Exhibit 10.5
 
 
 
 
 
 
 
 
 
FEDERAL HOME LOAN BANK OF CINCINNATI                                    
 
 
Executive Incentive Compensation Plan
Plan Document
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of January 1, 2011
Revised February, 2011

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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
6
12.0
Miscellaneous Conditions
7
 
 
 
Appendices
9
 
 
 
 
Appendix A: Plan Participants
10
 
Appendix B: Award Opportunity and Performance Mix
11
 
Appendix C: Performance Measures
12

 
            
 
 
 

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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:
 
1.1.1    Promote the achievement of the Bank's profitability and business goals;
 
1.1.2    Link executive compensation to specific Bankwide and individual
performance measures;
 
1.1.3    Provide a competitive reward structure for senior officers and other
key employees; and
 
1.1.4    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;
 
2.1.6    Plan year means the calendar year, January 1 through December 31, over
which both Bank and Participant performance is measured;
 

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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    The Chief Risk Officer and other Enterprise Risk Management (ERM)
officers will participate in the Plan but their award opportunity will be
weighted 75 percent on the Bank-wide program and 25 percent on ERM-specific
goals.
 
3.5    There will be five levels of participation:
Level I:
President
 
 
Level II:
Executive Vice President
 
 
Level III:
Senior Vice Presidents
 
 
Level IV:
Vice Presidents
 
 
Level V:
Assistant Vice Presidents and Functional Officers

 
 
 
 

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3.6 Employees of the Bank who are hired, transferred or promoted into an
eligible position by August 31st of the Plan year shall be eligible for
participation in the Plan in accord with Section 3.1, and shall receive a
prorated incentive award.
 
3.7 Employees of the Bank who are hired, transferred or promoted into an
eligible position on or after September 1st 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. 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:
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.
 
 

 

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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 percent 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 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.
 

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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, II, and III Participants shall not receive an award under
this Plan if during the most recent examination of the Bank by the Federal
Housing Finance Agency (FHFA), 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, FHFA 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,
 
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

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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 should occur periodically with a final
assessment after the Plan year ends.
 
9.2    Participants who have received at least a satisfactory ranking on their
most current performance review will be eligible for the Plan.
 
9.3    The President's performance (Level I) will be appraised by the Personnel
Committee. All other Participants will be appraised by the President and/or the
Participant's immediate supervisor.
 
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.

 
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.
 

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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.
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.
 
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.
 
12.9    Incentive awards will be made no later than 2½ months following the end
of the year to which the incentive award applies.
 
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. Any payments
under the Plan may be impacted by extraordinary events, a failure to meet

7

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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
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. Furthermore, 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.
 
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

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APPENDICES                                                                    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

9

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APPENDIX A:                                                        
Plan Participants - 2011 Plan Year
 
Level     Name     Title
 
 
 

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APPENDIX B:                                                        
Incentive Award Opportunity and Performance Mix
 
2011 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.

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APPENDIX C:                                                
Bank Performance Measures
 
There will be ten (10) Bank performance measures for the 2011 Plan Year.
 
 
Threshold        Target        Outstanding
I.    Member Asset Activity: Aggregate Incentive Weight - 25%
a)
Average Advances
 
Incentive Weight: 7.5%*
 
 
b)
Average Advances Balances for
 
Members with Assets < $1.0B
 
Incentive Weight: 7.5%
 
 
c)
MPP New Mandatory Delivery Commitments
 
Incentive Weight: 10%**

 
*Excludes non-member institutions as of 12/31/2010.
**Excludes Mandatory Delivery Contracts originating from the two largest MPP
customers historically.
 
II.    Franchise Value Promotion: Aggregate Incentive Weight - 25%
a)
Advance Product Users
 
Incentive Weight: 5%
 
 
b)
MPP Sellers
 
Incentive Weight: 5%
 
 
c)
AHP Competitive Program Disbursement and
 
Deobligation Rate
 
Incentive Weight: 5%
 
 
d)
Community Outreach Events
 
Incentive Weight: 5%
 
 
e)
Membership Approvals
 
Incentive Weight: 5%

 
III.    Stockholder Risk/Return: Aggregate Incentive Weight - 50%
a)
Market Value of Equity Volatility***
 
Incentive Weight: 20%
 
 
b)
Profitability-Projected average 3 month LIBOR rate
 
Incentive Weight: 30%

        
***Measured as the difference between up 200 bps and down 100 bps rate shocks.
 

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