EX-10.5






Exhibit 10.5




FEDERAL HOME LOAN BANK OF CINCINNATI




 





Executive Incentive Compensation Plan

Plan Document




Revised

February, 2009




 









 





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:  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:






	 	1.1.1	 	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	 	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.






	 	3.5	 	Employees of the Bank who are hired, transferred or promoted into an eligible
position by August 31st 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.




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	 	3.6	 	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. 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:






	 	Threshold 	 	The minimum achievement level accepted for the performance
measure.
	 
	 	Target 	 	The planned achievement level for the performance measure.




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	 	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
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 Participant 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.




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	 	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.






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.




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	 	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.
	 
	 	12.9	 	Incentive awards will be made as soon as practicable following the end of
the Plan year, but in any event, no later than 21/2 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




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	 	 	 	Participant. Any payments under the Plan may be impacted by extraordinary
events, a failure to meet 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.




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	 	 	APPENDICES
 





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APPENDIX A:

 





Plan Participants — 2009 Plan Year




	 	 	 	 	 	 	 	 	 	 
	Level
	 	Name	 	Title






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APPENDIX B:


 


Incentive Award Opportunity and Performance Mix




2009 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 nine (9) Bank performance measures for the 2009 Plan Year.




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Threshold	 	 	Target	 	 	Outstanding	 
	I. Member Asset Activity: Aggregate Incentive Weight — 30%	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	a	)	 	Average Advances	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	Incentive Weight: 5%	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	b	)	 	Increase in Average Advances for	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	Members with Assets < $1.0B
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	Incentive Weight: 7.5%	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	c	)	 	New Credit Services Users	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	Incentive Weight: 7.5%	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	d	)	 	MPPNew Mandatory Delivery Contracts*	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	Incentive Weight: 5%	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	e	)	 	MPPParticipating Financial Institutions -- New Users	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	Incentive Weight: 5%	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	II. Community Outreach: Incentive Weight — 10%	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	Community Outreach Events	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	III. Risk: Incentive Weight — 15%	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	Ratio of Market Value of Equity to par value of	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	Regulatory Capital Stock post Interest Rate Shock	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	IV. Profitability: Incentive Weight - 35%	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	Adjusted Net Income equal to 2009	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	Average Three-month LIBOR Rate	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	Plus Basis Points Spread	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	V. New Membership: Incentive Weight — 10%	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	2009 Membership Approvals	 	 	 	 	 	 	 	 	 	 	 	 






* Excludes Mandatory Delivery Contracts originating from two largest 2008 MPP customers.





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