Federal Home Loan Bank of Des Moines 2015 Incentive Plan Document

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 2015 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, 2015. 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 Board’s Human Resources and Compensation Committee (“HRC”) 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 annual 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:

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. To the extent the HRC establishes more than one goal, each goal will be weighted. Each goal 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 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 executives are weighted at 90% and include 70% based on the Bank-wide goals in Exhibit 1 and 20% based on certain Bank-wide goals related to the strategic imperative and strategies each executive is focused on in 2015. See Exhibit 2 (attached) for the Strategic Imperative Bank-wide weightings for each executive.

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 the Deferred Award will be paid at the end of the Deferral Period. The Deferred Award is designed to ensure that Bank management does not take short-term measures in 2015 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 2015 Performance Period, the 2015 Deferred Award is to be paid in 2019. The Deferred Award earned during the Performance Period will be impacted by the achievement level of economic value of capital stock (EVCS) in future periods. See Exhibit 3 (attached) for more information on the final determination of the Deferred Award.

Bank-wide performance goals focus staff’s efforts on the Bank’s Strategic Imperatives of Strengthen Partnership with Members, Disciplined Pursuit of Long-term Business Performance, Stewardship of our Public Mission and Merger Integration. These imperatives are outlined in the SBP.

The strategies underlying the Bank’s Strategic Imperatives reflect the Bank’s cooperative structure whereby 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 the risk management measures including the preservation of the enterprise value and the quality of the Bank’s risk management practices and results. 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 HRC will periodically review achievement on the incentive goals and 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 following provides additional detail on each of the goals and the weightings for each.

The Strengthen Partnership with Members goal is focused on building strong relationships and providing valuable products and services to members.  Success in achieving this goal is measured in three different ways, with each metric having a weight of 10% or 15%:

Success in achieving this goal is measured in four different ways, with each metric having a weight of 5%-10%.

 

Stewardship of our Public Mission (15% Total Weight)

This category aligns with the third strategic imperative in the Bank’s SBP. Success in achieving this goal will be measured in two ways, with both goals weighted at 7.5%.

Merger Integration (15% Total Weight)

As a result of the contemplated merger between the Bank and Federal Home Loan Bank of Seattle (FHLB Seattle), a fourth imperative has been added to the 2015-2017 SBP that is intended to provide strategic direction to the Bank with regard to its plan to merge with the FHLB Seattle. This goal will be measured based on the merger effective date of May 31, 2015 and achieving a successful merger (15%). See Exhibit 6 (attached) for more information.

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 2015 SBP.

Individual and/or team goals in the Plan are generally linked to the Bank’s 2015 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.

For the executives, individual and/or team goals account for 10% of the incentive opportunity, and awards will be based upon a performance evaluation assessing completion of role responsibilities, personal development plans, and demonstrating the Bank’s shared values.

Annual and Deferred Awards earned during the Performance Period are payable in 2016 and 2019, 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 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 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. Executive Management of the Bank will review, approve and submit to Human Resources the Plan Awards for their areas of responsibility. Executive Management 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 number of work days completed in the Performance Period. 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, as soon as possible after payout approval but in no case more than 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). All payments under the Plan shall in any event be made 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 number of days worked in the Performance Period. 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 EVCS 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 EVCS modifier. All awards will be payable in a single lump sum within 75 days 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 number of days worked in the Performance Period 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 EVCS 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 shall be made during 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.

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 of the Internal Revenue Code of 1986, as amended, and Treasury regulations relating thereto (“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.

level of cleanliness within 30 days of the merger by any means the business unit determines to be reasonable.

*The HRC will have discretion to adjust above or below target based on specific management actions that would warrant consideration above or below target performance. With such adjustment target achievement will be earned for a ratio within the SBP defined acceptable range of 60% to 80%.

**This imperative and goals are applicable only if the merger is approved.

The Deferred Award earned in 2015 will be paid in 2019. The actual amount of the award paid in 2019 will depend principally on the Bank’s performance in 2015, modified by the average EVCS in the year 2018 as provided below. Modifying the amount of award paid using the level of the Bank’s EVCS 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 2015 to secure a long-term incentive award in 2017 that would be detrimental to the Bank over the long-term.

The EVCS modifier for the Deferred Award is as follows:

For example, if the Bank were to achieve maximum on the 2015 Bank-wide business performance goals and individual/team goals and if EVCS were to average $110 per share or more in 2017, 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.

The table below provides additional information on the quality of risk management goal and what the Risk Committee will utilize to evaluate and score each element of risk.

  

Management will provide an assessment on achieving a successful merger to the Board’s Human Resources and Compensation Committee (HRC). The HRC will utilize the following table to evaluate and score each element. .

Threshold = 5

Target = 10

Maximum = 15

The HRC has the discretion to award above or below the achievement level based on facts and circumstances surrounding the accomplishment.

Threshold = Merger Effective date of May 31, 2015 is achieved– Score of 5