Federal Home Loan Bank of Des Moines 2018 Incentive Plan

The Federal Home Loan Bank of Des Moines (“Bank”) strives to attract, retain and motivate employees of the Bank, and to focus its employees’ efforts on fulfilling the Bank’s mission and vision within a safe and sound framework and in a manner consistent with the Bank’s shared values. This 2018 Incentive Plan (“Plan”) is designed to compensate Bank employees in a manner consistent with these goals by:

The Plan is effective for the calendar year beginning January 1, 2018. Awards earned during the Performance Period under the Plan (“Plan Awards”) fall into two separate subcategories: “Annual Awards” and “Deferred Awards.” (See Section VI., Definitions, for a description of these terms).

The Plan shall remain in effect until the Human Resources and Compensation Committee (“HRC”) of the Board of Directors (“Board”) terminates, replaces or amends the Plan.

All regular full-time and part-time (working at least 20 hours/week) employees are eligible to participate in the Plan, with the exception of the Internal Audit Department employees who may be eligible to participate in a separate incentive plan as approved by the Board’s Audit Committee. Temporary employees, interns or independent contractors are not eligible to participate in the Plan.

The Plan includes two components:

• Bank-wide business performance goals aligned with the Bank’s SBP. These will be quantitative goals tied to the Bank’s business and mission activities, profitability, operational risk management, operational excellence, and diversity and inclusion initiatives.

• Individual and/or team goals for achievement of other objectives tied to the strategic imperatives in the Bank’s SBP of Member Focus, Financial Management, People and Culture, and Operational Excellence. Every employee will have an individual goal tied to continuous improvement that will have a 20 percent weighting.

The Plan is designed to emphasize overall Bank performance for officers and certain other professionals and more specific operationally-focused goals related to particular areas of responsibility for other employees that provide a “line of sight incentive.”

Each calendar year the HRC shall establish one or more Bank-wide performance goals, consistent with the SBP in effect during the Performance Period. Each goal will be weighted, and shall have a threshold, target, and maximum level of performance, as appropriate.

Each calendar year, employees and their managers will develop individual and/or team goals in alignment with the strategic imperatives and strategies included in the SBP.

Recognizing that circumstances and priorities may change, management may submit to the HRC recommended revisions to Bank-wide performance goals. The HRC will evaluate the submission and determine whether the Bank-wide performance goals should be amended. Management may authorize changes to individual and/or team goals throughout the Performance Period as priorities and circumstances dictate.

Bank-wide performance goal achievement levels that discretely fall in between threshold, target and maximum performance levels will be interpolated, unless otherwise directed in the design of a particular performance goal.

The total incentive target is a weighted average of the Bank-wide performance goals and individual and/or team goals.

The following chart provides the threshold, target and maximum Plan Award percentage payout opportunities for each level in the Bank, and associated weights for Bank-wide performance goals and individual and/or team goals. The chart also provides the portion of each Plan Award, if any, that is a Deferred Award. (The classifications are representative titles and may or may not represent the exact titles for each tier.)

The actual threshold, target, and maximum achievement levels for the Bank-wide performance goals in the Plan are presented in Exhibit 1 (attached).

Bank-wide performance goals for the President and CEO, Executive Vice Presidents and Senior Vice Presidents are weighted at 100% based on the Bank-wide goals in Exhibit 1.

As noted above, for employees classified in Tiers 1-4, a portion of the Plan Award will be paid as an Annual Award in the year following the Performance Period and as a Deferred Award at the end of the Deferral Period. The Deferred Award is designed to ensure that Bank management does not take short-term measures in 2018 to secure incentive compensation that could be detrimental to the long-term value of the Bank. This will ensure that management continues to operate the Bank in a profitable and prudent manner for the long-term value of its members.

 

For the 2018 Performance Period, the 2018 Deferred Award is to be paid in 2022. The Deferred Award earned during the Performance Period will be impacted by the achievement level of Market Value of Capital Stock (MVCS) in future periods. See Exhibit 2 (attached) for more information on the final determination of the Deferred Award.

As a cooperative, the Bank needs to satisfy the expectations of members as both shareholders and customers. Fulfilling that cooperative mission must be done in a prudent manner so as to preserve the par value of capital stock, which is the rationale for including risk management measures among the Bank’s performance goals.

All employees should have a portion of their incentive potential tied to Bank-wide performance so that everyone in the Bank, regardless of their role or level in the organization, thinks about delivering value to the members, managing the Bank effectively and efficiently, and doing so within an appropriate risk and mission framework.

Given the environment in which the Bank operates, the Board will periodically review achievement on the incentive goals and the HRC may consider changes to the goals as appropriate and subject to the review and non-objection of the FHFA. Structural changes in the financial services sector driven by factors largely outside the Bank’s control (such as legislative changes) may necessitate wholesale changes in how the Bank’s executives and other employees are rewarded.

The threshold, target, and maximum achievements levels for the Bank-wide performance goals listed in the attached Exhibit 1 are calibrated based on results from previous years and projections in the Bank’s 2018-2020 SBP.

