Freddie Mac 2010 Annual Report Download - page 315

Compensation Committee Report
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management
and, based on such review and discussion, has recommended to the Board that the Compensation Discussion and Analysis be
included in this Annual Report on Form 10-K.
This report is respectfully submitted by the members of the Compensation Committee of the Board.
Eugene B. Shanks, Jr., Chairman
Linda B. Bammann
Christopher S. Lynch
Clayton S. Rose
Compensation and Risk
Our management conducted an assessment of our compensation plans and programs that were in place during 2010 and
that were applicable to employees at all levels, including the Executive Compensation Program in which our executives
participate. The purpose of the assessment was to determine whether the design and operation of our compensation plans
create incentives for employees to take inappropriate risks that are reasonably likely to have a material adverse effect on us.
The assessment was conducted by members of our enterprise risk management and human resources teams, as well as by
Aon Hewitt, management’s compensation consultant.
The review included an evaluation of the mix of fixed and variable compensation; eligibility for participation in
incentive programs, the process by which target compensation levels are established, the process for establishing performance
objectives and for evaluating performance against those objectives, the methodology used to allocate the incentive funding
among divisions, departments, and individual employees (including maximum individual payout levels); and the involvement
of the Compensation Committee and FHFA in the compensation process. An evaluation was also made of the linkage
between corporate and divisional performance objectives.
The assessment was discussed with the Compensation Committee in December 2010. Management’s conclusion, with
which the Compensation Committee concurred, is that our compensation policies and practices do not create risks that are
reasonably likely to have a material adverse effect on us. In reaching this conclusion, management considered a number of
factors, including the following:
• Our compensation programs are designed to provide an appropriate mix of both fixed and variable compensation;
• The variable elements of compensation provide an appropriate mix of annual and multi-year incentives based on our
current state and objectives;
• We utilize a balanced set of financial and operational objectives for both the annual and multi-year incentive plans
that are focused on four key aspects of our operations: (a) mission; (b) financial and risk; (c) business infrastructure;
and (d) accounting and controls;
• Payouts under the annual and multi-year incentive plans are not formulaic in nature and the Compensation Committee
has the discretion to adjust the funding levels based on any factor or factors it determines to be relevant, which
mitigates the risk that employees will place an inappropriate focus on achievement of any single objective;
• The Compensation Committee’s oversight of our compensation plans and programs and, during conservatorship,
FHFA’s role in structuring and overseeing our compensation plans and programs; and
• Our adoption of a compensation recapture policy applicable to all senior officers that enables us to recoup certain
elements of previously paid compensation upon the occurrence of specified events, including payment based on
materially inaccurate financial information.
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