Exhibit 10.4
FEDERAL HOME LOAN BANK OF CINCINNATI
 
Executive Incentive Compensation Plan
Plan Document
Revised
March, 2007

 

--------------------------------------------------------------------------------

 

FEDERAL HOME LOAN BANK OF CINCINNATI

 
Executive Incentive Compensation Plan
Table Of Contents

                              Page   1.0    
Plan Objectives
    1     2.0    
Definitions
    1     3.0    
Eligibility
    2     4.0    
Incentive Award Opportunity
    3     5.0    
Performance Mix
    3     6.0    
Performance Measures
    3     7.0    
Award Determination
    4     8.0    
Award Conditions
    5     9.0    
Participant Performance Reviews
    6     10.0    
Plan Communication
    6     11.0    
Administrative Control
    7     12.0    
Miscellaneous Conditions
    7          
 
        Appendices     9          
 
               
Appendix A: Plan Participants
    10          
Appendix B: Award Opportunity and Performance Mix
  11        
Appendix C: Bank Performance Measures
    12  

 

--------------------------------------------------------------------------------

 

FEDERAL HOME LOAN BANK OF CINCINNATI

 
Executive Incentive Compensation Plan
PLAN DOCUMENT

1.0   Plan Objectives   1.1   The purpose of the Federal Home Loan Bank of
Cincinnati’s Executive Incentive Compensation Plan is to achieve four
objectives:

  1.1   Promote the achievement of the Bank’s profitability and business goals;
    1.2   Link executive compensation to specific Bankwide and individual
performance measures;     1.3   Provide a competitive reward structure for
senior officers and other key employees; and     1.4   Provide a vehicle for
closer Board involvement and communication with management regarding Bank
strategic plans.

2.0   Definitions

  2.1   When used in the Executive Incentive Compensation Plan, the following
words and phrases shall have the following meaning:

  2.1.1   Bank means the Federal Home Loan Bank of Cincinnati;     2.1.2   Plan
means this Executive Incentive Compensation Plan;     2.1.3   Board means the
Bank’s Board of Directors;     2.1.4   The Personnel Committee means the
Personnel Committee of the Board;     2.1.5   Participant means a person who, at
the discretion of the Board, is eligible to take part in the Plan for a
designated Plan year, and who has been named as a Participant for that Plan year
by the President, with the concurrence of the Personnel Committee;

1

--------------------------------------------------------------------------------

 

  2.1.6   Plan year means the calendar year, January 1 through December 31, over
which both Bank and Participant performance is measured;     2.1.7   Disability
means the complete and permanent inability by reason of illness or accident to
perform the duties of the occupation at which the Participant was employed by
the Bank when such disability commenced, as determined by the Personnel
Committee with Board approval. All determinations as to the date and extent of
disability shall be made upon the basis of such evidence, including independent
medical reports and data, as the Personnel Committee deems necessary and
desirable. All determinations shall be final and binding.

3.0   Eligibility

  3.1   Individual employees eligible for participation will be defined annually
by the President, with the concurrence of the Personnel Committee. (See
Appendix A — Plan Participants for current Plan year.)     3.2   Eligibility
shall normally be limited to officer positions whose functional responsibility
encompass the establishment of strategic direction and tactical action plans for
the Bank, or operating results at the divisional level. Other 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 Internal Auditor position 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.     3.4   There
will be five levels of participation:

     
Level I:
  President      
Level II:
  Executive Vice President      
Level III:
  Senior Vice Presidents with major profit center responsibilities      
Level IV:
  Vice Presidents with substantial profit center responsibilities      
Level V:
  Assistant Vice Presidents and Officers controlling departments having a major
impact on costs or other Bank functions.

2

--------------------------------------------------------------------------------

 

  3.5   Employees of the Bank who are hired, transferred or promoted into an
eligible position by August 31 of the Plan year may be nominated for
participation in the Plan in accord with Section 3.1, and shall receive a
prorated incentive award.     3.6   Employees of the Bank who are hired,
transferred or promoted into an eligible position on or after September 1 of the
Plan year will only be eligible to participate for that Plan year if nominated
by the President and shall receive a prorated incentive award.

4.0   Incentive Award Opportunity

  4.1   Each Plan year, the Bank will provide an award opportunity to
Participants. The award opportunity shall be a percentage of each Participant’s
annual base salary at the end of the Plan year. 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. (See Appendix B — Award Opportunity and Performance Mix
for current Plan year award opportunities.)

