Fannie Mae 2009 Annual Report Download - page 209

Global Head, Capital Markets Operations and Institutional Clients Group Business Services. Before that, he
served in a series of senior finance positions, including as Chief Financial Officer of Citigroup International,
the European Investment Bank, and of Global Investment Management. Upon joining Citigroup in 1994,
Mr. Watson led the effort to build the infrastructure for a start-up interest rate and equity over-the-counter
derivatives business, which he ran until 1998.
Under our bylaws, each executive officer holds office until his or her successor is chosen and qualified or until
he or she resigns, retires or is removed from office.
Section 16(a) Beneficial Ownership Reporting Compliance
Our directors and officers file with the SEC reports on their ownership of our stock and on changes in their
stock ownership. Based on a review of forms filed during 2009 or with respect to 2009 and on written
representations from our directors and officers, we believe that all of our directors and officers timely filed all
required reports and reported all transactions reportable during 2009. However, William Senhauser reported
one 2008 transaction late.
Item 11. Executive Compensation
COMPENSATION DISCUSSION AND ANALYSIS
Executive Summary
Our Board of Directors approved a new executive compensation program in December 2009, which we have
used for 2009 compensation actions. The new program and our 2009 compensation actions were approved by
FHFA in consultation with the Department of the Treasury. The new program represents a change from our
previous executive compensation structure and also takes into account the extraordinary market environment
and conditions the company is facing and taking actions to address.
The Board of Directors and FHFA believe that our new executive compensation program reflects evolving
standards regarding executive compensation and will also enable us to recruit and retain well-qualified
executives. Although we did not receive funds pursuant to the Troubled Asset Relief Program (“TARP”), the
new executive compensation program follows the same general structure of compensation arrangements
approved by Treasury’s Special Master for TARP Executive Compensation for top executives at financial
institutions that have received exceptional TARP assistance, except that our program reflects our different
circumstances. As described in more detail below, our new executive compensation structure consists of three
primary elements: base salary, deferred pay and a performance-based long-term incentive award. Elements of
our new compensation structure also adopt or expand on compensation reforms advanced by Treasury’s
Special Master for TARP Executive Compensation. For example, we have implemented forfeiture and
repayment provisions, or “clawbacks.” These clawbacks, which are more extensive in scope than the
clawbacks required for senior executives at TARP-assisted firms, provide for an executive officer to repay
some or all of his or her deferred pay and long-term incentive awards in the event his or her gross misconduct
or gross negligence materially harms the company, he or she is convicted of a felony, or he or she has been
granted deferred pay or long-term incentive awards based on materially inaccurate performance metrics.
Given Fannie Mae’s essential role in supporting the housing and mortgage markets during this critical time,
attracting and retaining high-quality executives remains a top priority of both the Board of Directors and
FHFA. FHFA’s Acting Director has stated that he believes it is critical to protect the taxpayer interests in
Fannie Mae and Freddie Mac by ensuring that each company has experienced, qualified people managing
day-to-day business operations in the midst of the current uncertainty over the future of both companies, and
that any other approach puts at risk the management of more than $5 trillion in mortgage holdings and
guarantees that are supported by taxpayers through the senior preferred stock purchase agreements with
Treasury.
In making specific compensation determinations for 2009, the Board of Directors and FHFA also sought to
recognize that the company and its management worked diligently in an extraordinarily challenging market
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