The nature of individual and/or team goals varies depending on the individual’s role and level in the organization. For example, an individual in the Enterprise Risk Management department might have individual and/or team goals focused on improving the Bank’s risk management infrastructure, while an employee in the Credit Sales department might be focused on developing new or enhanced products for the members. However, all employees will have an individual goal tied to continuous improvement.

Annual and Deferred Awards earned during the Performance Period are payable in 2019 and 2022, respectively, and are subject to HRC approval. Notwithstanding the formulaic computations of the Plan payouts based on incentive goal achievement levels, actual payouts under the Plan are subject to the HRC’s review and approval and are made at the HRC’s discretion subject to prior review and non-objection by the Federal Housing Finance Agency (“FHFA”) for the Bank’s Named Executive Officers (“NEOs”).

The HRC shall consider the relevant facts and circumstances and reduce incentive awards commensurate with the materiality of the exception relative to the Bank’s financial and operational performance and financial reporting responsibilities.

The HRC also may determine a participant is not eligible to receive part or all of any Plan Award payouts. Events that may justify such HRC action may include, but are not limited to, the following:

As soon as feasible after the conclusion of each Performance Period, the HRC shall review the Bank’s performance against its Bank-wide performance goals, and if appropriate, shall approve the payout, if any.

As soon as feasible after conclusion of each Performance Period, the responsible manager will determine the achievement and performance levels of individual and/or team goals for participants. The Executive Team (President and CEO, Executive Vice Presidents, the Chief HR and Administrative Officer and the General Counsel) of the Bank will review, approve and submit to Human Resources the Plan Awards for their areas of responsibility. The Executive Team and Human Resources will together calibrate the individual and/or team payouts across the Bank. Human Resources, after considering each participant’s performance against individual’s goals, shall recommend to the HRC the payout levels for approval.

Plan Awards are determined based on the participant’s actual earned base salary or wages for hours worked, including overtime and hours paid under the Bank’s paid time off policies, as applicable, but in any case excludes any bonus, incentive compensation, severance payments, or long-term disability insurance payments paid for the current or a prior year. In the event a participant receives a raise during a calendar year, the participant’s compensation for the year will reflect the actual wages paid to the participant for the year. A participant who has a hire date prior to the beginning of the Performance Period is eligible to receive a full Plan Award. A participant who has a hire date after the beginning of the Performance Period is eligible to receive a prorated Plan Award based on the employee’s eligible earnings earned during the Plan Year. A participant hired on or after October 1 of the Performance Period is not eligible to receive a Plan Award for the Performance Period in which they were hired.

Unless otherwise directed by the HRC, Plan Award payouts shall be made in a lump sum through regular payroll distribution, typically within 75 days after the end of the Performance Period (in the case of an Annual Award) or Deferral Period (in the case of the Deferred Award), but in any event by the end of the calendar year following the Performance Period or Deferral Period, as applicable, for which payout approval has been received. Appropriate provisions shall be made for any taxes that the Bank determines are required to be withheld from any payment under applicable laws or other regulations of any governmental authority, whether federal, state or local.

Employees whose employment ends before any Plan Award payout will not be eligible for award payouts under the Plan unless otherwise provided for herein or in any Executive Employment Agreement. The HRC has the sole discretion to determine whether a payout is made to the participant, and the amount of any such payout.

Employees whose termination occurs as the result of death or Disability shall be eligible to receive a prorated Plan Award for the Performance Period in which the termination occurs in an amount based upon the employee’s eligible earnings earned during the Plan Year. The prorated Plan Award for the Performance Period will be determined based upon actual achievement levels for Bank-wide performance goals and Target achievement levels for individual and/or team goals, and will not be subject to an MVCS modifier. Such employees will also be eligible to receive deferred awards earned but not yet approved for payout from periods occurring prior to the Performance Period. All payouts of deferred awards from prior periods will be based on actual achievement levels attained during such periods, and will not be subject to an MVCS modifier. All awards will be payable in a single lump sum typically within 75 days, but in any event by the end of the calendar year, following the end of the Performance Period that the death or Disability occurred.

Employees whose termination occurs as the result of a Retirement or Reduction in Force are eligible to receive a prorated Plan Award for the Performance Period in which the termination occurs in an amount based upon the employee’s eligible earnings earned during the Plan Year unless otherwise provided for herein or in any Executive Employment Agreement. The prorated Plan Award will be determined based upon actual achievement levels for Bank-wide performance goals and Target achievement levels for individual and/or team goals, and will not be subject to an MVCS modifier. Such employees will also be eligible to receive deferred awards earned but not yet approved for payout from periods occurring prior to the Performance Period. The amount of payouts on deferred awards from prior periods, as well as any portion of the prorated Plan Award that constitutes Deferred Awards, will be determined in accordance with the terms of the Plan unless otherwise provided for herein or in any Executive Employment Agreement. All payments will be made typically within 75 days, but in any event by the end of the calendar year, following the Performance Period or Deferral Period, as applicable.

A participant who is transferred, promoted, or demoted during a Performance Period may receive a prorated Plan Award based on the actual time in each position during the Performance Period. All payments will be made typically within 75 days, but in any event by the end of the calendar year, following the Performance Period or Deferral Period, as applicable.

