Exhibit 10.5
 
2009 LONG-TERM INCENTIVE AWARD
Parameters Document
 

Objective The long-term incentive deferred cash award (LTI) is intended to
provide a “forward looking” incentive award to eligible officers and directors.
  Grant Date March 16, 2009   Performance Period LTI awards granted in March
2009 with performance measures covering the 2009 and 2010 performance period.  
General Eligibility An employee who, as of the LTI grant date, is classified by
Freddie Mac (in its sole discretion) as either (i) an active, full-time or
part-time officer or director, or an officer or director on short term
disability and/or approved leaves of absence or (ii) is classified by Freddie
Mac as a LTI eligible non-officer in a market-priced position. However, Senior
Vice Presidents, Executive Vice Presidents, and the Chief Executive Officer are
not eligible to participate in this program until such time as Freddie Mac has
additional guidance from the Federal Housing Finance Agency on the application
of recent announcements by the U.S. Department of Treasury, as well the American
Recovery and Reinvestment Act’s restrictions on executive compensation.  
Aggregate Corporate LTI
Pool The corporate-wide aggregate value of the LTI grants is equal to the sum of
annualized LTI targets of employees eligible to participate in the LTI program.
Each Division’s share of the corporate-wide pool is equal to the aggregate value
of its eligible employees’ LTI targets as a percentage of the corporate LTI
pool, less the aggregate value of the LTI targets for Division employees who are
direct reports to the Chief Executive Officer, subject to any adjustment in the
allocation by the Chief Executive Officer.   Individual LTI Targets Officers:
LTI target is the employee’s target in effect on the date that the grant is
approved.   Directors: For non-market priced director-level employees, the LTI
target is the LTI target applicable to the position’s salary grade. For LTI
eligible employees in a market priced position, the LTI target generally is the
salary grade target that is closest to the median of the Estimated Market
Distribution1 of such position, subject to the protocol established by the Human
Resources Division for market-priced positions LTI eligibility and targets.  
LTI Grant Amount For LTI awards granted in 2009, an eligible employee’s grant
shall be equal to their LTI target, except (a) an employee who receives a
Business Results Rating (BRR) of 1 is not eligible to receive a LTI grant and an
employee who receives a BRR of 2 may, subject to the Division Head’s approval,
receive a LTI grant, which in most instances will be substantially below their
target, and (b) no more than 5% of the participants can receive between 100% and
150% of their LTI target but in no event can the aggregate amount exceed the
Aggregate Corporate LTI Pool approved by the Compensation Committee.   Vesting
and Payment
Amount Management shall provide a recommendation to the Compensation Committee
of Freddie Mac’s Board of Directors regarding the level of achievement of the
performance measure(s) described in Exhibit A (the “Performance Multiplier”)
prior

 

1 Estimated Market Distribution (EMD) is a range of market compensation (base
salary and bonus) unique to each job and is based on data representing the
median pay practice for a similar role in the comparative markets.

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to the first and the second anniversary of the grant date and, except as set
forth below under “Treatment of Award Upon Termination,” upon the Compensation
Committee’s approval an employee’s right to payment of that portion of the LTI
award shall vest.   Based on Performance Multiplier, the LTI actual dollar
amount of the LTI grant paid can range from 0% – 120% of the grant as determined
on each of the 1st and 2nd anniversary of the grant date.   Performance
Measure(s) and Performance Multiplier — See Exhibit A.   Payment Timing Any
award to be paid shall be paid as soon as administratively practicable, but no
later than March 15 of the calendar year following each calendar year
performance period.   Form of Payout Cash less applicable withholding.  
Treatment of Award
Upon Termination Death and Long-Term Disability: If an employee’s employment is
terminated due to either death or long-term disability, any vested but unpaid
portion of the LTI award will be paid as soon as administratively possible. The
amount paid will be based on the Performance Multiplier.   Any unvested portion
of the LTI award will remain outstanding until the Compensation Committee
approves the Performance Multiplier. Upon such approval, the employee’s right to
receive any such award shall vest and the unpaid portion of the LTI award will
be paid as soon as administratively possible. The amount paid will be based the
Performance Multiplier.   Retirement: If an employee terminates employment due
to retirement (either (i) age/years of service of 62/5 or (ii) sum of age and
years of service equal no less than 70, with minimum age of 55) any vested but
unpaid portion of the LTI award will be paid as soon as administratively
possible. The amount paid will be based on the Performance Multiplier.   Any
unvested portion of the LTI award will remain outstanding until the Compensation
Committee approves the Performance Multiplier. Upon such approval, the
employee’s right to receive a pro-rata payment shall vest. The pro rata payment
shall be based on the following methodology:   Step 1. The number of whole
months worked in the performance year   Step 2. Divided by twelve   Step 3.
Multiplied by the employee’s portion of LTI grant scheduled to vest and be paid
for that performance year and the Performance Multiplier   Other Terminations:
If an employee’s employment terminates for any reason other than Death,
Long-Term Disability, or Retirement, any unvested portion of the award will be
forfeited.   Additional Forfeiture
Provision Upon a “Forfeiture Event” (as defined below), any unvested or any
unpaid LTI award will be cancelled and the employee or former employee will be
required to immediately repay Freddie Mac the gross value of any LTI award
payment that was made within 12 months prior to the Forfeiture Event

