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Fannie Mae 10-K 2012 Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K/A (Amendment No. 1) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2011 Commission File No.: 0-50231 Federal National Mortgage Association (Exact name of registrant as specified in its charter) Fannie Mae
Registrant’s telephone number, including area code: (202) 752-7000 Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act: Common Stock, without par value (Title of class) 8.25% Non-Cumulative Preferred Stock, Series T, stated value $25 per share (Title of class) 8.75% Non-Cumulative Mandatory Convertible Preferred Stock, Series 2008-1 stated value $50 per share (Title of class) Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series S, stated value $25 per share (Title of class) 7.625% Non-Cumulative Preferred Stock, Series R, stated value $25 per share (Title of class) 6.75% Non-Cumulative Preferred Stock, Series Q, stated value $25 per share (Title of class) Variable Rate Non-Cumulative Preferred Stock, Series P, stated value $25 per share (Title of class) Variable Rate Non-Cumulative Preferred Stock, Series O, stated value $50 per share (Title of class) 5.375% Non-Cumulative Convertible Series 2004-1 Preferred Stock, stated value $100,000 per share (Title of class) 5.50% Non-Cumulative Preferred Stock, Series N, stated value $50 per share (Title of class) 4.75% Non-Cumulative Preferred Stock, Series M, stated value $50 per share (Title of class) 5.125% Non-Cumulative Preferred Stock, Series L, stated value $50 per share (Title of class) 5.375% Non-Cumulative Preferred Stock, Series I, stated value $50 per share (Title of class) 5.81% Non-Cumulative Preferred Stock, Series H, stated value $50 per share (Title of class) Variable Rate Non-Cumulative Preferred Stock, Series G, stated value $50 per share (Title of class) Variable Rate Non-Cumulative Preferred Stock, Series F, stated value $50 per share (Title of class) 5.10% Non-Cumulative Preferred Stock, Series E, stated value $50 per share (Title of class) 5.25% Non-Cumulative Preferred Stock, Series D, stated value $50 per share (Title of class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No þ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þ The aggregate market value of the common stock held by non-affiliates of the registrant computed by reference to the last reported sale price of the common stock quoted on the OTC Bulletin Board on June 30, 2011 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $383 million. As of January 31, 2012, there were 1,158,072,058 shares of common stock of the registrant outstanding. DOCUMENTS INCORPORATED BY REFERENCE: None
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Table of ContentsEXPLANATORY NOTE Fannie Mae (formally known as the Federal National Mortgage Association) is filing this Amendment No. 1 on Form 10-K/A (the “Amendment”) to its Annual Report on Form 10-K for the fiscal year ended December 31, 2011, filed with the Securities and Exchange Commission (“SEC”) on February 29, 2012 (the “Original Filing”), to: (1) amend and restate Part II, Item 9B to report certain changes to compensation arrangements with our named executive officers; and (2) amend and restate Part III, Item 11 to include the required disclosures that were omitted in the Original Filing pursuant to General Instruction G to Form 10-K. In accordance with Rule 12b-15 under the U.S. Securities Exchange Act of 1934 (the “Exchange Act”), Part II, Item 9B and Part III, Item 11 of the Original Filing have been amended and restated in their entirety, and Part IV, Item 15 of the Original Filing has been amended and restated to include as exhibits the new certifications required by Rule 13a-14(a) under the Exchange Act. This Amendment does not amend or otherwise update any other information in the Original Filing. Accordingly, this Amendment should be read in conjunction with the Original Filing. Item 9B. Other Information Termination Agreement with Former Deputy Chief Financial Officer David C. Hisey, our former Executive Vice President and Deputy Chief Financial Officer, left the company on February 24, 2012. We entered into a termination agreement with Mr. Hisey on February 28, 2012, the terms of which were approved by FHFA. The agreement provides that Mr. Hisey will receive $966,625, representing all of his corporate performance-adjusted 2011 deferred pay, in four installments on the same payment dates as other deferred pay recipients. The agreement also provides that Mr. Hisey may elect to receive outplacement services and a subsidy for up to 18 months of medical and dental premiums if he elects COBRA continuation coverage. The termination agreement provides that Mr. Hisey may not solicit or accept employment with or act in any way, directly or indirectly, to solicit or obtain employment or work for Freddie Mac for a period of 12 months following termination. Under the termination agreement, Mr. Hisey agreed to a general release of the company from all claims relating to his employment with or termination from the company. 2012 Executive Compensation Program On March 8, 2012, FHFA instituted new compensation arrangements for most of our named executives. See “Executive Compensation—Compensation Discussion and Analysis—2012 Executive Compensation Program” in Part III, Item 11 hereof for a description, which is incorporated herein by reference, of these new compensation arrangements. Compensation Recoupment Policy The Board revised the compensation recoupment policy applicable to our executive officers’ compensation effective March 8, 2012 to cover deferred salary under the executive compensation program adopted in March 2012 identified above. See “Executive Compensation—Compensation Discussion and Analysis—Compensation Recoupment Policy” in Part III, Item 11 hereof for a description, which is incorporated herein by reference, of this compensation recoupment policy.
