Exhibit








Exhibit 10.3


Portions of this document indicated by “**” have been omitted, and such omitted portions have been filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Federal Home Loan Bank of Topeka
Non-NEO Executive Incentive Compensation Plan Targets
Goal Metrics, Metric Performance Ranges, Participant Eligibility and Metric Weights


This document specifies goal metrics, metric performance ranges/objectives, and metric weights for the participants (Participants) in the Non-NEO Executive Incentive Compensation Plan (Plan).
 
The Plan targets contained in this document specifically cover the 2018 Base Performance Period (January 1, 2018 through December 31, 2018) and the 2019-2021 Deferral Performance Period (January 1, 2019 through December 31, 2021).


		
	A.
	2018 Base Performance Period Metrics. The following goal metrics are assigned to the Participants under the Plan. All calculations including interest rates will be rounded to two decimal places.




		
	1.
	Adjusted Return Spread on Total Regulatory Capital


Definition: The spread between: (a) adjusted net income divided by daily average total regulatory capital and (b) the daily average Overnight Federal funds effective rate (Fed Effective).


Measure:
Adjusted net income is defined as follows:
		
	◦
	Net income calculated under generally accepted accounting principles (GAAP)


		
	◦
	Plus recorded AHP assessments


		
	◦
	Excluding the impact or adjustment required because of Accounting Standards Codification 815 (ASC 815)


		
	◦
	Plus dividends on redeemable Class A and Class B Common Stock treated as interest expense under ASC 450


		
	◦
	Minus prepayment fees


		
	◦
	Minus/plus realized or unrealized gains/losses on securities (excludes any charges for other-than-temporary impairment of securities)


		
	◦
	Minus/plus gains/losses on mortgage loans held for sale


		
	◦
	Minus/plus gains/losses on early retirement of debt and related derivatives


		
	◦
	Minus/plus any amortization/accretion of premium/discount on unswapped securities in the FHLBank’s trading portfolio and any investment that is tied to an economic swap where an upfront fee was not received (not amortized/accreted under GAAP)


		
	◦
	Less a calculated 10% AHP assessment




Performance Range:
	
		
	 
	Annual Performance Range

	Threshold
	5.06%

	Target
	6.14%

	Optimum
	7.22%






		
	2.
	Net Income after Capital Charge


Definition: The dollar amount of adjusted net income as defined in the above metric which exceeds the cost of the required return on capital.


Measure: Adjusted income as defined in the Net Income after Capital Charge Definition above, less required return on capital. The required return on capital is the sum of the outstanding regulatory Class B Common Stock times the average of three-month LIBOR plus 1.00 percent for each day during the year plus the sum of regulatory Class A Common Stock and retained earnings times the average of three-month LIBOR for each day during the year.













Performance Range:
	
		
	 
	Annual Performance Range

	Threshold
	$108,178,000

	Target
	$135,222,000

	Optimum
	$162,266,000






		
	3.
	Retained Earnings


Definition: The dollar amount of GAAP Retained Earnings as of 12/31/2018.


Measure: Retained earnings as defined above as reported on the 12/31/2018 balance sheet.


Performance Range:
	
		
	 
	Annual Performance Range

	Threshold
	$916,427,000

	Target
	$947,698,000

	Optimum
	$978,969,000






		
	4.
	Diversity and Inclusion


Definition: FHLBank’s Diversity and Inclusion (D&I) initiative is defined as the advancement of D&I, to the maximum extent possible in balance with financially safe and sound business practices, through inclusion and utilization of diverse-owned business and individuals within its workforce, as defined in the D&I Policy, in all business activities of FHLBank. 


Measure: As a minimum requirement to achieving this goal, the Office of Inclusion must sponsor at least:
		
	◦
	Eight D&I Awareness Opportunities; and


		
	◦
	Four D&I Training Opportunities.




Once this threshold requirement is met, the calculation of the D&I Incentive Award shall be measured by dividing the total number of FHLBank employees (excluding summer interns) who attended at least: (1) one D&I Awareness Opportunity; and (2) one D&I Training Opportunity during the Base Performance Period by the total number of individuals employed by FHLBank (excluding summer interns) at any time during the Base Performance Period.


Performance Ranges:
	
		
	 
	Percentage

	Threshold
	40%

	Target
	60%

	Optimum 
	80%






D&I Awareness Opportunities are defined as follows: 
An FHLBank-wide event approved in advance by the Director of Human Resources and Inclusion (HRI) that educates employees on D&I, or encourages it among them. These opportunities are typically lunch and learn events hosted by FHLBank’s Inclusion, Diversity, and Equality Advisory Council and range in topics from various cultures, religions, and holidays to education on marginalized communities.


D&I Training Opportunities are defined as follows:
An FHLBank-wide training approved in advance by the Director of HRI with the purpose of increasing knowledge of and competencies in content and principles regarding D&I. These opportunities can include, for example, workshops on the business case for D&I, recognizing and managing various biases, and bridging generational gaps within the workplace.


		
	5.
	Risk Management - Market, Credit and Liquidity Risks


Definition: Management of FHLBank risks as determined by the weighted average rating by the board of directors in an annual evaluation of the Risk Appetite metrics in this area using a 1 (lowest) to 5 (highest) point scale. General risk categories are market, credit and liquidity risks.