An employee who receives an Annual Award under the Plan may defer the payment of the Annual Award by executing a timely deferral election under the BEP. Any election to defer the payment of an Annual Award must be made in compliance with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended, and Treasury regulations relating thereto (“Section 409A”), and the BEP. No election to defer the payment of an Annual Award shall become effective until twelve (12) months after the deferral election is made, and the payment of the Annual Award must be deferred for a period of at least five (5) years beyond the date such Annual Award would otherwise have been paid.

In the event an employee is considered a Specified Employee, payment of benefits under this Plan shall not commence until six months following the employee’s separation from service as defined under Section 409A.

The Bank’s Board of Directors is ultimately responsible for the Plan, including its amendment, replacement or termination. The HRC has the full power and authority of the Board to construe, interpret and administer the Plan. Any decision arising out of or in connection with the construction, interpretation or administration of the Plan lies within the HRC’s absolute discretion and is binding on all parties.

The HRC shall:

Day-to-day administration of the Plan is delegated to those in the Bank responsible for Human Resources functions.

The Plan, in whole or in part, may at any time or from time to time be amended, suspended or reinstated and may at any time be terminated by the HRC.

No amendment, suspension or termination of the Plan shall, without the consent of the participants, affect the rights of the participants to any payout previously approved by the HRC.

No participant has the right to alienate, assign, encumber, or pledge his or her interest in any payout under the Plan, voluntarily or involuntarily, and any attempt to do so is void.

This document is a complete statement of the Plan and supersedes all prior plans, representations and proposals written or oral relating to its subject matter. The Bank is not bound by or liable to any participant for any representation, promise or inducement made by any person which is not expressed in this document.

This Plan shall not be considered a contract of employment and nothing in the Plan shall be construed as providing participants any assurance of continued employment for any definite period of time, nor any assurance of current or future compensation. This Plan shall not, in any manner, limit the Bank’s right to terminate compensation and employment at its will, with or without cause.

Participation in the Plan and the right to receive awards under the Plan shall not give a participant any proprietary interest in the Bank or any of its assets. Nothing contained in the Plan shall be construed as a guarantee that the assets of the Bank shall be sufficient to pay any benefits to any person. A participant shall for all purposes be a general creditor of the Bank. Each payment shall be from the general assets of the Bank.

The Plan shall be construed in accordance with and governed by the State of Iowa except to the extent superseded by federal law.

It is intended that the awarding, vesting and payment of any award will comply with Section 409A, so as not to subject any participant to the payment of any interest or tax penalty, provided, however, that neither the Bank, the HRC, the Board, or any directors, officers, employees, consultants or other agents shall be liable to a participant or otherwise responsible for any such interest and tax penalties. Neither the Bank nor the employee may accelerate a payment into a calendar year not specified in the Plan nor defer or postpone a payment into a year following the calendar year specified in the Plan, except as may be permitted by Section 409A.

VI.    Definitions.

Excerpt from the “2018 Incentive Plan Document” (Plan): Notwithstanding the formulaic computations of the Plan payouts based on incentive goal achievement levels, actual payouts under the Plan are subject to the HRC’s review and approval and are made at the HRC’s discretion subject to prior review and non-objection by the Federal Housing Finance Agency (“FHFA”) for the Bank’s Named Executive Officers (“NEOs”). The Board of Directors has the final decision on incentive awards. The Board may consider a variety of objective and subjective factors to decide on the appropriate payouts including but not limited to: (i) operational errors or omissions that result in material revisions to the financial results, information submitted to the FHFA or data used to determine incentive payouts; (ii) untimely submission of information to the Securities and Exchange Commission (“SEC”), Office of Finance (“OF”), or the FHFA, or; (iii) failure to make sufficient progress, as determined by the FHFA, in the timely remediation of examination, monitoring, and other supervisory findings and matters requiring attention. The HRC shall consider the relevant facts and circumstances and reduce incentive awards commensurate with the materiality of the exception relative to the Bank’s financial and operational performance and financial reporting responsibilities.

The Deferred Award earned in 2018 will be paid in 2022. The actual amount of the award paid in 2022 will depend principally on the Bank’s average MVCS in 2021. Modifying the amount of award paid using the level of the Bank’s MVCS over the final year ensures that over the interim period, management continues to operate the Bank in a profitable and prudent manner. It also ensures that management does not take short-term measures in 2018 to secure a long-term incentive award in 2022 that would be detrimental to the Bank over the long-term.

The MVCS modifier for the Deferred Award is as follows:

For example, if the Bank were to achieve maximum on the 2018 Bank-wide business performance goals and individual/team goals and if MVCS were to average $110 per share or more in 2021, then the absolute maximum Deferred Award payouts under the Plan would be as follows:

 

In addition to the modifier described above, the HRC may consider other factors, including:

The HRC shall consider the relevant facts and circumstances and reduce incentive awards commensurate with the materiality of the exception relative to the Bank’s financial and operational performance and financial reporting responsibilities.