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Executive Summary Our 2011 executive compensation program was developed in December 2009 after we entered into conservatorship. The program was approved by the Federal Housing Finance Agency (“FHFA”) in consultation with the Department of the Treasury. This Compensation Discussion and Analysis describes our compensation program that was in effect for 2011 executive compensation. As described below under “2012 Executive Compensation Program,” FHFA instituted a new executive compensation program for our named executives that is applicable for 2012 compensation. Our 2011 executive compensation program was designed to fulfill two primary objectives:
Attract and Retain Executive Talent Management and the Board of Directors appreciate the public interest in executive compensation at companies receiving taxpayer support and understand our responsibility for appropriate stewardship of those resources at Fannie Mae. A market-based, competitive executive compensation program is consistent with good stewardship of taxpayer support, as it enables us to attract and retain able and experienced executives who are essential to effectively manage our $3.1 trillion book of business. We require highly qualified executives to continue to mitigate the losses in the legacy book of business that was acquired prior to conservatorship, as well as to continue to grow the strong new book of business that we have acquired since 2009. We and FHFA believe that a failure to maintain a competitive compensation program could adversely affect our ability to attract and retain qualified executives, which would threaten our ability to continue to provide liquidity and stability to the mortgage market at this pivotal point for the U.S. housing finance system. Further, the departure of key executives could halt or reverse the progress we have made in mitigating losses on our legacy book of business and growing a strong new book of business, which could result in increased draws on Treasury or reduce the amounts we are able to pay Treasury in the future, thereby increasing taxpayer costs. We operate in a difficult environment and face an uncertain future, potential limitations on our executive and employee compensation, and heightened scrutiny of our actions by Congress and our regulators. These conditions have made it more difficult to attract and retain qualified executive management. We have already had significant executive departures since entering into conservatorship in September 2008 and, in January 2012, our current Chief Executive Officer announced that he will step down from his position when his successor is appointed. These conditions may also make succession planning more challenging if they negatively affect our ability to attract and retain qualified employees below the senior executive level that could fill our senior executive level positions if there is further turnover. We face competition from both within the financial services industry and from businesses outside of the financial services industry for qualified executives. These competitors do not face restrictions on their ability to pay market-based compensation to their executives. An improving economy is likely to create additional attractive opportunities for our executives, which could lead to further management turnover. Further turnover in key management positions could threaten our ability to fulfill our responsibilities under our Charter. Congress recognized the imperative of market-based executive compensation when enacting the Federal National Mortgage Association Charter Act, which provides for compensation for Fannie Mae executives that is
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Table of Contentscomparable with compensation for employment in other similar businesses, including other publicly held financial institutions or major financial services companies, involving similar duties and responsibilities. The Charter Act also provides that Fannie Mae base a significant portion of our executive officers’ potential compensation on the company’s performance. Although we recognize the importance of paying market-based executive compensation in order to attract and retain qualified executives, we also recognize that we must balance this objective with our conservatorship status and our efforts to reduce taxpayer costs. Management and the Board carefully consider the costs of executive compensation when making compensation determinations. We have substantially reduced these costs since entering into conservatorship in September 2008. Actual total direct compensation