EX 10.2 2014 Executive Incentive Plan




Exhibit 10.2


FHLBank San Francisco
2014 EXECUTIVE INCENTIVE PLAN




PLAN PURPOSE
To optimize individual and Bank performance in accomplishing Board-approved goals and objectives.


PLAN OBJECTIVES
To motivate Bank executives to exceed individual and Bank goals that support the Bank’s mission and strategic plan.  To attract and retain outstanding executives by providing a competitive total compensation program, including an annual incentive award opportunity.


ELIGIBILITY
Participants are Bank executive officers whose performance has a major impact on the Bank’s success.  The 2014 participants are the incumbents in the Bank’s senior officer positions, including:


Executive Vice President
Senior Vice President, Chief Risk Officer
Senior Vice Presidents (excluding the Senior Vice President, Director of Internal Audit - participates in the Audit Executive Incentive Plan)


Participants must be employed by the Bank through January 1, 2015 to be eligible for an incentive award under the 2014 plan.  Participants hired, promoted, or who have a leave of absence during the plan year are eligible to participate on a pro-rata basis.  Participants hired or promoted on or after October 1st may be eligible to participate during the current plan year at the discretion of the Board. 


INCENTIVE GOALS AND MEASURES


Incentive Goals
For each participant there are individual goals and Bank goals, which are weighted for each participant.  The individual goals support the Bank-wide goals (See 2014 Short-Term Incentive Plan Goals and Measures) and objectives.  


The three Bank goals for 2014 are:


		
	1.
	2014 Risk Management Goal: Continue to enhance and advance the function and approaches to the Bank’s risk management.


		
	2.
	2014 Franchise Enhancement Goal: Position the Bank and the FHLBank System to remain an integral component of the changing housing and financial services markets.  Continue to meet the Bank's mission objectives within these markets as they are currently structured, but also influence and adapt to structural changes in those markets.


		
	3.
	2014 Community Investment Goal:  Support and promote the Bank’s Affordable Housing Program and Community Investment Programs.


Incentive Goal Achievement Measures
The plan levels of goal achievement are as follows:
	
		
	Achievement Level
	Measure Definition

	Far Exceeds
	The most optimistic achievement level that far exceeds expected performance.

	Exceeds
	An optimistic achievement level that exceeds expected performance.

	Meets
	Performance that is expected under the Bank's Plan.

	Threshold
	Minimum level of performance that must be achieved for awards to be paid.






Actual achievement of Bank goals is subject to adjustment for changes resulting from changes in financial strategies or policies, any significant change in Bank membership, as well as other factors determined by the Board. Impacts of OTTI credit charges are excluded from the achievement levels and measurement of performance for the Adjusted Return on Capital Spread component of the Franchise Enhancement Goal. Impacts of dividend benchmark variances to plan are excluded from the measurement of Adjusted Return on Capital Spread performance.  

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AWARD DETERMINATION AND OPPORTUNITY
All plan participant awards will be based on success in achieving individual and Bank goals, and on overall performance.  In the case of the Bank goals, the same achievement levels apply to all participants.  At yearend, accomplishments will be assessed and a percentage of achievement will be determined for each goal and any award determination shall be approved by the Board.
	
			
	Percentage of Goal Achievement Scale
	Aggregate Goal Achievement
	Award Range (Percentage of 2014 Base Salary)

	0% - 150%
	150% = Far Exceeds
	50%

	 
	125% = Exceeds
	48%

	 
	100% = Meets
	40%

	 
	75% = Threshold
	20%






For each goal, the percentage of achievement will be multiplied by the applicable goal weights.  Each weighted achievement will then be added to determine the total weighted achievement.  The basis for each participant’s award opportunity is total weighted achievement.  Total weighted achievement from Threshold achievement level (75-99%) is below the Meets achievement level and, therefore, results in an award less than one granted for achieving the Meets achievement level.  Total weighted achievement below the Threshold achievement level normally will not result in an incentive award.  The Board of Directors has full discretion to modify any and all goals, achievement levels, and incentive payments to account for matters not specifically addressed in the plan, subject to review by the Federal Housing Finance Agency, as required.  Incentive compensation reductions may be made, but are not limited to the following circumstances: (i) if errors or omissions result in material revisions to the Bank’s financial results, information submitted to a regulatory or a reporting agency, or information used to determine incentive compensation payouts; (ii) if information submitted to a regulatory or a reporting agency is untimely; or, (iii) if the Bank does not make appropriate progress in the timely remediation of examination, monitoring, or other supervisory findings and matters requiring attention.


APPROVAL OF INCENTIVE AWARDS
All incentive awards must be approved by the President and the Board of Directors prior to payment, including an award for achievement below Threshold.  Awards will be considered by the Board of Directors at the January 2015 Board meeting, or as soon thereafter as reasonably practicable.


