value of capital stock, which is the rationale for the Enterprise Value and Risk
Management overlays. All employees should have a portion of their incentive
potential tied to Bankwide performance so that everyone in the Bank, regardless
of their role or level in the organization, thinks about delivering value to the
members and managing the Bank’s risks.

 

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Part II goals in the Plan generally would be linked to Action Plans in the
Bank’s 2010 Strategic Business Plan. The nature of Part II goals would vary
depending on the role and level in the organization an individual plays in the
Bank. For example, an individual in the Enterprise Risk Management department
might have Part II goals targeted at improving the Bank’s risk management
infrastructure, while an employee in the Credit Sales department might be
focused on developing new or enhanced products for the members.
Awards earned under the 2010 Plan would be paid in early 2011, subject to the
Board’s Human Resources and Compensation Committee (“HRC”) approval as described
below.
Detail — Annual Incentive Plan
The Plan includes two components:

•   Part I — Bank-wide financial and business maintenance/growth goals, customer
satisfaction and risk management.

•   Part II — Individual and/or team achievement of non-financial objectives
aimed at improving the Bank’s service to the shareholding members and
operational effectiveness. These are tied to the SBP where possible.

All employees are included in the Plan except Internal Audit personnel, which
has its own Plan. Each Part I goal has a threshold, target and maximum
percentage award opportunity. The total incentive target is a weighted average
of the two parts above. Each part of the reward is calculated independently. An
employee’s pay level and market reference determines how the total target is
split between the two parts.
The program is designed to emphasize overall Bank financial performance for
higher levels in the organization and less on individual performance goals. As
you move through the organization, the weightings shift from overall Bank
financial performance to more of an emphasis on non-financial, operationally
focused goals in order to provide a line of sight incentive to employees. The
following table provides the weights and minimum, target and maximum percentage
payouts or rewards for each level in the Bank.

                          Min/Target/Max                 Reward as a % of   Part
I     Part II   Classification   Base Salary   % of Target     % of Target  
CEO
  25 / 37.5 / 50     60 %     40 %
Executives
  20 / 30 / 40     60 %     40 %
Leadership Team
  20 / 25 / 30     60 %     40 %
 
  15 / 20 / 25                
Sr. Manager/Sr. Professional
  10 / 15 / 20     50 %     50 %
Professional
  8 / 10 / 12     50 %     50 %
Jr. Professional
  6 / 8 / 10     40 %     60 %
Staff
  4 / 6 / 8     30 %     70 %

 

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2010 Bank-wide Plan Goals
Nine Bank-wide goals will focus staff’s efforts on business with our members,
profitability, enterprise value, and risk management. The following provides
additional detail on each of the goals and the weightings for each.
Business With Members (40% Total Weight)
The Business with Members goal is focused on maintenance and preservation of the
franchise. This is a four-part goal, with each sub-goal having a weight of 10%:

1)   Member Borrowing Penetration: Daily average number of borrowing members
divided by the daily average of total members.

2)   Member Product Usage (“Touch Points”): Index of 11 “touch points” with
members: advances, letter of credit (LOCs), deposits, safekeeping, MPF, advances
via eAdvantage, member CD purchases, AHP grant and set-aside applications,
survey contacts, and education (meetings, webinars, conferences etc.). Demand
Deposit Accounts (“DDA”) and wire transfers are not included in the definition
of “touch points” since all members are required to have a DDA, and the only way
members can move funds out of the Bank (such as dividends) is through the Bank’s
wire system.

3)   Business with Creditworthy Members: Ratio of advances and LOCs to assets.
Ratio excludes members with Internal Credit Rating (“ICR”) scores of D, E, F and
certain “large” volatile commodity members.

4)   Customer Satisfaction: This would be determined by a survey of the Bank’s
customers conducted by Barlow & Associates, the same firm that did the 2007,
2008, and 2009 surveys for the Bank.

 

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Profitability (25% Total Weight)
Profitability would be measured by two components:

1)   Spread between Adjusted Return on Capital Stock (AROCS) and average 3-month
LIBOR, which would be a proxy for efficiency and potential return to
shareholders. This would have a weight of 15%.

2)   Net Interest Spread (NIS), which would be a measure of the Bank’s core
earnings. This would have a weight of 10%.

