EXHIBIT 10.1


 


FEDERAL HOME LOAN BANK OF BOSTON


 


2010 EXECUTIVE INCENTIVE PLAN


March 2010-Revised


 


Purpose:


 


The
Federal Home Loan Bank of Boston (Bank) has established a 2010 Executive
Incentive Plan (EIP) which is designed to reward and retain corporate officers
during turbulent economic conditions and an atypical period of financial
performance challenges as evidenced by the lack of dividend payments to members,
suspension of the repurchase of excess capital stock and lack of funding for
the AHP program.  Payout opportunities
for 2010 EIP participants are generally based on the Bank’s current financial
situation, not the competitive market. 
It is intended that in subsequent EIP performance periods opportunities
will increase to competitive levels as the Bank’s financial performance
improves, e.g. from 50% of recommended payouts to 75% when the Bank resumes meaningful
dividend payments and to 100% when the Bank resumes repurchase of excess stock.


 


Guiding
Principles:


 


The
2010 EIP is intended to:


 


·                  Recognize that the Bank’s
current overall focus is a return to earnings generation to a level that allows
payment of dividends, resumption of the purchase of excess capital stock, and
funding of the AHP program.


·                  Reinforce and reward the
Bank’s commitment to conservative, prudent, sound risk management practices and
preservation of the par value of the Bank’s capital stock.


·                  Reflect a reasonable
assessment of the Bank’s financial situation and prospects while rewarding
achievement of identified remediation milestones and the Bank’s financial plan
and strategic objectives as spelled out in the Bank’s 2010 Business Plan.


·                  Tie a significant percentage
of incentive awards to the long-term financial condition and performance of the
Bank.


·                  Recognize the importance of
individual performance through metrics linked to the objectives of the
participant’s principal functions.


·                  Recognize that continued
enhancements and upkeep of the Bank’s operational infrastructure are critical
to the Bank’s long-term condition.


 

















 


Incentive
Goals:


 


The
incentive goals for all participants, with the exception of those participants
in Enterprise Risk Management, are summarized in the following table with more
detail following in Appendix A:


 


	
   

  	
   

  	
  Weight

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Goal

  	
   

  	
  Pres.

  	
   

  	
  Tier I

  	
   

  	
  Tiers II & III

  	
   

  	
  Threshold

  	
   

  	
  Target

  	
   

  	
  Excess

  
	
  Pre-assessment
  Core Net Income

  	
   

  	
  25%

  	
   

  	
  20%

  	
   

  	
  10%

  	
   

  	
  $212.0 MM

  	
   

  	
  $249.0 MM

  	
   

  	
  $286.0 MM

  
	
  Member
  Outreach 

  	
   

  	
  10%

  	
   

  	
  10%

  	
   

  	
  10%

  	
   

  	
  45% of membership 

  	
   

  	
  60% of membership

  	
   

  	
  75% of membership

  
	
  Advance
  Restructures 

  	
   

  	
  0%

  	
   

  	
  10%

  	
   

  	
  10%

  	
   

  	
  125

  	
   

  	
  150

  	
   

  	
  175

  
	
  Growth
  in Membership

  	
   

  	
  0%

  	
   

  	
  5%

  	
   

  	
  5%

  	
   

  	
  4 New Members

  	
   

  	
  6 New Members

  	
   

  	
  8 New Members

  
	
  2010
  Average CDA and ESA Advances Balances 

  	
   

  	
  10%

  	
   

  	
  10%

  	
   

  	
  10%

  	
   

  	
  $2.5 Billion

  	
   

  	
  $2.619 Billion

  	
   

  	
  $2.852 Billion

  
	
  Remediation
  of 2009 Report of Examination Findings

  	
   

  	
  25%

  	
   

  	
  20%

  	
   

  	
  20%

  	
   

  	
  70% Clearance

  	
   

  	
  85% Clearance

  	
   

  	
  100% Clearance

  
	
  Individual,
  Department-Specific Component 

  	
   

  	
  0%

  	
   

  	
  0%

  	
   

