Fannie Mae 2004 Annual Report Download - page 325

Under the Plus Component of the plan, we did not award any stock grants for the 2004 offering because we
were unable to determine whether the performance criteria had been met because we did not have financial
data on which we could rely to make the determination. Instead, the Compensation Committee of the Board of
Directors replaced the Plus Component of the offering with a cash payment of $2,500 to each eligible
employee. Under the Plus Component for the 2003 offering, employees received 177,475 shares in 2004. The
Plus Component was not part of the 2002 offering.
The ESPP Component under the program is considered to be compensatory under SFAS 123 due to certain
option features. Therefore, we recognized compensation expense for grants of $13 million and $12 million in
2004 and 2003, respectively. Prior to our adoption of SFAS 123, we did not recognize compensation expense
related to the ESPP. The Plus Component of the program is also compensatory. As such, we recorded
compensation expense of $1 million and $11 million related to the stock grants in 2004 and 2003, respectively.
The 2004 amount was lower than the 2003 amount due to $12 million of expense recorded for the cash
payments made as a replacement of the stock grants, as discussed above. There were no grants under this
component of the program in 2002.
Performance Share Program
Under the 1993 and 2003 Plans, certain eligible employees may be awarded performance shares. This program
has only been made available to Senior Vice Presidents and above. Under the plans, the terms and conditions
of the awards are established by the Compensation Committee for the 2003 Plan and by the non-management
members of the Board of Directors for the 1993 Plan. Performance shares become actual awards of common
stock if the goals set for the multi-year performance cycle are attained. At the end of the performance period,
we distribute common stock in two or three installments over a period not longer than three years as long as
the participant remains employed by Fannie Mae. Generally, dividend equivalents are earned on unpaid
installments of completed cycles and are paid at the same time the shares are delivered to participants. The
aggregate market value of performance shares awarded is capped at three times the stock price on the date of
grant. The Board authorized and granted 517,373 shares, 466,216 shares and 505,588 shares for the three-year
performance periods beginning in January of 2004, 2003 and 2002, respectively. Performance shares had a
weighted average grant date fair value of $71.83, $64.24 and $75.56 in 2004, 2003 and 2002, respectively.
Outstanding contingent grants of common stock under the Performance Share Program as of December 31,
2004 totaled 381,920, 423,251, 585,341 and 286,549 for the 2004-2006, 2003-2005, 2002-2004 and 2001-2003
performance periods, respectively. We recorded compensation expense for these grants of $24 million,
$55 million and $34 million in 2004, 2003 and 2002, respectively. These shares have not been issued because
the Compensation Committee has not yet determined if we achieved our goals for each period due to the
restatement. A determination as to payment for this program will be made by the Board of Directors after
reviewing the restated consolidated financial results and assessing its impact on the quantitative measures as
well as considerations of qualitative measures.
Restricted Stock Program
Under the 1993 and 2003 Plans, employees may be awarded grants as restricted stock awards (“RSA”) and,
under the 2003 Plan, also as restricted stock units (“RSU”), depending on years of service and age at the time
of grant. Each RSU represents the right to receive a share of common stock at the time of vesting. As a result,
RSUs are generally similar to restricted stock, except that RSUs do not confer voting rights on their holders.
By contrast, the RSAs do have voting rights. Vesting of the grants is based on continued employment. In
general, grants vest in equal annual installments over three or four years beginning on the first anniversary of
the date of grant. The compensation expense related to restricted stock is based on the grant date fair value of
our common stock.
In 2004, we awarded 668 shares of restricted stock under the 1993 Plan and 1,035,891 shares of restricted
stock under the 2003 Plan. We released 244,535 shares in 2004 as awards vested. In 2003, we awarded
506,625 shares of restricted stock under the 1993 Plan and 65,624 shares of restricted stock under the 2003
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FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)