AROCS is defined as average capital stock divided into GAAP net income excluding
the following items:

•   FAS 133 gains and losses except the gains and losses on swaps, swaptions,
and caps and floors used to hedge the mortgage bank segment.

•   Expenses incurred in the current year to benefit future periods, including
the loss on early extinguishment of debt. This would also include related
amortization or accretion of basis adjustments.

•   Gains and losses on trading account securities, unless gains/losses are
fully realized through subsequent sale of assets.

•   Gains and losses on financial instruments held at fair value. Generally this
will be off-set by derivative gains and losses, which would also be excluded.
These gains and losses would not be excluded if fully realized through
subsequent sale of assets.

GAAP net income for purposes of this calculation would not be adjusted for:

•   FAS 133 gains and losses on hedging the mortgage bank segment; and

•   net realized gains and losses on the sale of securities.

Enterprise Value (15% Total Weight)
The measure will be based on quarterly Economic Value of Capital Stock averaged
over the year. This measure ensures that management does not take measures to
boost short-term income at the expense of long-term value of the Bank.

 

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Risk Management (20% Total Weight)
This is a two-part goal, each with a weight of 10%:

1)   Sox 404 Status: Trigger for payout on this goal is no material weaknesses
or significant deficiencies as identified in the Bank’s SOX 404 process. If
there is no significant deficiency or material weakness, then a payment on this
goal would be made; otherwise, no payment would be made on this goal.

2)   Overall Quality of Risk Management: As measured by the Risk Management
Committee’s consideration and determination of the overall quality of the Bank’s
risk governance; risk measurement, compliance, and reporting; ability to adapt
to a changing economic and risk environment; comprehensiveness of its risk
evaluation; efficiency of any mitigation efforts with due consideration to
external factors affecting the relative difficulty of the task and any other
important aspects of the Bank’s risk management efforts, such as remediation of
exam and audit findings.

 

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Achievements Levels of Part I Goals in the 2010 Plan
The threshold, target, and maximum achievements levels for the Part I goals in
the 2010 Plan are presented in the following table. The achievement levels are
calibrated based on results from previous years and projections in the Bank’s
2010 Strategic Business Plan.
TABLE 1

              2010 Bank-wide Part I Goals   Threshold   Target   Maximum
 
           
Business with Members (40% Total Weight)
           
Member Borrowing Penetration (10% Weight)
  66%   69%   72%
Member Product Usage Index (“Touch Points”) (10% Weight)
  1.8   2.1   2.4
Advance+LOCs to Assets Ratio with Creditworthy Members Less Large Volatile
Accounts (10% Weight)
  5.0%   5.4%   5.8%
Member Satisfaction (10% Weight)
  At Least   At Least   At least
 
  85%   88%   91%
 
  “satisfied”   “satisfied”   “satisfied
 
      with 70%
 
      Very
 
      Satisfied
 
           
Profitability (25% Total Weight)
           
Spread Between Adjusted Return on Capital Stock and Average 3-month LIBOR (15%
Weight)
  3.00%   3.50%   4.00%
Net Interest Spread (10% Weight)
  0.20%   0.25%   0.30%
 
           
Enterprise Value (15% Total Weight)
           
Economic Value Capital Stock (EVCS) measured quarterly and averaged at year-end
  >=100   >=103   NA
 
           
Risk Management (20% Total Weight)
           
SoX 404 Status: No Material Weaknesses or Significant Deficiencies for fiscal
year 2010 (10% Weight)
  If there is no material weakness or significant deficiency, payout on this
goal will be at “target”; otherwise, there will be no payout on this goal
Overall Quality of Risk Management (10% Weight)   As Determined by the Board of
Director’s Risk Management Committee

 