  	
  15%

  	
   

  	
  As defined 

  	
   

  	
  As defined

  	
   

  	
  As defined

  
	
  Discretionary
  Component 

  	
   

  	
  30%

  	
   

  	
  25%

  	
   

  	
  20%

  	
   

  	
  As documented by supervisor

  	
   

  	
  As documented by supervisor

  	
   

  	
  As documented by supervisor

  



 


2

















 


Incentive
goals for Enterprise Risk Management participants in Tiers I, II and III
are summarized in the following table with more detail following in Appendix A


 


	
   

  	
   

  	
  Weight

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Goal

  	
   

  	
  Tier I

  	
   

  	
  Tiers II & III

  	
   

  	
  Threshold

  	
   

  	
  Target

  	
   

  	
  Excess

  
	
  Pre-assessment
  Core Net Income

  	
   

  	
  10%

  	
   

  	
  5%

  	
   

  	
  $212.0 MM

  	
   

  	
  $249.0 MM

  	
   

  	
  $286.0 MM

  
	
  Member
  Outreach

  	
   

  	
  10%

  	
   

  	
  10%

  	
   

  	
  45% of membership

  	
   

  	
  60% of membership

  	
   

  	
  75% of membership

  
	
  Advance
  Restructures

  	
   

  	
  10%

  	
   

  	
  10%

  	
   

  	
  125

  	
   

  	
  150

  	
   

  	
  175

  
	
  Growth
  in Membership

  	
   

  	
  5%

  	
   

  	
  5%

  	
   

  	
  4 New Members

  	
   

  	
  6 New Members

  	
   

  	
  8 New Members

  
	
  2010
  Average CDA and ESA Advances Balances

  	
   

  	
  10%

  	
   

  	
  10%

  	
   

  	
  $2.5 Billion

  	
   

  	
  $2.619 Billion

  	
   

  	
  $2.852 Billion

  
	
  Remediation
  of 2009 Report of Examination Findings

  	
   

  	
  30%

  	
   

  	
  25%

  	
   

  	
  70% Clearance

  	
   

  	
  85% Clearance

  	
   

  	
  100% Clearance

  
	
  Individual,
  Department-Specific Component

  	
   

  	
  0%

  	
   

  	
  15%

  	
   

  	
  As defined

  	
   

  	
  As defined

  	
   

  	
  As defined

  
	
  Discretionary
  Component

  	
   

  	
  25%

  	
   

  	
  20%

  	
   

  	
  As documented by supervisor

  	
   

  	
  As documented by supervisor

  	
   

  	
  As documented by supervisor

  



 


3

















 


Incentive Opportunity


 


Eligible participants will be assigned an incentive award opportunity
that combines short and long-term incentives and is expressed as a percentage
of the incumbent’s 2010 actual annual base salary, as illustrated in the chart
below.


 


	
   

  	
   

  	
  Combined Short and Long-Term Incentive

  	
   

  
	
   

  	
   

  	
  Opportunity as a Percent of Base Salary

  	
   

  
	
   

  	
   

  	
  Threshold

  	
   

  	
  Target

  	
   

  	
  Excess

  	
   

  
	
  President

  	
   

  	
  15.00

  	
  %

  	
  30.00

  	
  %

  	
  45.00

  	
  %

  
	
  Tier I

  	
   

  	
  11.00

  	
  %

  	
  22.00

  	
  %

  	
  33.0

  	
  %

  
	
  Tier II

  	
   

  	
  8.75

  	
  %

  	
  17.50

  	
  %

  	
  26.25

  	
  %

  
	
  Tier III

  	
   

  	
  6.25

  	
  %

  	
  12.50

  	
  %

  	
  18.75

  	
  %

  



 


Goal achievement and individual awards for the goals on pages two and
three will be calculated at the conclusion of 2010 based on results as of December 31,
2010.  Participants will be eligible to
receive sixty (60) percent of such award in a cash payment, subject to the
final approval of the board and the review of the Federal Housing Finance
Agency (FHFA), if required, on the first pay day in March 2011.  Except as otherwise described under EIP
Administration, the participant must be employed by the Bank on the date of
payment of the award to receive the award.  
The chart below illustrates the Threshold, Target and Excess payout
potentials for this short-term award, by tier.