for our Chief Executive Officer for 2011 was more than 50% lower than such compensation for our Chief Executive Officer for 2007. Average actual total direct compensation for Fannie Mae’s other named executive officers for 2011 was more than 50% lower than such 2007 compensation for our other named executive officers. In addition to lower compensation levels, we also have reduced executive compensation by reducing the total number of our senior executives (senior vice presidents and above) by approximately 28% from the beginning of conservatorship through year-end 2011. We also seek to compensate newly hired executives at lower amounts than the executives they are replacing. In addition, FHFA has prohibited us from awarding compensation increases for our named executives, as well as for all other employees of the company, in 2011 and 2012, except in cases of promotions or significant changes in responsibilities. Our aggregate salary and employee benefit expense as a percentage of net revenues was 6% in 2011. The company and FHFA set total compensation targets for each named executive officer based on the position requirements and the executive’s expertise and experience. We and FHFA considered the compensation paid for these positions at comparable financial services companies, with which we must compete for talent. We describe the executive compensation benchmarking process under “Comparator Group and Role of Benchmark Data” below. In accordance with directives from FHFA, the Board of Directors did not increase the named executive officers’ compensation targets from 2009 levels in either 2010 or 2011. Further, as described below under “2012 Executive Compensation Program,” FHFA has directed us to reduce the target compensation of each named executive who remains employed by us by 10% in 2012. Link Pay to Performance As described in more detail below, our 2011 executive compensation program consisted of three elements: base salary, deferred salary and a long-term incentive award. In order to align pay with performance, the long-term incentive award is based on performance against corporate goals and individual performance, and 50% of deferred salary is based on performance against corporate goals. The Compensation Committee carefully evaluated our executives’ performance against the company’s performance goals to determine variable compensation for 2011. Our 2011 corporate performance goals were designed to support the company’s business objectives, which include providing liquidity to the housing market, mitigating credit losses on our pre-2009 book of business, reducing administrative expenses, meeting our obligations as program administrator of Treasury’s Making Home Affordable program, and improving the company’s controls and infrastructure. These goals were approved by FHFA. The Compensation Committee’s evaluation of the company’s performance against the 2011 performance goals concluded that the company achieved most of its goals in a challenging operating environment. The Committee determined that the company’s performance was strong in many areas: the company acquired and managed a high-quality book of new business that we expect will be profitable over its lifetime, provided significant liquidity to the housing market, controlled credit-related expenses on its pre-2009 loans, and limited administrative expenses. Based on its evaluation and considering input from FHFA, the Committee determined that the pools for the first installment of the 2011 long-term incentive awards and for the second installment of the 2010 long-term incentive awards for executive officers would be funded at 85% of target, and the performance-based portion of 2011 deferred salary would be paid at 85% of target. In making these decisions, the Committee also took into account that, while the company made significant progress in improving its infrastructure and risk and
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Table of Contentscontrols environment, it did not fully achieve all of the metrics relating to these goals. The Board of Directors and FHFA approved the Compensation Committee’s determinations. See “Determination of 2011 Compensation” for more information about how compensation of our named executives was determined. Named Executives for 2011 This Compensation Discussion and Analysis focuses on compensation decisions relating to our Chief Executive Officer, our Chief Financial Officer, our former Deputy Chief Financial Officer (who assumed the responsibilities of Chief Financial Officer from December 30, 2010 to July 10, 2011), and our next three most highly compensated executive officers during 2011. We refer to these individuals as our named executives. For 2011, our named executives were:
Impact of Conservatorship As discussed in the Original Filing under “Business—Conservatorship and Treasury Agreements—Conservatorship,” we have been under the conservatorship of FHFA since September 2008. The conservatorship has had a significant impact on the compensation received by our named executives, as well as the process by which executive compensation was determined. Regulatory requirements affecting our executive compensation include:
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Table of ContentsAs a result of these requirements, the 2011 compensation determinations for our named executives discussed in this Compensation Discussion and Analysis were approved by the Acting Director of FHFA. 2011 Executive Compensation Program Overview of Program Objectives and Structure Our 2011 executive compensation program was designed to fulfill two primary objectives:
Management, the Board of Directors and FHFA seek to balance these two objectives with our conservatorship status and our efforts to reduce taxpayer costs. In 2009, FHFA worked with our management and Board of Directors, and sought the guidance of Treasury’s Special Master for TARP Executive Compensation, to develop an executive compensation program that met these objectives and also reflected evolving standards regarding executive compensation and, to the extent appropriate, was generally consistent with the structural standards created for firms that received exceptional assistance under the Troubled Asset Relief Program, or TARP. The views of management and the Board of Directors in the development of this executive compensation program reflected input from management’s and the Compensation Committee’s compensation consultants. As a result of these efforts, in December 2009, we adopted a compensation program based on FHFA’s guidance consisting of three primary elements: base salary, deferred pay and a long-term incentive award. We now refer to the deferred pay element of our compensation program as “deferred salary” to better reflect our view of the nature of this compensation element and at FHFA’s direction to present our executive compensation information on a consistent basis with Freddie Mac. With regard to the relative distribution of total compensation among these elements, based on guidance from FHFA, we targeted the long-term incentive award component at one-third of total direct compensation, with base salary and deferred salary together constituting the remaining two-thirds of total direct compensation. In addition, based on guidance from FHFA, we limited annual base salary rates to no more than $500,000, except in the case of our Chief Executive Officer and Chief Financial Officer. All elements of our named executives’ direct compensation are paid in cash, due to the negligible market value of our common stock since entering into conservatorship and because we are prohibited from paying new stock-based compensation under the senior preferred stock purchase agreement without Treasury’s consent. FHFA, in consultation with Treasury, approved our compensation program and the level of salary, deferred salary target and long-term incentive target for each of our named executives. The Board and the Compensation Committee reviewed the compensation arrangements for the named executives in January 2011 and did not make any changes to the named executives’ salaries, deferred salary targets or long-term incentive targets for 2011. As described below under “2012 Executive Compensation Program,” FHFA instituted and the Board authorized management to implement a new executive compensation program and new compensation targets for the named executives that are applicable for 2012 compensation.
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Table of ContentsElements of 2011 Compensation Program Direct Compensation The table below summarizes the principal elements, objectives and key features of our 2011 compensation program for our named executives.
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Table of ContentsEmployee Benefits Our employee benefits are a fundamental part of our executive compensation program, and serve as an important tool in attracting and retaining senior executives. We describe these employee benefits in the table below. We provide more detail on our retirement plans under “Compensation Tables—Pension Benefits” and “Compensation Tables—Nonqualified Deferred Compensation.”
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Sign-on Award In addition to the direct compensation and employee benefits described in the tables above, from time to time, a new executive may be awarded a sign-on award to attract the executive to join Fannie Mae and/or to compensate him or her for compensation forfeited upon leaving a prior employer. As described in more detail under “Compensation Arrangements with our Chief Financial Officer,” our Board of Directors awarded a $1.7 million sign-on award to our new Chief Financial Officer, Susan R. McFarland, in July 2011 to partially compensate her for equity grants forfeited upon leaving her prior employer. No other named executive was awarded a sign-on award in 2011. Severance Benefits We have not entered into agreements with any of our named executives that would entitle the executive to severance benefits, other than the termination agreement with Mr. Hisey described below under “Compensation Tables—Potential Payments Upon Termination or Change-in-Control—Termination Agreement with our Former Deputy Chief Financial Officer.” Information on compensation that we may pay to a named executive in certain circumstances in the event the executive’s employment is terminated is provided below in “Compensation Tables—Potential Payments Upon Termination or Change-in-Control.” FHFA must approve any termination benefits we offer our named executives.