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II. RESPONSIBILITY FOR PLAN ADMINISTRATION
Given the environment in which the Bank operates, the HRC will review
achievement on the incentive goals quarterly and consider changes to the goals
as appropriate. Structural changes in the financial services sector driven by
factors largely outside the Bank’s control (such as legislative changes or
additional government intervention in the financial markets) may necessitate
wholesale changes in how the Bank’s executives and other employees are rewarded.
Notwithstanding the formulaic computations of Plan payouts based on incentive
goal achievement levels, actual payouts under the Plan are subject to the HRC’s
review and approval and are made at the HRC’s discretion.
The HRC may consider a variety of objective and subjective factors to decide on
the appropriate payouts including but not limited to: the Bank’s dividend level;
management’s remediation of examination findings; the Bank’s attainment of
mission-achievement goals; compliance with laws and regulations; operational
errors or omissions that result in material revisions to the financial results
and information submitted to the Federal Housing Finance Agency (FHFA) and the
SEC; and the timely submission of information to the SEC, Office of Finance,
and/or FHFA.
The Bank’s Board of Directors is ultimately responsible for the Plan. The HRC
has the full power and authority of the Board to construe, interpret and
administer the Plan. Any decision arising out of or in connection with the
construction, interpretation or administration of the Plan lies within the HRC’s
absolute discretion and is binding on all parties.
The HRC shall:

•   Approve Bank-wide financial and business maintenance/growth Plan goals.

•   Approve the range of potential payout opportunities for Plan participants.

•   After the end of a calendar year, approve any payouts.

•   Render any decisions necessary with regard to the interpretation of the
Plan.

Day-to-day administration of the Plan is delegated to those in the Bank
responsible for the Human Resources function.

 

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III. ELIGIBILITY
All regular full-time and part-time employees, except full-time and part-time
employees in the Internal Audit Department, temporary or contract employees or
temporary agency employees are eligible to participate in this Plan.
A participant must achieve a “meets expectations” or higher evaluation of
overall job performance for the calendar year with respect to which a payout is
being made to be eligible for any payout and the participant must not be subject
to any disciplinary action or probationary status at the time of payout.
Furthermore, if a participant fails to comply with regulatory requirements or
standards, internal control standards, the standards of his or her profession,
any internal Bank standard, or fails to perform responsibilities assigned under
the Bank’s SBP, the HRC may determine the participant is not eligible to receive
part or all of any payout depending on the severity of the failure, as
determined by the HRC.
IV. PLAN GOALS
Incentive awards under the Plan will be based on the attainment of annual Part I
and Part II objectives. See earlier section on Detail — Annual Incentive Plan
for more specifics. Each calendar year the HRC shall establish one or more Plan
goals for Part I, consistent with the SBP for the calendar year. To the extent
the HRC establishes more than one goal, each goal will be weighted. Part I shall
have a threshold, target and maximum level of performance.
One or more Part II goals will be developed for each participant based upon the
Strategic Imperative Action Steps at the individual and/or team level. Managers
shall establish such goals and measurable target levels of performance, review
goals with an employee on a regular basis, and evaluate an employee’s goal
performance at the end of the calendar year for purposes of determining the
award under Part II. Part II shall have a zero to maximum level of payout
opportunity based on performance in achieving Part II goals.
Parts I and II goals are established for a Plan Year. Recognizing that
circumstances and priorities may change, management may submit to the HRC
revisions to Part I goals. The HRC will evaluate and make a recommendation to
the Board regarding whether the Part I goals will be amended. Management may
authorize changes to Part II goals throughout a Plan Year as priorities and
circumstances dictate.
V. PAYOUT OPPORTUNITY
Certain positions have a greater and more direct impact than others on the
achievement of the Bank’s performance. Varying the incentive opportunities for
different participants recognizes these differences.

 

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The Plan is designed to emphasize overall Bank financial performance for
higher-level positions in the Bank, and to emphasize individual and/or team
performance for lower-level positions.
VI. PAYOUT DETERMINATION

1.   As soon as feasible after the conclusion of each calendar year, the
Committee, after considering the Bank’s performance against its Part I goals,
shall approve the payout under Part I, if any, to be paid for the preceding
calendar year. No benefit is earned and payable until the HRC approves the
payout and no employee has any right to any Incentive payment until that time.

2.   As soon as feasible after conclusion of each calendar year, the responsible
manager will determine the achievement and performance levels of Part II goals
for participants. Executive Management of the Bank will review, approve and
submit to Human Resources the Part II payouts for their areas of responsibility.
Executive Management and Human Resources will together calibrate the Part II
payouts across the Bank. Human Resources, after considering each participant’s
performance against that individual’s Part II goals, shall recommend to the HRC
for approval the payout levels under Part II. Each manager responsible for
developing Part II goals for participants is also responsible for submitting the
employee’s Part II goal results to Human Resources.

