Fannie Mae 2009 Annual Report Download - page 223

of his or her duties for the company, engaging in gross misconduct or performing his or her duties in a
grossly negligent manner, or (b) been convicted of, or pleaded nolo contendere with respect to, a felony.
•Subsequent Determination of Cause. If an executive officer’s employment was not terminated for cause,
but the Board of Directors later determines, within a specified period of time, that he or she could have
been terminated for cause and that the officer’s actions materially harmed the business or reputation of the
company,the officer will forfeit or must repay, as the case may be, deferred pay, long-term incentive
awards and any other incentive payments received by the officer to the extent the Board of Directors
deems appropriate under the circumstances. The Board of Directors may require the forfeiture or
repayment of all deferred pay, long-term incentive awards and any other incentive payments so that the
officer is in the same economic position as if he or she had been terminated for cause as of the date of
termination of his or her employment.
•Effect of Willful Misconduct. If an executive officer’s employment: (a) is terminated for cause (or the
Board of Directors later determines that cause for termination existed) due to either (i) willful misconduct
by the officer in connection with his or her performance of his or her duties for the company or (ii) the
officer has been convicted of, or pleaded nolo contendere with respect to, a felony consisting of an act of
willful misconduct in the performance of his or her duties for the company and (b) in the determination
of the Board of Directors, this has materially harmed the business or reputation of the company, then, to
the extent the Board of Directors deems it appropriate under the circumstances, in addition to the
forfeiture or repayment of deferred pay, long-term incentive awards and any other incentive payments
described above, the executive officer will also forfeit or must repay, as the case may be, deferred pay
and annual incentives or long-term awards paid to him or her in the two-year period prior to the date of
termination of his or her employment or payable to him or her in the future. Misconduct is not considered
willful unless it is done or omitted to be done by the officer in bad faith or without reasonable belief that
his or her action or omission was in the best interest of the company.
The forfeiture and repayment provisions described above do not apply to payments to executive officers under
the 2008 Retention Program.
Certain of the bonus or other incentive-based or equity-based compensation for our Chief Executive Officer
and Chief Financial Officer also may be subject to a requirement that they be reimbursed to the company in
the event that Section 304 of the Sarbanes-Oxley Act of 2002 applies to that compensation.
What are our stock ownership and hedging policies?
In January 2009, our Board eliminated our stock ownership requirements because of the difficulty of meeting
the requirements at current market prices and because we had ceased paying our executives stock-based
compensation. All employees, including our named executives, are prohibited from purchasing and selling
derivative securities related to our equity securities, including warrants, puts and calls, or from dealing in any
derivative securities other than pursuant to our stock-based benefit plans.
How does section 162(m) limit the tax deductibility of our compensation expenses?
Subject to certain exceptions, section 162(m) of the Internal Revenue Code imposes a $1 million limit on the
amount that a company may annually deduct for compensation to its CEO and certain other named executives,
unless, among other things, the compensation is “performance-based,” as defined in section 162(m), and
provided under a plan that has been approved by the shareholders. Given the conservatorship, the desire to
maintain flexibility to promote our corporate goals and our projected tax losses, we have not adopted a policy
requiring all compensation to be deductible under section 162(m). In particular, awards under the 2008
Retention Program received by the named executives in 2009 do not qualify as performance-based
compensation under section 162(m). In addition, deferred pay and long-term incentive awards for 2009
performance are not structured to qualify as performance-based compensation under section 162(m).
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