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Table of ContentsDetermination of 2011 Compensation Summary of 2011 Compensation Actions The table below displays the named executives’ 2011 compensation targets compared to the actual payments to be received by the named executives. The amounts shown in the “Total Target” and “Total Actual” columns consist of the sum of 2011 base salary, 2011 deferred salary and amounts associated with the first installment of the 2011 long-term incentive award and the second installment of the 2010 long-term incentive award. This table is not intended to replace the summary compensation table, required under applicable SEC rules, which is included below under “Compensation Tables—Summary Compensation Table for 2011, 2010 and 2009.”
2011 Corporate Performance Goals and Assessment of 2011 Corporate Performance In March 2011, the Board established a challenging set of 2011 corporate performance goals for the performance-based portion of 2011 deferred salary and the first installment of the 2011 long-term incentive award, as well as 2012 corporate performance goals for the second installment of the 2011 long-term incentive award. FHFA approved these goals in April 2011. In addition, in 2010, the Board established, and FHFA approved, 2011 corporate performance goals for the second installment of the 2010 long-term incentive award. The Board did not assign any relative weight to the goals and the Compensation Committee may consider other factors in addition to the goals in assessing corporate performance. In late 2011 and early 2012, the Compensation Committee reviewed our performance against each of our 2011 performance goals and related metrics to determine the funding of the pool for the first installment of the 2011 long-term incentive awards and the performance-based portion of 2011 deferred salary. The Compensation Committee also reviewed our performance against our 2010 performance goals and additional 2011 performance
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Table of Contentsgoals to determine the funding of the pool for the second installment of the 2010 long-term incentive awards. In this process, the Compensation Committee reviewed management’s assessment of the company’s performance against the goals and discussed the company’s performance with the Chief Executive Officer. The results of the Compensation Committee’s reviews are summarized below. 2011 Corporate Performance Goals The first table below presents our 2011 corporate performance goals and related metrics for the first installment of the 2011 long-term incentive award and the performance-based portion of 2011 deferred salary, and management’s assessment of our achievement against these goals and metrics. The second table below presents our 2011 goals for the second installment of the 2010 long-term incentive award, and management’s assessment of our achievement against these goals. The results of the Compensation Committee’s review of our performance against these goals and metrics are summarized following the tables. 2011 Long-term Incentive Award (First Installment) and 2011 Deferred Salary Goals
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2010 Long-term Incentive Award (Second Installment) Goals
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Table of ContentsInformation Regarding Undisclosed Profitability and Credit Quality Metrics We have chosen not to disclose the specific target and/or actual results for three of the performance metrics in the tables above because we believe that such disclosure would cause us competitive harm. The targets and/or results that we have not disclosed are those relating to our net revenue margin metric, our return on capital metric and our single-family credit quality metric. If our customers or competitors obtained this information, it would provide insight into our pricing strategy that these customers or competitors could use to our competitive disadvantage. For these three performance measures, management and the Board considered the company’s business goals, as well as the likelihood of achievement, when recommending and approving the target. Each target was designed to help achieve the company’s goal of acquiring a profitable, high-quality book of business from 2009 forward and was set at a level determined to be appropriate and achievable given the company’s expectations for future economic and housing market conditions. Management and the Board also considered the company’s historical performance relating to these metrics in setting the 2011 targets, as well as the extent to which achievement of the metrics were within management’s control or dependent on market or economic conditions. Some housing market and economic conditions were different in 2011 than our initial expectations at the time we set the targets for these three metrics, including interest rates and the proportion of mortgage originations consisting of refinances. These conditions generally contributed to the achievement of our profitability and single-family credit quality metrics. For example, interest rates decreased in the second half of 2011, leading to more refinance activity and higher-quality and more profitable single-family mortgage acquisitions than we originally anticipated. Compensation Committee Assessment of 2011 Corporate Performance The Compensation Committee agreed with management’s assessment of its performance against goals, as described in the tables above. The Committee determined that the company achieved most of its goals in a challenging operating environment. For example, the company:
In evaluating corporate performance, the Committee considered the challenging regulatory and operating environment and the challenges presented by management turnover. Additionally, the Committee took into account that, while the company made significant progress in improving its infrastructure and risk and controls environment, it did not fully achieve all of the metrics relating to these goals. In addition, for purposes of the second installment of the 2010 long-term incentive award, the Committee also considered the company’s performance against its 2010 performance goals. In evaluating the company’s performance against its goals, the Compensation Committee considered the company’s performance against the goals as a whole and did not assign specific weightings to any goal or metric. Based on its evaluation and considering input from FHFA, the Compensation Committee determined that the pools for the first installment of the 2011 long-term incentive awards and for the second installment of the 2010 long-term incentive awards for executive officers would be funded at 85% of target, and the performance-based portion of 2011 deferred salary would be paid at 85% of target. The Board of Directors and FHFA reviewed and approved these determinations.
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Table of ContentsAssessment of 2011 Individual Performance Overview. The amounts of the first installment of the 2011 long-term incentive awards and the second installment of the 2010 long-term incentive awards for the named executives took into account not only the company’s performance against the corporate goals and metrics described above, but also an assessment by the Board of Directors of each named executive’s performance during the applicable performance period, as well as retention considerations. The Board assessed the Chief Executive Officer’s performance with input from the Compensation Committee and assessed each other named executive’s performance with input from both the Compensation Committee and the Chief Executive Officer. Based on these assessments, the Board used its judgment and discretion to determine the amount of compensation it deemed appropriate for each named executive. We describe the Board’s determinations with respect to the first installment of each named executive’s 2011 long-term incentive award and the second installment of each named executive’s 2010 long-term incentive award, as well as the elements of each named executive’s performance the Board considered in making these determinations, below. FHFA has reviewed and approved these determinations. More information on the compensation arrangements for each of our named executives is set forth below in the “Summary Compensation Table for 2011, 2010 and 2009.” Michael Williams, President and Chief Executive Officer. The Board determined that the first installment of Mr. Williams’ 2011 long-term incentive award would be $714,000, which is approximately 71% of his target, and that the second installment of his 2010 long-term incentive award would be $777,000, which is approximately 78% of his target. Mr. Williams’ individual performance was evaluated based on the company’s performance against the corporate performance goals for the applicable performance periods, reflecting the fact that he is accountable for the success of the entire organization. In addition, other achievements not reflected in the corporate performance goals were considered. The Board determined that, under Mr. Williams’ leadership in 2011, the company met the majority of its corporate goals and subgoals, made solid progress in mitigating credit losses on its pre-2009 book of business and acquired a 2011 book of business with a strong credit profile that is expected to be profitable. The Board also recognized the company’s progress in improving its infrastructure and risk and controls environment, but determined that the company did not fully meet the corporate performance metrics in those areas. The Board also determined that, during his tenure as Chief Executive Officer, Mr. Williams has provided strong and steady leadership in an extraordinarily challenging period for the company and a difficult market environment, and has built and maintained good relationships with FHFA and Treasury. In addition, he has effectively managed turnover in senior management and has built a strong and effective executive management