 


	
  2010 Short-Term Incentive Opportunity

  	
   

  
	
  Tier

  	
   

  	
  Threshold

  	
   

  	
  Target

  	
   

  	
  Excess

  	
   

  
	
  President

  	
   

  	
  9.00

  	
  %

  	
  18.00

  	
  %

  	
  27.00

  	
  %

  
	
  Tier
  I

  	
   

  	
  6.60

  	
  %

  	
  13.20

  	
  %

  	
  19.80

  	
  %

  
	
  Tier
  II

  	
   

  	
  5.25

  	
  %

  	
  10.50

  	
  %

  	
  15.75

  	
  %

  
	
  Tier
  III*

  	
   

  	
  6.25

  	
  %

  	
  12.50

  	
  %

  	
  18.75

  	
  %

  



 






*100% of payout
opportunity to be paid following year-end 2010; no long-term opportunity


 


Participants will be eligible to receive the remaining forty (40)
percent of the award opportunity as cash on the first pay day in March 2013,
if the following conditions are satisfied:


 


·                  The Bank’s Retained Earnings at year-end 2012
are at a minimum of $400 million less dividends paid in 2010 through 2012, and


·                  The participant is in employment with the
Bank on the payment date, as described below in EIP Administration, and


·                  Subject to the final approval of the board
and review of the FHFA, if required:


 


The chart below illustrates the Threshold, Target and Excess payout
potentials for the long-term award described above, by tier.


 


4

















 


	
  2010 Long-Term Incentive Opportunity Payable after
  Year-End 2012

  	
   

  
	
  Tier

  	
   

  	
  Threshold

  	
   

  	
  Target

  	
   

  	
  Excess

  	
   

  
	
   

  	
   

  	
  2010

  	
   

  	
  2011

  	
   

  	
  2012

  	
   

  	
  2010

  	
   

  	
  2011

  	
   

  	
  2012

  	
   

  	
  2010

  	
   

  	
  2011

  	
   

  	
  2012

  	
   

  
	
  President

  	
   

  	
  0.0

  	
  %

  	
  0.0

  	
  %

  	
  6.0

  	
  %

  	
  0.0

  	
  %

  	
  0.0

  	
  %

  	
  12.0

  	
  %

  	
  0.0

  	
  %

  	
  0.0

  	
  %

  	
  18.0

  	
  %

  
	
  Tier
  I

  	
   

  	
  0.0

  	
  %

  	
  0.0

  	
  %

  	
  4.4

  	
  %

  	
  0.0

  	
  %

  	
  0.0

  	
  %

  	
  8.8

  	
  %

  	
  0.0

  	
  %

  	
  0.0

  	
  %

  	
  13.2

  	
  %

  
	
  Tier
  II

  	
   

  	
  0.0

  	
  %

  	
  0.0

  	
  %

  	
  3.5

  	
  %

  	
  0.0

  	
  %

  	
  0.0

  	
  %

  	
  7.0

  	
  %

  	
  0.0

  	
  %

  	
  0.0

  	
  %

  	
  10.5

  	
  %

  
	
  Tier
  III

  	
   

  	
  0.0

  	
  %

  	
  0.0

  	
  %

  	
  0.0

  	
  %

  	
  0.0

  	
  %

  	
  0.0

  	
  %

  	
  0.0

  	
  %

  	
  0.0

  	
  %

  	
  0.0

  	
  %

  	
  0.0

  	
  %

  



 


Eligible
Participants


 


The
following individuals are participants in the EIP for 2010:


 


	
  President

  	
   

  	
  Tier I

  	
   

  	
  Tier II

  	
   

  	
  Tier III

  
	
  Edward A.
  Hjerpe, III

  	
   

  	
  Janelle K. Authur

  	
   

  	
  Daniel H. Devine

  	
   