5.0   Performance Mix

  5.1   Participants will earn their incentive award by achieving a combination
of Bankwide objectives and individual goals. The Level I, II and III
Participants will earn an incentive award based solely on the achievement of
Bankwide objectives.     5.2   Incentive awards will be weighted between
Bankwide objectives and individual goals for Participants in Levels IV and V,
and will vary by Participant level. The more control and influence a Participant
has on Bankwide goals, the greater the Participant’s weighting on Bank goals
will be. Likewise, the less control and influence a Participant has on Bankwide
goals, the greater the weighting on that Participant’s individual goals. (See
Appendix B — Award Opportunity and Performance Mix for current Plan year
weightings.)

6.0   Performance Measures

  6.1   Bankwide and individual performance measures will be established with
respect to each Plan year. Three achievement levels will be set for each
Bankwide and individual measure, and include:

3

--------------------------------------------------------------------------------

 

     
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 which substantially exceeds
the planned level of achievement.

  6.2   Bankwide measures will be established by the Personnel Committee with
Board approval. (See Appendix C — Bank Performance Measures for current Plan
year Bank measures.)     6.3   Participants in Levels IV and V will typically
have three to five major goals established that reflect the priorities of the
Participant for the Plan year. Each goal will be weighted to reflect its
relative importance, with a minimum weight of 10% per goal.     6.4  
Participants must submit their individual goals in writing to the President who
will approve such goals in order to be eligible to receive an incentive award
based on their individual performance.     6.5   All individual performance
goals are to remain in effect for the entire Plan year. However, after the Plan
year commences, the Personnel Committee with Board approval may revise Bank
performance measures and/or the President may also revise individual performance
goals for the Plan year.

7.0   Award Determination

  7.1   The method of determining the incentive award will be according to the
following sequence:

  7.1.1   Define the dollar value of the target award opportunity for the
Participant.     7.1.2   Determine the amount of the target award opportunity
that is attributable to Bank performance and to individual performance.    
7.1.3   After the Plan year ends, evaluate actual Bank performance against the
Bankwide performance measures stated in Appendix C. Assess Bank performance as
it relates to the threshold, target and maximum awards as necessary.     7.1.4  
Using the award opportunity table described in Appendix B, determine the Bank
incentive award by relating the level of actual Bank

4

--------------------------------------------------------------------------------

 

      performance derived in 7.1.3 to the award opportunity for the
Participant’s level. Interpolate between the threshold, target and maximum
awards as necessary.     7.1.5   After the Plan year ends, evaluate actual
individual Participant performance against the individual performance goals.
Assess performance as it relates to the threshold, target and maximum
performance measures.     7.1.6   Using the award opportunity table described in
Appendix B, determine the individual incentive award by relating the level of
actual individual performance derived in 7.1.5 to the award opportunity for the
Participant’s level. Interpolate between the threshold, target and maximum
awards as necessary.     7.1.7   Sum the Bank and individual awards to determine
a total award for each Participant. The President with Personnel Committee
approval may recommend the Board adjust the awards of Participants.

  7.2   The Level I Participant shall not receive an award under this Plan if
during the most recent examination of the Bank by the Federal Housing Finance
Board (FHFB), the Bank received 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, FHFB regulations or supervisory guidance.

8.0   Award Conditions

  8.1   Three events must occur before an incentive award may be made to a
Participant:

  8.1.1   The Bank must achieve one or more of the threshold measures of
performance as defined in Appendix C;         However, at the Personnel
Committee’s sole discretion, an incentive award may be recommended for Bank
performance below threshold subject to final approval by the Board of Directors.
    8.1.2   The President must determine and the Personnel Committee must concur
that Bank performance is consistent with bestowing achievement awards; and,

5

--------------------------------------------------------------------------------

 

  8.1.3   The Participant’s immediate supervisor and the President must
determine that the individual’s overall performance meets their expectations.

  8.2   Should any individual Participant’s performance meet these expectations
but the Bank fail to achieve one or more of its threshold performance measures
no incentive award will be made to any Participant. Likewise, if the Bank
achieves all its threshold performance measures but a Participant’s performance
fails to meet such expectations no incentive award will be made to the
Participant.

9.0   Participant Performance Reviews

  9.1   Participant performance reviews will be scheduled to occur quarterly
with a final assessment after the Plan year ends.     9.2   The President’s
performance (Level I) will be appraised by the Personnel Committee. All other
Participants will be appraised by the President and the Participant’s immediate
supervisor, when applicable.

10.0   Plan Communication

  10.1   Communications with Participants regarding the Plan should be made
according to the following schedule:

     
Fourth quarter of the prior year
  Communicate next year’s Bank and department goals, and identify next year’s
Plan Participants.
 
   
First quarter of the Plan year
  Communicate Bankwide goals for the Plan year. Individual goal setting
 
   
Quarterly
  Interim assessments of progress toward achieving Bank and individual goals.
 