team. Susan McFarland, Executive Vice President—Chief Financial Officer. The Chief Executive Officer recommended to the Board that the first installment of Ms. McFarland’s 2011 long-term incentive award be $218,906, which is approximately 86% of her prorated target award. The Board approved this recommendation. In recommending the amount of Ms. McFarland’s long-term incentive award, the Chief Executive Officer considered Ms. McFarland’s many achievements since she joined the organization in July 2011, which included: introducing a new financial planning process, delivering a streamlined financial plan for 2012, improving the financial reporting close process, and restructuring the company’s finance organization. Because Ms. McFarland joined the company in 2011, she did not receive a 2010 long-term incentive award. See “Compensation Arrangements with our Chief Financial Officer” for further information regarding Ms. McFarland’s 2011 compensation. David Hisey, Executive Vice President—Deputy Chief Financial Officer. The Chief Executive Officer recommended to the Board that the first installment of Mr. Hisey’s 2011 long-term incentive award be $229,950, which is approximately 63% of his target, and that the second installment of his 2010 long-term incentive award be $268,275, which is approximately 74% of his target. The Board approved this recommendation. In recommending the amount of Mr. Hisey’s long-term incentive awards, the Chief Executive Officer considered Mr. Hisey’s assumption of the responsibilities of Chief Financial Officer from December 2010 to July 2011, his key role in the company’s work assisting FHFA’s servicing compensation initiative, his assistance in supporting
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Table of Contentsthe company’s strategic initiatives, and his support to our new Chief Financial Officer and the Finance organization during the leadership transition. Mr. Hisey left the company in February 2012. As described below under “Compensation Tables—Potential Payments Upon Termination or Change-in-Control—Termination Agreement with our Former Deputy Chief Financial Officer,” we entered into a termination agreement with Mr. Hisey in February 2012. David Benson, Executive Vice President—Capital Markets. The Chief Executive Officer recommended to the Board that the first installment of Mr. Benson’s 2011 long-term incentive award be $410,276, which is approximately 88% of his target, and that the second installment of his 2010 long-term incentive award be $410,277, which is approximately 88% of his target. The Board approved this recommendation. In recommending the amount of Mr. Benson’s long-term incentive awards, the Chief Executive Officer considered his many achievements in 2011, including serving as the company’s primary point of contact for Treasury and the Department of Housing and Urban Development, leading the development of the company’s strategic initiatives, and playing a lead role in three operating plan initiatives. The Chief Executive Officer also considered his outstanding leadership of the Capital Markets division. Under his effective leadership, the Capital Markets team exceeded their targets, implemented the Guaranteed Multifamily Structures (GEMS) program, and effectively managed the company’s liquidity risk. Terence Edwards, Executive Vice President—Credit Portfolio Management. The Chief Executive Officer recommended to the Board that the first installment of Mr. Edwards’ 2011 long-term incentive award be $439,582, which is approximately 94% of his target, and that the second installment of his 2010 long-term incentive award be $415,162, which is approximately 89% of his target. The Board approved this recommendation. In recommending the amount of Mr. Edwards’ long-term incentive award, the Chief Executive Officer considered Mr. Edwards’ outstanding leadership in transforming the credit portfolio management division and the many accomplishments of his division in 2011. These accomplishments included: completing nearly 250,000 home retention solutions and almost 80,000 foreclosure alternatives, developing and implementing a tool to standardize workout solutions, executing more than 240,000 REO sales while maintaining high gross execution rates, increasing the amount of funds collected from lenders on outstanding repurchase requests, and contributing to the reduction in the company’s seriously delinquent loan rate in 2011. The Chief Executive Officer also considered his leadership role in the servicing alignment initiative (SAI) and servicer total achievements reward system (STAR) program. Timothy Mayopoulos, Executive Vice President, Chief Administrative Officer, General Counsel and Corporate Secretary. The Chief Executive Officer recommended to the Board that the first installment of Mr. Mayopoulos’ 2011 long-term incentive award be $483,794, which is approximately 99% of his target, and that the second installment of his 2010 long-term incentive award be $468,355, which is approximately 96% of his