Fannie Mae 2006 Annual Report Download - page 191

diverse. These companies have pay practices similar to ours and we compete with them for executive talent.
The members of the comparator group are initially selected by management with the assistance of its outside
executive compensation consultant, Johnson Associates, Inc. The composition of the comparator group is then
reviewed with the Compensation Committee. In 2006, we used the same comparator group as we did in 2005.
The members of our comparator group for 2006 were:
Allstate American Express American International Group
Bank of America Capital One CitiGroup
Countrywide Freddie Mac JP Morgan Chase
MetLife National City Prudential
SunTrust Banks U.S. Bancorp Wachovia
Washington Mutual Wells Fargo
For 2006 compensation, we used as a guideline the median, or 50
th
percentile, of the total of salary, bonus and
equity compensation paid at companies in our comparator group. In determining an executive’s compensation,
the Compensation Committee and Board were free to vary above or below the median if they determined it
was appropriate as a result of factors such as the experience and expertise of the executive, our need for
specific skill sets, and the executive’s performance. For particular positions, data from companies outside our
comparator group were used to provide a broader perspective and ensure that we had a comprehensive view of
the market for executives with certain specific skills or experience.
How do we use outside executive compensation consultants?
Management receives advice on executive compensation matters from the executive compensation consulting
firm of Johnson Associates, Inc. Johnson Associates provides no other services to Fannie Mae.
The Board of Directors retains the executive compensation consulting firm of Semler Brossy Consulting
Group to provide independent executive and board compensation information and advice. Semler Brossy
provides no other services to Fannie Mae.
What were the elements of compensation for our named executives for 2006, and why did we pay those
elements?
Compensation for our named executives for 2006 consisted of salaries, cash incentive bonuses, long-term
incentive awards, employee benefits and perquisites. We provided this compensation mix in order to maintain
a competitive compensation program and to reinforce our corporate objectives. Salary was paid on a bi-weekly
basis throughout the year, while annual bonuses and long-term incentive awards relating to 2006 performance
were paid or granted in January 2007.
Salary, Bonuses, and Long-Term Incentive Awards.
• Salary is the basic cash compensation for the executive’s performance of his or her job responsibilities. It
is intended to reflect the executive’s level of responsibility and individual performance over time.
• Annual incentive cash bonuses reward executives based on a combination of corporate and individual
performance during the year measured against pre-established corporate goals and individual goals
designed to align with the corporate goals. We also use sign-on bonuses or guaranteed first-year bonus
minimums from time to time to recruit executives with critical skills.
• Long-term incentive awards are stock-based awards that vest over a period of years. For 2006
performance, these awards were delivered in the form of restricted stock or restricted stock units with a
four-year vesting schedule. We believe that providing a significant portion of senior management
compensation through long-term incentive awards based on our common stock and with a multi-year
vesting schedule aligns the long-term interests of our senior management with those of our other
shareholders, reinforcing a shared interest in company performance. Long-term incentive awards may also
be used as sign-on bonuses to recruit executives.
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