Fannie Mae 2004 Annual Report Download - page 230

Employment Agreement with Daniel Mudd, President and Chief Executive Officer
On November 15, 2005, we entered into a new employment agreement with Mr. Mudd, effective June 1, 2005
when he was appointed our President and Chief Executive Officer. We described this agreement in a Form 8-K
filed on November 15, 2005. The major terms of the agreement are as follows:
•Employment Term. Through December 31, 2009.
•Base Salary. Mr. Mudd’s annual base salary will be no lower than $950,000. This base salary is subject
to periodic review and possible increases, but not decreases, by the Board of Directors. Compensation
arrangements for Mr. Mudd are determined annually by the Board of Directors (excluding Mr. Mudd and
any other non-independent members of the Board) upon the recommendation of the Compensation
Committee of the Board of Directors. Mr. Mudd’s annual salary from June 1, 2005 was $950,000 and his
2006 salary remains the same.
•Annual Bonus. The amount of any cash bonus Mr. Mudd receives may be less than, equal to, or greater
than his target amount, depending on corporate and individual performance, and subject to prior approval
from OFHEO while the company is subject to its capital restoration plan. Mr. Mudd’s annual cash bonus
target award from June 1, 2005 was 275% of his base salary, and his bonus target award for 2006 remains
the same.
•Executive Pension Plan. Mr. Mudd is entitled to participate in our Executive Pension Plan and our
Supplemental Pension Plans described above. The Executive Pension Plan supplements the benefits
payable to key officers under the Fannie Mae Retirement Plan. Mr. Mudd’s employment agreement
provides that his pension goal will be at least 50% of the average total compensation for the 36
consecutive months of his last 120 months of employment when total compensation was the highest.
Mr. Mudd’s pension goal is currently set at 50%. Mr. Mudd’s total compensation for a given year includes
other taxable compensation up to 100%, not 50%, of his annual base salary for that year. If he retires
before reaching age 60, his pension goal will be reduced by 3 percentage points, rather than the
2 percentage points reduction generally applicable to participants in the plan, for each year in which he
receives benefits prior to age 60. In addition, if his benefit payment is in the form of a joint and 100%
survivor annuity, it will be actuarially reduced to reflect the joint life expectancy of Mr. Mudd and his
spouse.
•Equity and Incentive Awards. During the employment term, Mr. Mudd is eligible to be considered for
awards under our stock option, restricted stock, annual incentive and performance share programs, all in
accordance with our compensation philosophy and programs that are in effect from time to time. Under
our capital restoration plan, we must obtain the approval of OFHEO prior to providing Mr. Mudd with
any non-salary compensation awards.
•Life Insurance. During the employment term, Mr. Mudd is eligible to receive life insurance benefits in
accordance with our life insurance policies and programs that are in effect from time to time.
•Fringe Benefits. Mr. Mudd is eligible to receive certain fringe benefits in accordance with our policies,
including legal expenses incurred in negotiating his employment agreement and reimbursement for a
complete annual physical examination. He is also eligible to participate generally in company benefit
programs that are from time to time in effect and in which our other senior officers generally are entitled
to participate.
•Clawback. Mr. Mudd’s bonus and other incentive-based or equity-based compensation will be subject to
reimbursement to us if required by Section 304 of the Sarbanes-Oxley Act of 2002 or provisions of our
compensation plans and arrangements, notwithstanding any provisions of the agreement to the contrary.
Mr. Mudd’s employment agreement provides for certain benefits upon the termination of his employment with
us depending on the reason for his termination:
•Termination without Cause, for Good Reason or upon expiration of the agreement. Mr. Mudd’s
employment agreement provides that if we terminate him without “Cause,” or if Mr. Mudd terminates his
225