Fannie Mae 2013 Annual Report Download - page 195

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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 salary, 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 salary, 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 salary, 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
salary 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.
Certain of the 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.
The Compensation Committee plans to review the company’s compensation recoupment policy and revise it as necessary to
comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act once rules implementing the Act’s clawback
requirements have been finalized by the SEC.
Stock Ownership and Hedging Policies
In January 2009, our Board eliminated our stock ownership requirements. We ceased paying new stock-based compensation
to our executives after entering into conservatorship in September 2008. All employees, including our named executives, are
prohibited from transacting in derivative securities related to our securities, including options, puts and calls, other than
pursuant to our stock-based benefit plans.
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 Chief Executive Officer 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. Compensation the company pays the named executives does not qualify as
performance-based compensation under section 162(m). We have not adopted a policy requiring all compensation to be
deductible under section 162(m). This approach allows us flexibility in light of the conservatorship.
2014 Compensation Matters
Beginning with deferred salary earned under the 2014 executive compensation program, the company will pay interest on
deferred salary to comply with IRS rules that became applicable with the termination of the company’s defined benefit
pension plans. This interest income accrues at one-half of the one-year Treasury Bill rate in effect on the last business day
immediately preceding the year in which the deferred salary is earned. For 2014, the rate is 0.065%, which is one-half of
0.13%, the one-year Treasury Bill rate as of December 31, 2013.
The Board and the Compensation Committee determined in early 2014 that an increase in Mr. Lerman’s compensation
arrangements was appropriate, because his 2013 total target compensation was significantly below market. Mr. Lerman’s
target total direct annual compensation was increased to $2,200,000 and consists of three components: (1) annual base salary
of $475,000; (2) annual fixed deferred salary of $1,065,000; and (3) target annual at-risk deferred salary of $660,000. The
change in Mr. Lerman’s compensation was made effective as of January 1, 2014. FHFA has approved the terms of Mr.
Lerman’s new compensation arrangements.