If a member of the Leadership Team, or any of that Leadership Team member’s
managers or supervisors, fails to meet the deadline for completing employee job
and goal performance reviews and submitting them to the Human Resources
Department, then that individual will have his/her Plan payout(s) withheld until
such time that all performance reviews are completed and submitted for the
Leadership Team member’s department.

3.   Payout amounts approved under Parts I and II are determined based on the
participant’s base pay for the calendar year with respect to which the payout is
being made. A participant who has a hire date prior to the beginning of the
calendar year is eligible to receive a full payout. A participant who has a hire
date after the beginning of the calendar year with respect to which the payment
is being made is eligible to receive a prorated payout based on the number of
full months of service completed in the calendar year. A participant hired on or
after October 1 of the calendar year for which payment is being made is not
eligible to receive a payout for the calendar year in which they were hired.

 

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4.   Unless otherwise directed by the HRC, payments under the Plan shall be made
as soon as possible after payout approval has been received. All payments under
the Plan shall in any event be made by the end of the calendar year in which
payout approval has been received. Appropriate provisions shall be made for any
taxes that the Bank determines are required to be withheld from any payment
under applicable laws or other regulations of any governmental authority,
whether federal, state or local.

5.   A participant who terminates employment with the Bank for any reason other
than death, disability or attaining normal retirement age (or an agreed upon
retirement date) during a calendar year or after the calendar year but before
approval of the payout for the calendar year will not be eligible for a payout.
If a participant ceases employment due to death, disability or attaining normal
retirement age (or an agreed upon retirement date) during a calendar year or
after the calendar year but before payout approval for the calendar year, the
HRC has the sole discretion to determine whether a payout is made to the
participant. For purposes of this paragraph, the terms “disability” and “normal
retirement age” shall have the same meaning as under the Bank’s pension plan.

6.   A participant who is transferred, promoted, or demoted during a calendar
year may receive a payout with respect to that calendar year that is prorated
based on the actual months worked in each position during the calendar year.

7.   Each payment shall be from the general assets of the Bank.

VII. MISCELLANEOUS PROVISIONS

1.   The Plan, in whole or in part, may at any time or from time to time be
amended, suspended or reinstated and may at any time be terminated.

2.   No amendment, suspension or termination of the Plan shall, without the
consent of the participants, affect the rights of the participants to any payout
previously approved by the HRC.

3.   Neither the adoption of the Plan nor its operation in any way affects the
right and power of the Bank to dismiss, or otherwise terminate the employment of
any participant at any time for any reason, with or without cause.

4.   No participant has the right to alienate, assign, encumber, or pledge his
or her interest in any payout under the Plan, voluntarily or involuntarily, and
any attempt to do so is void.

5.   This document is a complete statement of the Plan and supersedes all prior
plans, representations and proposals written or oral relating to its subject
matter. The Bank is not bound by or liable to any participant for any
representation, promise or inducement made by any person which is not expressed
in this document.

 

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6.   This Plan shall not be considered a contract of employment and nothing in
the Plan shall be construed as providing participants any assurance of continued
employment for any definite period of time, nor any assurance of current or
future compensation. This Plan shall not, in any manner, limit the Bank’s right
to terminate compensation and/or employment at its will, with or without cause.

7.   Participation in the Plan and the right to receive awards under the Plan
shall not give a participant any proprietary interest in the Bank or any of its
assets. Nothing contained in the Plan shall be construed as a guarantee that the
assets of the Bank shall be sufficient to pay any benefits to any person. A
participant shall for all purposes be a general creditor of the Bank.

8.   In the event that one or more of the provisions of this Plan shall become
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not be
affected thereby.

9.   Waiver by the Bank or any participant of any breach or default by the other
of any of the terms of this Plan shall not operate as a waiver of any other
breach or default, whether similar to or different from the breach or default
waived. No waiver of any provision of this Plan shall be implied from any course
of dealing between the Bank or any participant or from any failure by either to
assert its or his rights hereunder on any occasion or series of occasions.

10.   The Plan shall be construed in accordance with and governed by the State
of Iowa except to the extent superseded by federal law.

 

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