Performance Range:
	
		
	 
	Score

	Threshold
	3.0

	Target
	4.0

	Optimum 
	5.0






Risk Management Metric Weights: The following metric weight for each goal metric is assigned to the Participants:
	
		
	Risk Management Category
	Weighting

	Liquidity Risk 
	30%

	Market Risk 
	40%

	Credit Risk 
	30%

	Total
	100%






		
	6.
	Risk Management - Compliance, Business and Operations Risks


Definition: Management of FHLBank risks as determined by the weighted average rating by the board of directors in an annual evaluation of the Risk Appetite metrics in this area using a 1 (lowest) to 5 (highest) point scale. General risk categories are compliance, business and operations risks.


Performance Range:
	
		
	 
	Score

	Threshold
	3.0

	Target
	4.0

	Optimum 
	5.0






Risk Management Metric Weights: The following metric weight for each goal metric is assigned to the Participants:
	
		
	Risk Management Category
	Weighting

	Compliance Risk 
	30%

	Business Risk 
	35%

	Operations Risk 
	35%

	Total
	100%

















		
	B.
	2019-2021 Deferral Performance Period Metrics.


These metrics apply to the 2019-2021 Deferral Performance Period.


	
				
	Minimum Requirement for Receiving a Final Deferred Incentive Award

	In order for Participants to be eligible to receive a Final Deferred Incentive Award for the 2019-2021 Deferral Performance Period, FHLBank must have a Market Value of Equity (MVE) of not less than 100 percent of FHLBank’s Total Regulatory Capital Stock (TRCS) outstanding (as defined in FHLBank’s Risk Management Policy), as of the last day of the Deferral Performance Period. Upon determining FHLBank has achieved this minimum requirement, the calculation of the Final Deferred Incentive Award amounts shall be measured by evaluating the following:

	 
	Threshold
	Target
	Optimum

	Total Return(1)
	10/11 or 11/11 vs FHLBanks
	5/11 vs FHLBanks
	2/11 or 1/11 vs FHLBanks

	Deferred Incentive
	 
	 
	 

	Performance Measure Percentage
	75%
	100%
	125%

	Weighting
	0.50
	0.50
	0.50

	Dollar Value (Deferred Incentive x Performance Measure Percentage x Weight)
	$
	$
	$

	 
	 
	 
	 

	MVE / Total Regulatory Capital (TRC)(2) 
	10/11 or 11/11 vs FHLBanks
	5/11 vs FHLBanks
	2/11 or 1/11
vs FHLBanks

	Deferred Incentive
	 
	 
	 

	Performance Measure Percentage
	75%
	100%
	125%

	Weighting
	0.50
	0.50
	0.50

	Dollar Value (Deferred Incentive x Performance Measure Percentage x Weight)
	$
	$
	$

	Final Deferred Incentive Award (Dollar value for Total Return + Dollar Value for MVE/TRC)
	 
	 
	 






Footnotes:
		
	1)
	Total Return. Total Return equals the Total Dividends, plus the Change in Retained Earnings, divided by the Average Total Regulatory Capital (TRC) over the three-year period. Total Dividends is defined as all dividends paid on all capital stock during the three-year period; Change in Retained Earnings is defined as the change in retained earnings from 12/31/2018 to 12/31/2021; and Average TRC is defined as the average daily ending balance of Regulatory Capital for dates starting with 01/01/2019 and ending 12/31/2021. TRC is defined as total capital stock plus total retained earnings plus subordinated debt plus mandatorily redeemable capital stock. TRC will also include any additional capital from mergers that will be reported in the CRS statement of condition.  For performance comparison purposes, FHLBank Topeka will be ranked against the other FHLBanks, with the highest total return being the best performance, and ranking 1st out of the 11 FHLBanks.


		
	2)
	MVE/TRC. Using amounts reported on the Trendbook Analysis from the FHFA Call Report System (CRS), MVE/TRC is calculated by dividing base case MVE by TRC (as defined above) calculated at the end of the Deferral Performance Period. For performance comparison purposes, FHLBank Topeka will be ranked against the other FHLBanks, with the highest MVE/TRC being the best performance, and ranking 1st out of the 11 FHLBanks.




		
	C.
	Total Base Opportunity and Participant Levels.




Total Base Opportunity Matrix
(As a percentage of base)
	
				
	Participant
	Total Base Opportunity

	 
	Threshold
	Target
	Optimum

	**
	**
	**
	**

	**
	**
	**
	**

	Denise Cauthon (CAO)
	25
	50
	75




* In the event FHLBank’s performance during the Base Performance Period results in the achievement of a Total Base Opportunity that exceeds 100% of a Participant’s base salary at the start of the Base Performance Period, the Total Base Opportunity shall be capped at 100% of the Participant’s base salary.













D. Base Opportunity Metric Weights. The following metric weight for each goal metric is assigned to the Participants:
	
				
	Objective
	**
	**
	CAO

	1) Adjusted Return Spread on Regulatory Total Capital
	10%
	20%
	15%

	2) Net Income after Capital Charge
	10%
	20%
	15%

	3) Retained Earnings
	10%
	10%
	10%

	4) Diversity and Inclusion
	10%
	10%
	10%

	5) Risk Management - Market, Credit, Liquidity
	30%
	20%
	25%

	6) Risk Management - Compliance, Business, Operations
	30%
	20%
	25%

	Total
	100%
	100%
	100%