  	
  Bryan Gulachenski

  
	
   

  	
   

  	
  Earl W. Baucom

  	
   

  	
  Brian G. Donahue

  	
   

  	
  Paul T. Pouliot

  
	
   

  	
   

  	
  George H. Collins*

  	
   

  	
  John F.
  Henderson, Jr.*

  	
   

  	
  Allison Santoro

  
	
   

  	
   

  	
  M. Susan Elliott

  	
   

  	
  Kelly A. LaCava

  	
   

  	
  Edward A. Schultze*

  
	
   

  	
   

  	
  Frank Nitkiewicz

  	
   

  	
  Rachele McDonough

  	
   

  	
  Kenneth A. Willis

  
	
   

  	
   

  	
  General Counsel

  	
   

  	
  Paul Peduto

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Kevin Whittaker*

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Chief Technology
  Officer

  	
   

  	
   

  



 






*Denotes participant in
Enterprise Risk Management Department


 


EIP Administration


 


The EIP is administered by the Personnel Committee of the Board of
Directors (Committee), which shall have full power and binding authority to
construe, interpret, and administer the EIP, and to adjust it for extraordinary
circumstances.  Extraordinary circumstances
may include changes in business strategy, termination or commencement of
business lines, impact of severe economic fluctuations, significant growth or
consolidation of the membership base, or significant regulatory or other
changes impacting the Bank or Bank System.


 


The Committee reserves the right at any time to amend, suspend or
terminate the EIP in whole or in part, for any reason, and without the consent
of any EIP participant.


 


The Bank’s President and Chief Executive Officer will determine
participation in the EIP with the concurrence of the Committee.


 


EIP awards shall not be considered earned or payable, in whole or in
part, to any participant for any reason until they are finally determined by
the Bank’s President and Chief Executive Officer with the concurrence of the
Committee following the end of the plan years.


 


Any individual hired or promoted into an eligible position during 2010 that
is granted an award shall have any such incentive award prorated based on
months of EIP participation, providing


 


5

















 


he/she has served a minimum of six months in that role in 2010 and
otherwise satisfies the EIP’s requirements.


 


Except as described below, any EIP participant who terminates
employment for any reason, whether voluntarily or involuntarily, before the
applicable award payment date will not be entitled to any award, except as
otherwise determined by the Bank’s President and Chief Executive Officer, with
the concurrence of the Committee, at their sole discretion and subject to
review of the FHFA, if required(1).


 


·                  EIP participants who terminate employment
with the Bank by reason of death or disability or who are eligible to retire(2) from
employment with the Bank prior to the March 2011 short-term award payment
date may receive a pro rata payment of the sixty (60) percent short-term
incentive opportunity as determined and recommended by the Bank’s President and
Chief Executive Officer, with the concurrence of the Committee and at their
sole discretion and subject to the review of the FHFA, if required, based on
the months of completed service as an EIP participant during 2010.  To be eligible, the participant must complete
at least six months of service in 2010 and otherwise satisfy the EIP’s
requirements. Participants who die, become disabled, or retire during 2010 will
not be eligible for any long-term incentive award.


 


·                  EIP participants who terminate employment
with the Bank by reason of death or disability prior to the long-term award
payment date in March 2013, or who terminate prior to the long-term award
payment date and are eligible to retire from employment with the Bank, may
become eligible to receive a pro rata payment of the forty (40) percent
long-term incentive opportunity based on the number of months of completed
service as an EIP participant during the two year period following the plan
year, subject to the granting of awards based on 2012 year-end results
described above, the recommendation of the Bank’s President and Chief Executive
Officer, with the concurrence of the Committee and at their sole discretion,
and subject to review of the FHFA, if required.


 


Awards to retiring or disabled participants or beneficiaries will be
paid at the same time as awards to all active participants.  Beneficiaries of such payments will be the
same as identified in the Bank’s group insurance plan.


 


The Bank may make such provisions, as it deems appropriate, for
withholding payroll taxes in connection with payment of EIP awards.


