Fannie Mae 2005 Annual Report Download - page 284

stock awards, restricted stock units or stock bonus awards. In connection with our stock-based compensation
plans, we recorded compensation expense of $33 million, $105 million and $113 million for the years ended
December 31, 2005, 2004 and 2003, respectively. The amount for 2005 includes a $64 million benefit related
to the reversal of amounts previously recorded under our Performance Share Program.
Stock-Based Compensation Plans
The 1985 Employee Stock Purchase Plan (the “1985 Purchase Plan”) provides employees an opportunity to
purchase shares of Fannie Mae common stock at a discount to the fair market value of the stock during
specified purchase periods. Our Board of Directors sets the terms and conditions of offerings under the 1985
Purchase Plan, including the number of available shares and the size of the discount. In 2004, our shareholders
approved the Board of Directors’ recommendation to increase the aggregate maximum number of shares of
common stock available for employee purchase to 50 million from 41 million. Since its inception in 1985, we
have made available 38,039,742 shares under the 1985 Purchase Plan. In any purchase period, the maximum
number of shares available for purchase by an eligible employee is the largest number of whole shares having
an aggregate fair market value on the first day of the purchase period that does not exceed $25,000. The
shares offered under the 1985 Purchase Plan are authorized and unissued shares of common stock or treasury
shares.
The Stock Compensation Plan of 2003 (the “2003 Plan”) is the successor to the Stock Compensation Plan of
1993 (the “1993 Plan”). By its terms, no new awards were permitted to be made under the 1993 Plan after
May 20, 2003 other than automatic grants of restricted stock to directors joining our Board of Directors on or
prior to May 22, 2006. The 2003 Plan, like the 1993 Plan, enables us to make stock awards in various forms
and combinations. Under the 2003 Plan, these include stock options, stock appreciation rights, restricted stock,
restricted stock units, performance share awards and stock bonus awards. The aggregate maximum number of
shares of common stock available for award to employees and non-management directors under the 2003 Plan
is 40 million. Since its inception in 2003 and after the effects of cancellations, we have awarded
5,997,925 shares under this plan. The shares awarded under the 2003 Plan may be authorized and unissued
shares, treasury shares or shares purchased on the open market.
Stock-Based Compensation Programs
Nonqualified Stock Options
Under the 2003 Plan, we may grant stock options to eligible employees and non-management members of the
Board of Directors. Generally, employees and non-management directors cannot exercise their options until at
least one year subsequent to the grant date, and they expire ten years from the date of grant. Typically, options
vest 25% per year beginning on the first anniversary of the date of grant. The exercise price of each option
was equal to the fair market value of our common stock on the date we granted the option. Since 2003, we
have recorded compensation expense for grants under this plan under SFAS 123. We recorded compensation
expense related to nonqualified stock options of $23 million, $34 million and $20 million for the years ended
December 31, 2005, 2004 and 2003, respectively.
Under the 1993 Plan, our Board of Directors approved the EPS Challenge Option Grant in January 2000 for
all regular full-time and part-time employees. At that time, all employees, other than management group
employees, received a one-time grant of 350 options at an exercise price of $62.50 per share, the fair market
value of the stock on the grant date. Management group employees received option grants equivalent to a set
percentage of the value of their November 1999 long-term incentive award. Grants provided to new or
promoted employees after the initial one-time grant were awarded on a pro rata basis with an exercise price
based on the fair market value of the stock on the dates these subsequent grants were made. EPS Challenge
Option Grants were scheduled to vest over a stated time period with accelerated vesting if we met target
financial performance goals in 2003 based on a pre-determined earnings per share amount set by the Board of
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FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)