Fannie Mae 2006 Annual Report Download - page 194

• Mission Results: Fulfill Fannie Mae’s affordable housing mission goals by increasing liquidity to make
U.S. housing more affordable and making an impact in highly disadvantaged communities;
•Operations and Controls: Instill operational discipline into all functions, resulting in stronger processes,
reduced risk, and compliance with Sarbanes-Oxley requirements; and
•Customers and Employees: Renew the company’s culture to achieve the company’s objectives by
(a) demonstrating service, engagement, accountability, and good management; (b) reenergizing diversity
programs; and (c) renewing our people strategy.
Achievement of these corporate performance goals affected cash bonuses for management-level
employees throughout Fannie Mae, except for employees in our internal audit and compliance and ethics
departments. These employees’ bonuses were subject to the achievement of goals tailored to their
departments’ unique roles.
In conjunction with the establishment of corporate performance goals, in April 2006 the Compensation
Committee approved individual bonus award targets for each named executive. Award targets for
Mr. Mudd, Mr. Williams, and Mr. Levin were unchanged from those set in November 2005. The potential
bonus that could have been paid to each named executive at the target level of achievement against the
corporate and individual goals for 2006 is shown in the “Grants of Plan-Based Awards” table below.
Payment significantly above target would occur only in a year in which both the company and the
individual performed exceptionally well against goals.
In 2006, management provided the Compensation Committee with a mid-year update on progress against
the corporate performance goals. In January 2007, the Compensation Committee, with input from other
Board committees, evaluated corporate performance against the corporate performance goals and
determined that corporate performance for 2006 was at 110% of target.
For 2006, the Compensation Committee considered that Fannie Mae, among other achievements, made
progress toward our stability goal by resolving outstanding investigations by governmental agencies;
achieved our restatement goal by filing our 2004 Form 10-K and restating prior period financials;
successfully launched several major strategic business initiatives; restructured several business functions,
including technology and operations, to improve efficiency and generate cost savings; made progress on
building out controls and instilling operational discipline; and met our housing goals in a difficult
environment. While the Compensation Committee assesses each goal separately, it does not follow a pre-
established formula for assigning a weight to the corporate performance goals.
The Board (and, in the case of Mr. Mudd, the independent members of the Board) then determined, based
on the recommendation of the Compensation Committee, the individual bonus amounts for each named
executive based on the officer’s individual performance. These amounts are shown in the “Summary
Compensation Table” below.
•Long-Term Incentive Awards. Our compensation philosophy generally results in a greater portion of our
named executives’ compensation being stock-based than at companies in our comparator group. For 2006
performance, the Board and the Compensation Committee determined that, in light of Fannie Mae’s not
being a current filer, long-term incentive awards would be in the form of restricted shares of Fannie Mae
common stock or restricted stock units. In January 2007, the Board and the Compensation Committee
approved awards with the values shown above in the table titled “Compensation Paid or Granted for
2006.” These awards vest in four equal annual installments beginning in January 2008.
Is there any regulatory oversight of our compensation process?
Yes, our regulator, OFHEO, has a role in the compensation of our named executives and certain other officers
identified by OFHEO. As long as the Fannie Mae Capital Restoration Plan is in effect, we must obtain
OFHEO approval for non-salary compensation actions that relate to this group of executives. In addition,
OFHEO must approve any termination benefits we wish to offer to this group of executives. We also notify
OFHEO of all compensation programs intended primarily for executives.
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