 






(1) Where the EIP refers to the participant’s termination of employment
for purposes of receiving any payment, whether such a termination has occurred
will be determined in accordance with Section 409A of the Internal Revenue
Code and applicable regulations thereunder.


(2) Eligibility to retire is defined as employees who are i)
eligible for normal retirement as defined in the Pentegra Defined Benefit Plan
for Financial Institutions or ii) meet the Rule of 70 as defined in the
Pentegra Defined Benefit Plan for Financial Institutions, including credited
service in the FHLB system, but excluding any other credited service at another
Pentegra participating employer.


 


6

















 


The Bank also has several other incentive programs for staff at the
Bank designed to motivate employees to become more innovative and productive.
The Bank’s President and Chief Executive Officer is responsible for the
administration of each of these programs and has the authority to construe,
implement, and administer programs, as appropriate.


 


7

















 


Appendix A — Goal Definitions


 


Profitability
Goal


 


Pre-assessment
Core Net Income =


Net
Income – (Prepayment Fees – Historical Prepayment Fee Amortization)


+
(Debt Retirement Costs – Historical Debt Retirement Cost Amortization)


–
Net Fair Value Adjustments + OTTI Credit Losses + REFCorp Expense + AHP Expense


 


Net Income = 2010 net income reported in accordance
with GAAP in the United States.


 


Historical Prepayment Fee Amortization = the
current-period, straight-line amortization of all historical prepayment fees (whether
recognized at time of prepayment or as a yield adjustment on a modified loan) over
the original remaining lives of the prepaid assets.


 


Historical Debt Retirement Cost Amortization = the
current-period, straight-line amortization of all historical debt retirement
costs over the original remaining lives of the retired liabilities.


 


Net Fair Value Adjustments = the net unrealized
gains and losses as recognized under GAAP attributable to hedges, whether
economic hedges or SFAS 133-qualifying hedges, plus trading securities gains
and losses.


 


OTTI
Credit Losses = the absolute value of the full-year amount of the credit loss
portion of overall losses attributable to other-than-temporary impairments of
securities.


 


In
the event that the Bank is required to adjust current period net income to
correct prior period accounting errors, positive adjustments to net income
resulting from the correction of prior period accounting errors are to be
excluded from Pre-assessment Core Net Income, while negative adjustments are to
be retained in Pre-assessment Core Net Income.


 


The exclusion of
prepayment fee income and associated debt retirement and swap unwind expense
from the Pre-assessment Core Net Income metric removes the potential for “windfall”
compensation in the event of heavy prepayment fee income and removes a
potential disincentive to prudently respond to prepayment events by excluding
the otherwise punitive cost of debt retirement and swap unwind expense.  The exclusion of net unrealized fair value
adjustments is consistent with the way that management projects its financial
performance and reflects the fact that these adjustments are merely timing
adjustments to net income that have no net impact to the Bank’s net income if
gains or losses are never realized.  OTTI
Credit Losses are excluded from Pre-assessment Core Net Income because they
cannot be controlled by management.


 


8

















 


Member
Outreach Goal


EIP
participants, individually or as groups, will meet during the year with
representatives from member institutions to develop Bank/member relationships
and create new business opportunities. These meetings can range from one-on-one
meetings to large group meetings.


 


Advance
Restructures Goal


To
address member need to extend liabilities without increasing funding
liabilities, the Bank introduced in late 2009 the Advance Restructuring
solution, which allows members to extend the maturities of their current
advances without booking prepayment fees in the current period.    This
goal will be measured by the number of individual advances restructured during
2010 through the Bank’s Advances Restructuring product or as part of a
member-directed restructure which does not blend the prepayment fee into the
new advance interest rate.