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A Forfeiture Event shall mean the employee or former employee directly or
indirectly seeking or accepting employment with, or providing professional
services to, a “Competitor” in violation of any non-competition covenant
agreement between the employee and Freddie Mac in effect as of the date the
employee receives an LTI grant.   Regulatory Approval and
Reservation of Rights Notwithstanding the terms set forth above, with respect to
certain designated officers Freddie Mac’s Conservator is required to approve the
actual payment of compensation, including payment of this LTI grant. As a
consequence, such officer’s right to payment of the LTI grant set forth herein
is conditioned on the Conservator’s approval after Compensation Committee’s
determination of the Performance Multiplier.   Amounts paid pursuant to this
plan will not be considered compensation for purposes of the tax qualified
Thrift/401(k) Savings Plan, the tax qualified Employees’ Pension Plan and the
non-qualified Supplemental Executive Retirement Plan.   Nothing in this program
is intended to create a contract to employ any employee for any particular term
or period of time or otherwise abrogate Freddie Mac’s or the employee’s right to
terminate the employment relationship at any time for any lawful reason.  
Freddie Mac reserves the right to modify the terms and conditions set forth
herein so long as such modifications reasonably and in good faith are not
detrimental to the rights of the grantee.   The terms of this plan are subject
to and shall be construed in accordance with applicable law and any regulation,
guidance or interpretation issued by the Federal Housing Finance Agency or the
U.S. Department of Treasury.

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Exhibit A:
 
2009 Long-Term Incentive Award Performance Measures and Performance Multiplier
 
Performance Measures
 
Corporate Performance Measures: Freddie Mac’s ability to remediate the subset of
the ninety-seven matters requiring attention or other concerns identified at the
Conservatorship date by the Federal Housing Finance Agency (FHFA) (together,
“MRAs”) planned for 2009 or earlier completion will determine the LTI value that
is ultimately delivered to recipients of the 2009 LTI grant (which will be
granted in March 2009). The LTI grant is scheduled to vest 50% on each of the
first and second anniversaries of the grant date. The value that a participant
ultimately receives at each vest date is calibrated based on Freddie Mac’s
performance against the performance objectives for each vesting cycle
(identified below). This calibration is applied consistently to all employees
(regardless of level) who receive an LTI grant.
 
Business Infrastructure Performance Measures: In addition to the Corporate
Performance Measures, all LTI participants will have performance measures based
on successful completion of the 2010 Technology and Business Operation
milestones presented to the relevant committee of Freddie Mac’s Board of
Directors that support the implementation of the Technology and Single Family
Strategic Initiative (hereinafter called “Advantage”).
 
Performance Calibration for 1st LTI Vesting — Portion Scheduled to Vest in March
2010
 
Corporate Performance Measures:  Based on the company’s remediation of MRAs that
are scheduled to be remediated prior to January 1, 2010. The LTI grant date
value that actually vests and is paid can range from 0% – 120% (i.e., the
Corporate Performance Measure Multiplier) as illustrated in Chart A.
 
The Corporate Performance Measure Multiplier is applied consistently to all
employees (regardless of level) who are recipients of the 2009 LTI grant. Once
an assessment of performance is made, it applies to 100% of the LTI grant date
value (i.e., the portion scheduled to vest and be paid in March 2010). Each of
the MRAs scheduled to be remediated prior to January 1, 2010 has been classified
into one of five categories and each category has been assigned a
weighting/prioritization percentage (Column A), with the sum of all categories
equaling 120%.
 
The maximum Corporate Performance Measure Multiplier is equal to the sum of the
Performance Multiplier Contribution Percentage for each MRA category (Column C),
which is equal to the actual percentage of MRAs remediated prior to January 1,
2010 that were scheduled to be remediated prior to January 1, 2010 (Column B)
multiplied by the category’s weighting/prioritization percentage (Column A).
 
As part of their assessment of performance, the Compensation Committee of the
Freddie Mac Board of Directors reserves the right to adjust the Performance
Multiplier Contribution Percentage upward for any category (to a maximum of the
category’s weighting/prioritization percentage) based on a review of factors
they deem appropriate, which may include completion status of MRAs that are not
remediated, progress made toward remediating MRAs, scope/difficulty of
remediating MRAs, and internal/external factors influencing the remediation of
MRAs.