TIMING OF PAYMENT OF INCENTIVE AWARDS
Payment of the an incentive award, if any, will be paid in the taxable year immediately following the end of the performance period and no later than 60 days after the date that the Board of Directors’ approval of such award becomes effective.


PLAN ADMINISTRATION AND IMPLEMENTATION
The President is responsible for overseeing the administration and interpretation of the plan.


The plan is intended to be exempt from Section 409A of the Internal Revenue Code and the provisions of the plan shall be construed and interpreted consistent with such intent.  
	
					
	2014 Executive Officer Goal Weights

	 
	Executive Vice President 
and Senior Vice Presidents
	Senior Vice President, Chief Risk Officer

	 
	Corporate Goal Weights
	Goal Weight (includes individual goals)
	Corporate Goal Weights
	Goal Weight (includes individual goals)

	Individual
	N/A
	10.0%
	N/A
	10.0%

	Risk Management
	30.0%
	27.0%
	60.0%
	54.0%

	Franchise Enhancement
	50.0%
	45.0%
	26.0%
	23.4%

	Community Investment
	20.0%
	18.0%
	14.0%
	12.6%

	Total
	100.0%
	100.0%
	100.0%
	100.0%






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. Executive Officer compensation and benefit programs are subject to Federal Housing Finance Agency review and oversight, and payments made under such programs may not become effective until after the Agency's non-objection under applicable laws and regulations in effect from time to time.



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	2014 Short-Term Incentive Plan Goals and Measures

									
	Goal
	Goal Component
	Goal Weight
	Goal Component Weight
	Goal Measures

	1)  RISK MANAGEMENT
	 
	30%
	 
	In the event of a Significant Deficiency or Material Weakness in internal control over financial reporting, a significant operations loss, or a significant noncompliance with Bank policy as described in the Bank’s Risk Management Policy, the Board of Directors will assess the impact and appropriate adjustment to the Risk Management goal achievement level, if any. 



	



	Benchmarking for Key Risk Management Functions


	 
	 
	75%:
	Identify and assess for relevance the resources to be used to benchmark and modify the operations and model risk management functions, and to modify the cyber security program.

	100%, 125%, or 150% achievement level is attained by completing any one, two, or all three, respectively, of the following benchmarking exercises:

	•
	Benchmark and modify as appropriate the operations risk management functions to industry and regulatory risk management standards and requirements.

	•
	Benchmark and modify as appropriate the model risk management functions to industry and regulatory risk management standards and requirements.

	•
	Assess cyber risk landscape, and benchmark and modify as appropriate the cyber security program to industry and regulatory risk management standards and requirements.

	2)  FRANCHISE ENHANCEMENT
	 
	50%
	 
	 

	 
	A)   Financial Performance
	 
	35%
	Adjusted Return on Capital Spread

	 
	75%
	100%
	125%
	150%

	 
	3.80%
	4.05%
	4.30%
	4.55%

	Achievement level targets and measured performance exclude OTTI credit charges.

	 
	B)  Front Office/Back Office (FOBO) Systems
	 
	25%
	75%:
	Back Office system is production-ready (running in parallel) by the end of the third quarter.

	100%:
	Back Office is in production by the yearend freeze date.

	125%:
	Back Office is in production by the end of the third quarter.

	150%:
	125% achievement and team delivers 1 or more maintenance releases by yearend.

	 
	C)  Member Business
	 
	20%
	 
	Advances and Letters of Credit (LC) Volume
Average Outstanding Daily Balance ($Bils)

	 
	75%
	100%
	125%
	150%

	 
	[*]
	[*]
	[*]
	[*]

	([*])

	 
	15%
	 
	Mortgage Partnership Finance (MPF)

	75%:
	$[*] million in aggregate MPF Portfolio & Xtra volume, plus [*] PFIs approved.

	100%:
	$[*] million in aggregate MPF Portfolio & Xtra volume, plus [*] PFIs approved.

	125%:
	$[*] million in aggregate MPF Portfolio & Xtra volume, plus [*] PFIs approved.

	150%:
	125% achievement and exit the MPF Pilot Group Stage and rollout of the program to eligible Bank membership.

	 
	5%
	 
	Letters of Credit Conversions (# of members)

	 
	75%
	100%
	125%
	150%

	 
	5
	7
	9
	11

	3)  COMMUNITY INVESTMENT
	 
	20%
	 
	 

	 
	A)  CIP/ACE/HPA Advances, Letters of Credit & AHEAD (# of members)
	 
	50%
	 
	75%
	100%
	125%
	150%

	 
	30
	33
	36
	39

	 
	B)  New CICA Products ($ Mils)
	 
	50%
	 
	75%
	100%
	125%
	150%

	 
	$650
	$750
	$850
	$950






[*]  Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portion.