   
End of Plan year
  Final assessment of Bank and individual performance.

6

--------------------------------------------------------------------------------

 

11.0   Administrative Control

  11.1   The Bank’s Director of Human Resources will assist, as requested, the
President in the administration of the Plan. Oversight of the Plan’s operation
will be provided by the Personnel Committee.     11.2   The Personnel Committee,
in consultation with the President, and subject to Board approval, is
responsible for interpreting and applying the terms of the Plan. These
interpretations and applications shall be final and binding.

12.0   Miscellaneous Conditions

  12.1   Except as provided in Section 12.4, Participants must be employed on
the last day of the Plan year to receive an award.     12.2   The President may
nominate Participants who terminate employment, retire, die or become disabled
during the Plan year to receive a prorated award.     12.3   If a Participant
ceases employment after the Plan year but before the Board approves the
incentive award for that Plan year, the President may recommend, with the
concurrence of the Personnel Committee, that the Participant receive an award.  
  12.4   Participation in the Plan will not entitle any Participant to an award.
    12.5   The designation of an employee as a Participant in the Plan does not
guarantee employment. Nothing in this Executive Incentive Compensation Plan will
confer on any employee the right to be retained in the service of the Bank nor
limit the right of the Bank to terminate or otherwise deal with any employee.  
  12.6   In the event the Bank does not achieve threshold performance levels,
the President may recommend, with the concurrence of the Personnel Committee,
incentive awards for extraordinary individual performance.     12.7   All awards
under the Plan will be paid out in cash and will be subject to appropriate
payroll tax withholdings.     12.8   No incentive 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.

7

--------------------------------------------------------------------------------

 

  12.9   Incentive awards will be made as soon as practical following the end of
the Plan year.     12.10   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 incentive award amount (including the
determination of a greater or lesser award, or no award), without the consent of
any Participant.     12.11   Since no employee has a guaranteed right to any
award under this Executive Incentive Compensation 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.     12.12   This
Executive Incentive Compensation 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

--------------------------------------------------------------------------------

 

APPENDICES
 

9

--------------------------------------------------------------------------------

 

APPENDIX A:

 
Plan Participants – 2007 Plan Year

         
Level
  Name   Title

10

--------------------------------------------------------------------------------

 

APPENDIX B:

 
Incentive Award Opportunity and Performance Mix
2007 Award Opportunity (as a percentage of base salary)1
Achievement Levels

                              Level   Threshold   Target   Outstanding I    
25.0 %     55.0 %     75.0 % II     17.5 %     45.0 %     60.0 % III     17.5 %
    35.0 %     50.0 % IV     12.5 %     25.0 %     40.0 % V     7.5 %     15.0 %
    25.0 %

Weightings (as a percentage of target award opportunity)
Measures

                      Level   Bank   Individual   I       100 %     0 % II    
100 %     0 % III     100 %     0 % IV     75 %     25 %   V       60 %     40 %

 

1 Earned incentive awards that fall between any of the designated achievement
levels (i.e., threshold, target, and outstanding) will be interpolated.

11

--------------------------------------------------------------------------------

 

APPENDIX C:
 
Bank Performance Measures
There will be ten (10) Bank performance measures for the 2007 Plan Year.

                              Threshold     Target     Maximum  
I. Member Asset Activity: Aggregate Incentive Weight - 30%
                       
a) Average Advances
                       
Incentive Weight: 5%
                                                 
b) Increase in Average Credit Balances with Members with Assets < $600M
                       
Incentive Weight: 7.5%
                       
 
                       
c) New Credit Services Users
                       
Incentive Weight: 7.5%
                       
 
                       
d) MPP New Delivery Commitments*
                       
Incentive Weight: 5%
                       
 
                       
e) MPP Participating Financial Institutions – 2007 New Users
                       
Incentive Weight: 5%
                       
 
                       
II. Housing & Community Outreach: Aggregate Incentive Weight - 25%
                       
a) Members Using One or More HCI Programs during 2007
Incentive Weight: 15%
                       
 
                       
b) Community Outreach Events
                       
Incentive Weight: 10%
                       
 
                       
III. Profitability: Incentive Weight - 35%
                       
Adjusted Net Income equal to 2007
                       
Average Three-month LIBOR Rate
                       
Plus Basis Points Spread
                       
 
                       
IV. New Membership: Aggregate Incentive Weight – 10%
                       
a) 2007 Membership Approvals
                       
Incentive Weight: 7.5%
                       
 
                       
b) Insurance Company Approvals
                       
Incentive Weight: 2.5%
                       

 

* Excludes MDCs originating from largest, current MPP Customer.

12