EXHIBIT 10.6

FHLBANK San Francisco

2008 Executive Performance Unit Plan

Summary Description

PLAN PURPOSE

To optimize the Bank’s performance in accomplishing Board-approved goals.

PLAN OBJECTIVES

To motivate key executives to position the Bank to exceed specified long-term
Bank goals that directly support the business plan and long-term strategic plan.
To attract and retain outstanding executives by providing a competitive total
compensation program, including a cash-based long-term incentive reward
opportunity tied to the performance of the Bank against specified performance
measures.

PARTICIPANTS

Participants are key executives whose performance has a major impact on the
Bank’s success. Participants are the incumbents in the Bank’s Executive
Committee officer positions, including:

President

Executive Vice President

Senior Vice Presidents (excluding the Senior Vice President, Director of
Internal Audit – participates in the Audit Performance Unit Plant)

PERFORMANCE PERIOD

The Performance Unit Plan (PUP) pays incentive awards related to the achievement
of Bank performance over a three-year performance period. The 2008 Plan is
effective January 1, 2008, and is based on performance from January 1, 2008
through December 31, 2010.

PERFORMANCE METRICS

Performance metrics balance financial, member, and community interests, focusing
on achievement of Potential Dividend Spread and market share goals. Potential
Dividend Spread will be weighted 60% and market share will be weighted 40%.
Target performance levels reflect long-term performance expectations. Unlike the
Executive Incentive Plan (EIP), participants do not have an individual goal.

 

1. 3-Year Average Potential Dividend Spread: Potential Dividend Spread is the
primary measure the Bank uses to determine total rate of return to shareholders.
The target Potential Dividend Spread has been set at 1.12% and represents the
projected average for the performance period (January 1, 2008 through
December 31, 2010). The target Potential Dividend Spread is consistent with the
Bank’s Strategic Plan forecast, and reflects the Bank’s continued
mission-consistent focus on member’s mortgage finance business. Threshold (75%
of plan) Potential Dividend Spread has been set at 0.87%, 150% of target has
been set at 1.62% and 200% of target has been set at 2.12%.

 

2. 3-Year Average Market Share: Market share is based on the 3-year average of
member credit as a percentage of the members’ total wholesale borrowings over
the performance period measured by the average of the actual achievement levels
under the 2008, 2009, and 2010 annual incentive plans, and will be set at the
end of the performance period.

Actual achievement of performance metrics one (1) and two (2) is subject to
adjustment for changes resulting from movements in interest rates, changes in
financial strategies or policies, any significant change in Bank membership, as
well as other factors determined by the Board for which management should not
receive credit or be held accountable.

 

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PUP ACHIEVEMENT MEASURES

The Performance Unit Plan rewards four levels of performance achievement, as
follows:

 

Achievement Level

  

Measure Definition

Threshold (75%)    Performance that is considered a threshold level of
successful achievement. This is the minimum level of performance which must be
achieved for awards to be paid. Target (100%)    Performance that is expected
under the Bank’s Strategic Plan forecast. Incentive payments are made at the
target (100%) level found in the award ranges scale on the following page. 150%
of Target    An optimistic achievement level based on expected business. 200% of
Target    The most optimistic achievement level based on reasonable business
assumptions and conditions.

AWARD DETERMINATION

An award is calculated and paid in whole or part at the end of the 2008 Plan
term (during the first quarter of 2011) based on achievement of a minimum level
of performance under the goals. Awards earned are based on the level at which
the 3-year performance goals have been achieved. Final Awards will be prorated
for Participants promoted or hired into an eligible position during the
Performance Period, and for Participants who take a leave of absence during the
Performance Period. Target payouts for the January 1, 2008 through December 31,
2010 performance period are presented on the following page. Note that the
percentages of award opportunity provided below are not the award percentages of
base salary. See the formula on the next page for payout percentages.

LOGO [g92525g91f28.jpg]

Award payouts may be modified up or down at the Board’s discretion (+/- 25% of
the dollar award derived from the table) to account for performance that is not
captured in the performance metrics. Performance below the threshold achievement
level for either measure normally will not result in an incentive award.

 

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AWARD OPPORTUNITY

Individual PUP targets for each plan year are established annually for each
participant at the beginning of each calendar year. Target award levels are
stated below as a percentage of the February 1st base salary at the beginning of
the performance period.

Award Range Scale (some % rounded)

2008 Plan Year – PUP Payout as % of 2008 Base Salary (as of February 1st)

 

Position Level

   Threshold1     Target2     150% of Target3     200% of Target4  

President

   25 %   50 %   75 %   100 %

Executive Vice President

   20 %   40 %   60 %   80 %

Senior Vice Presidents

   18 %   35 %   53 %   70 %

Notes:

1 – 50% of target payout; based on 0.87% Potential Dividend Spread and the
average of the actual 3-year market share performance during the plan period.

2 – Based on achieving 1.12% Potential Dividend Spread and the average of the
actual 3-year market share performance during the plan period.

3 – 150% of target payout; based on achieving 1.62% Potential Dividend Spread
and the average of the actual 3-year market share performance during the plan
period.

4 – 200% of target payout; based on achieving 2.12% Potential Dividend Spread
and the average of the actual 3-year market share performance during the plan
period.

Cash awards are paid to participants at the end of the 3-year performance period
(during the first quarter of 2011).

Example of how award is calculated for a Senior Vice President for 2008 PUP

 

(40% weight)

3 yr. Average Market Share

Level Achieved: (100% of Target)

(60% weight)

3 yr. Average Potential

Dividend Spread Achieved:

(Maximum or 200%)

  }    Percent of Target Payout:
160%    2008 Base
Salary    Target PUP Payout
(% of Base Salary)    Payout % Based
on Performance    PUP Payment
paid Q1 2011         $275,000 X    35% X    160% =    $154,000                 
                                 

Payments under this plan are subject to the approval of the Board of Directors.
To be eligible for the performance unit plan payment officers must be employed
with the Bank when the payment is disbursed. PUP awards will be prorated for
participants in position less than a full plan term, including participants who
have a leave of absence greater than one month during the plan term. Any awards
will be distributed as soon as administratively possible following the date of
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.

 

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