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                                        Chart A: 2009 Corporate Performance
Measures                           (A)     (B)     (C) = (A) x (B)              
      Matters Requiring Attention
Categories     Category
Weighting/
Prioritization     Multiplied by:
Percentage of Matters Requiring Attention
remediated prior to January 1, 2010 that were
scheduled to be remediated prior to
January 1, 2010     Equals:
Performance Multiplier
Contribution Percentage                     Credit Risk Management and
Governance/Loan Loss Reserves     35%     X%
(To Be Determined)     X%
(To Be Determined)                     Internal Controls (including End-To-End,
Internal Audit, Contingency Planning)     25%     X%
(To Be Determined)     X%
(To Be Determined)                     Models and Model Governance     20%    
X%
(To Be Determined)     X%
(To Be Determined)                     Accounting/Accounting
Policy/Forecasting     20%     X%
(To Be Determined)     X%
(To Be Determined)                     Board Governance and Others     20%    
X%
(To Be Determined)     X%
(To Be Determined)                     Total:
Percentage of the 2009 LTI grant date value scheduled to vest in March 2010 that
actually vests and is paid (Maximum Performance Multiplier of 120%)     X%
(To Be Determined)                    

 
No payment will be made if the sum of the Performance Multiplier Contribution
Percentages is less than 50%.
 
Performance Calibration for 2nd LTI Vesting — Portion Scheduled to Vest in March
2011:
 
Business Infrastructure Performance Measures: Based on the company’s successful
completion of the 2010 Advantage milestones presented to the relevant committee
of Freddie Mac’s Board of Directors. The LTI grant date value that actually
vests and is paid can range from 0% – 120% (i.e., the Business Infrastructure
Performance Measure Multiplier), based on achievement against milestones that
will be presented to the relevant committee of Freddie Mac’s Board of Directors.
 
The Business Infrastructure Performance Measure Multiplier is applied
consistently to all employees (regardless of level) who are recipients of the
2009 LTI grant. No payment will be made if the Business Infrastructure
Performance Measure Multiplier is less than 50%.
 
Once an assessment of performance is made, it applies to 75% of the LTI award
scheduled to vest and be paid in March 2011. The other 25% of the LTI award
scheduled to vest and be paid in March 2011 will be based on the Corporate
Performance Measure. Successful completion of the Business Infrastructure
Performance Measures is not a prerequisite for vesting and payment of the
portion of the LTI grant date value calibrated against the Corporate Performance
Measures, and vice versa.

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Corporate Performance Measures: Based on (i) the company’s remediation of MRAs
that that are scheduled to be remediated in 2010 and (ii) avoidance of any
repeat MRAs that are identical to MRAs that were remediated in 2009. The LTI
value can range from 0% – 120% (i.e., the Corporate Performance Measure
Multiplier), as illustrated in Chart B.
 
The Corporate Performance Measure Multiplier is applied consistently to all
employees (regardless of level) who are recipients of the 2009 LTI grant. Once
an assessment of performance is made, it applies to the 25% of the LTI award
scheduled to vest and be paid in March 2011.
 
For the 2010 performance period, the Compensation Committee of the Freddie Mac’s
Board of Directors reserves the right to include an additional Corporate
Performance Measure pertaining to the company’s financial performance.
 
 

                                                                Chart B: 2010
Corporate Performance Measures                                 Performance Level
    Below Threshold     Threshold     Below Plan     On Plan     Above Plan    
                            Percentage of Matters Requiring Attention
remediated during 2010 that were scheduled to
be remediated during 2010     Less than 70%     70%     80%     90%     100%    
                            Equals:
MRA Performance Multiplier     0%     50%     75%     100%     120%            
                    Less:
Repeat Identical Matters Requiring Attention
Identified     10% reduction for each Repeat Identical Matters Requiring
Attention Identified                                 Equals:
Performance Multiplier (final) — Percentage of the
2009 LTI award scheduled to vest in March 2011
that actually vests and is paid.     xx%
To Be
Determined     xx%
To Be
Determined     xx%
To Be
Determined     xx%
To Be
Determined     xx%
To Be
Determined                                

 
No payment will be made if either the Performance Multiplier (final) is less
than 50% or there are more than five Repeat Identical Matters Requiring
Attention.
 
In the likely event that actual performance results in a value that is between
two Performance Levels (e.g., greater than On Plan, but less than Above Plan),
linear interpolation will be used to determine the appropriate Performance
Multiplier. Specifically, a calculation will be performed to determine how far
above or below (expressed in percentage terms) our actual performance is from
the closest Performance Level. This percentage will then be used to adjust
(either up or down) the Performance Multiplier of the closest Performance Level,
which will result in the actual Performance Multiplier used to determine the LTI
value delivered to LTI recipients.