 


Mission-Related
Advances Goal


The
focus of the mission-related metric will be to expand member lending activities
in the communities they serve through the Bank’s Community Development Advances
(CDA) and Economic Stimulus Advance (ESA). (i)


 


Remediation
of 2009 Report of Examination Findings Goal


To achieve the required
improvement in the 2010 FHFA Examination, the exam goal requires that
management work towards clearance of the 2009 Examination findings that
identified weaknesses. We have targeted the 2009 weakness findings, and have
established awards of 70% clearance for a threshold award, 85% clearance for a
target award, and 100% clearance for an excess award.  While management has put in place remediation
plans and in many cases has already implemented the plans, this component of
the EIP recognizes both the need to ensure ongoing improvement and the need to
address not only the specifics of the 2009 findings, but also the broad-based
intent on the part of the finding.  For
the purposes of this goal, the term clearance is defined as a 2009 finding not
being repeated as a weakness in the 2010 examination.


 


Individual,
Department-Specific Component


EIP participants are
responsible for significant department-specific initiatives and projects that
contribute to the success of the bank. The Individual, Department-Specific
Component provides for recognition of the participant’s successful completion
of those initiatives.


 


Payments awarded under the
Individual, Department-Specific Component will take into consideration the
participant’s achievement of one to three individual, department-specific
initiatives, established at the beginning of the plan year. The initiatives may
be non-financial, operational objectives or may add additional weight to a
profitability or growth goal. Revisions to these initiatives may be considered
on a case-by-case basis during the year but must be approved, in writing, by
the President and Chief Executive Officer.


 


Payments under the Individual,
Department-Specific Component will be based on the individual’s combined,
overall performance on the one to three individual, department-specific
initiatives, as evaluated by the participant’s manager.  The initiatives may be shared within a department
or across multiple departments, but the manager’s assessment will be based on
the participant’s individual contribution as well as the overall achievement of
the initiative.


 


9

















 


Managers may select a payout
percentage for individual, department-specific objectives from a range of
threshold to a maximum payout at excess to recognize the degree to which the
EIP participant accomplished these results. 
If the individual, department-specific initiative(s) are not
substantially achieved, the manager may award zero for this component.  Managers need to provide reasonable
documentation as the basis for any award recommended under this component.


 


Discretionary Component


It is understood that the
success of the bank in achieving its goals as set forth in the Plan requires
individual contribution.  Payments
awarded under the Discretionary Component will take into consideration and
recognize an individual participant’s achievement of and contribution toward
Bank, department, or individual goals or initiatives, as assessed by the
President and Chief Executive Officer or the participant’s manager and
recommended to the Personnel Committee.


 


For Tier I participants,
the Discretionary Component may include the President and Chief Executive
Officer’s or the manager’s assessment of achievement of a participant’s
individual and department-specific goals, including operational initiatives,
established at the beginning of the plan year. 
It also may include an evaluation of the participant’s contributions in
areas such as expense control and operational efficiency, risk management and
control, Board communication, and succession planning.  There may also be a subjective element in
this component so that the President and Chief Executive Officer or manager can
award a participant’s leadership, work ethic, attitude, or other such similar
intangible attribute that contributes to the Bank’s success.


 


The President and Chief
Executive Officer or participant’s manager may recommend a payout percentage
for the Discretionary Component from a range of threshold to a maximum payout
at excess to recognize the degree of achievement and contribution.  The President and Chief Executive Officer or
manager may also recommend zero award for this component.  The President and Chief Executive Officer or
manager needs to provide reasonable documentation to the Personnel Committee
that states the basis for whatever award is recommended under the Discretionary
Component for Tier I participants.


 


For
Tier II and III participants, the manager will assess, recommend and document a
payout percentage as discussed above for Tier I participants, as applicable,
but excluding the achievement of the one to three individual,
department-specific initiatives awarded under the Individual,
Department-Specific Component.


 


For the President and
Chief Executive Officer, the Personnel Committee will assess, recommend and
document a payout percentage as discussed above for Tier I participants. At the
end of the plan year, the President and Chief Executive Officer will provide
the Personnel Committee with a self-assessment of individual, Bank and personal
achievements to be used in determining the Discretionary Component award.


 


10

















 






(i) This
goal is measured using the following advance product types:  868, 877, 878, 879, 903, 904, 905, 910, 913,
914 and 915 and any new housing and community development product codes
introdued during the Plan year.


 


11