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Exhibit B:
 
2009 Long-Term Incentive Award Grant Terms and Definitions
 
General
 

  1.  Matters Requiring Attention (“MRAs”) — The ninety-seven (97) control,
accounting, and operational deficiencies identified by the Federal Housing
Finance Agency (“FHFA”) at the time of Conservatorship as Matters Requiring
Attention and other safety and soundness concerns as set forth in the FHFA’s
2008 draft mid-year examination letter.

 

  •  As a result of a clarification process between Freddie Mac and FHFA, the
total number of MRAs may change.

 

  •  Items from the draft mid-year letter that lack clarity or specificity may
be clarified by FHFA. This may result in a one-for-one substitution, in which
case the number in the denominator of the performance level calculation will
remain unchanged as well as the maximum number in the numerator. However, this
may result in a substitution that is not one-for-one, in which case the number
in the denominator of the performance level calculation as well as the maximum
number in the numerator would change (up or down as the case may be).     • 
Items from the draft mid-year letter that reference issues related to an
examination in process for which a conclusion letter with specific MRAs has not
yet been issued may be substituted for the final MRAs documented in the exam
conclusion letter. This may result in a one-for-one substitution, in which case
the number in the denominator of the performance level calculation will remain
unchanged as well as the maximum number in the numerator. However, this may
result in a substitution that is not one-for-one, in which case the number in
the denominator of the performance level calculation as well as the maximum
number in the numerator would change (up or down as the case may be).

 

  •  At some point during 2009 or 2010, FHFA may identify one or more new MRAs
which were not identified at the time of Conservatorship. Freddie Mac and FHFA
may agree that a newly identified MRA that has been defined and scoped in
writing has a higher priority than one or more of the ninety-seven MRAs
identified at the time of Conservatorship. If this is the case, the newly
identified MRA will be added to the number of MRAs planned for remediation
either prior to January 1, 2010 or prior to January 1, 2011 if Freddie Mac
agrees that it can add the new MRA and still complete the original ninety-seven
MRAs. However, Freddie Mac has the ability to reschedule the remediation date of
an original MRA from prior to January 1, 2010 to prior to January 1, 2011 in
order to accommodate remediation of new, higher priority MRAs.

 
Value Ranking/Weighting of MRAs — While each of these ninety-seven MRAs is
important, a weighting/prioritization framework is outlined in the “Performance
Calibration for 1st LTI Vesting.” This weighting/prioritization framework does
not require that MRAs must be remediated in any particular order. Further, the
Compensation Committee, in exercising its oversight of management’s authority in
determining MRA completion under this framework, will place primary emphasis on
relative criticality and impact of MRAs remediated, not simply the number of
MRAs remediated.
 

  2.  Remediation Determination — Remediation of an MRA is deemed to occur and
be successful if:

 

  •  Remediation was the result of Conservatorship;     •  Determination by FHFA
that an item was not a deficiency after all; or,     •  Remediation actions have
been completed by the deficiency owner, validated by Internal Audit, as
appropriate, and communicated to FHFA (remediation does not require a formal
closure letter or other response from FHFA).

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Performance Calibration for Portion Scheduled to Vest in March 2010:
 

  1.  MRAs scheduled to be remediated prior to January 1, 2010 — The subset of
the MRAs scheduled to be remediated any time prior to January 1, 2010.

 

  •  An MRA originally scheduled to be remediated prior to January 1, 2010, may
be changed to a remediation date during 2010, but such a change would need to be
reviewed by FHFA (with no objection) and approved by the Remediation Committee.
If such a change is made, the MRA will not be included in the performance
calibration for the LTI portion scheduled to vest in March 2010.

 

  2.  Remediation Completion Timing — Remediation of an item scheduled to be
completed prior to January 1, 2010 is deemed to be successful if remediation was
achieved prior to January 1, 2010, regardless of the date it was achieved (i.e.,
even if it was completed after the originally planned completion date).

 
Performance Calibration for Portion Scheduled to Vest in March 2011:
 

  1.  MRAs scheduled to be remediated during 2010 — The subset of the MRAs
scheduled to be remediated during 2010.

 

  •  An MRA scheduled to be remediated during 2010, may be changed to a
remediation date prior to January 1, 2010, but such a change would need to be
reviewed by FHFA (with no objection) and approved by the Remediation Committee.
If such a change is made, the MRA will not be included in the performance
calibration for the LTI portion scheduled to vest in March 2011.

 

  2.  Repeat Identical Matters Requiring Attention — Any MRA scheduled to be
remediated prior to January 1, 2010 (that was actually remediated), but that
identical MRA is identified by the Remediation Committee or FHFA as a control,
accounting, and operational deficiency during calendar year 2010.

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