target. The Board approved this recommendation. In recommending the amount of Mr. Mayopoulos’ long-term incentive award, the Chief Executive Officer considered his outstanding leadership of the Legal, Human Resources, Communications and Marketing Services, and Government and Industry Relations divisions of the company, as well as his leadership role in the company’s operating plan. His accomplishments in 2011 included: resolving the SEC’s investigation of the company, rebuilding the Communications and Marketing Services division, supporting FHFA, keeping the company apprised of major legislative developments, and overseeing the Human Resources division’s retention and recruiting efforts. Compensation Arrangements with our Chief Financial Officer Ms. McFarland joined the company in July 2011. Her total annual direct compensation target for 2011, prior to the proration described below, was $3.2 million, consisting of: (1) $600,000 in base salary; (2) a $1,533,333 deferred salary target, payable in four equal installments in 2012; and (3) a $1,066,667 long-term incentive award target, payable in two installments in 2012 and 2013. Ms. McFarland’s 2011 base salary and 2011 long-term incentive award were prorated based on her hire date; her 2011 deferred salary was not prorated. In addition to this compensation, Ms. McFarland was awarded a $1.7 million sign-on award to partially compensate her for equity grants forfeited upon leaving her prior employer, which is to be paid as follows: $900,000 in July 2011, $600,000 in the first quarter of 2012, and $200,000 in July 2012. Each of these payments
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Table of Contentsis subject to repayment if Ms. McFarland leaves Fannie Mae within one year after the payment. We also agreed to provide Ms. McFarland with up to $100,000 in relocation benefits to facilitate her move to the Washington, D.C. area. See “Compensation Tables—Summary Compensation Table for 2011, 2010 and 2009” below for additional information regarding Ms. McFarland’s 2011 compensation. Other Executive Compensation Considerations Role of Compensation Consultants Our 2011 executive compensation program was developed in 2009 with assistance from the company’s outside compensation consultant, McLagan, and the Compensation Committee’s independent compensation consultant, Frederic W. Cook & Co., Inc. (“FW Cook”). In 2011, McLagan advised management, the Compensation Committee and FHFA on various compensation and human resources matters, including:
In 2011, FW Cook advised the Compensation Committee and the Board on various executive compensation matters, including:
FW Cook did not provide any services to management in 2011. Comparator Group and Role of Benchmark Data In 2009, the Compensation Committee selected the following comparator group of 18 companies for benchmarking named executive compensation:
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Table of ContentsFinding comparable firms for purposes of benchmarking executive compensation is challenging due to our unique business, structure and mission, and the large size of our book of business compared to other financial services firms. The only directly comparable firm to us is Freddie Mac. Factors relevant to the selection of this comparator group included their status as U.S. public companies, the industry in which they operate (each is a commercial bank, public insurance company or government-sponsored enterprise) and their size (in terms of total assets, revenues and headcount) relative to the size of Fannie Mae. In September 2011, we revised our approach to benchmarking certain senior executive positions. The revised approach uses our current comparator group and a broader group of companies against which to benchmark pay levels and practices for certain senior management roles:
In each case, we compared the named executives’ 2011 target direct compensation with the market median of 2010 direct compensation for comparable positions in the applicable comparator group of companies, as disclosed in the companies’ annual reports, proxy statements and SEC filings, and taking into account individual variations in job scope for two of the named executives (Mr. Benson and Mr. Mayopoulos). Each named executive’s target 2011 direct compensation was less than the market median and, in some cases, substantially less than the market median. The table below displays the named executives’ target and actual 2011 direct compensation, as compared to the market median of 2010 direct compensation for the applicable comparator group of companies.
The Compensation Committee requested this benchmarking to understand how the named executives’ compensation compared to the market median for these positions at comparable companies, in order to ensure that the company is prudently managing taxpayer support.
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Table of ContentsCompensation Recoupment Policy Beginning with compensation for the 2009 performance year, our executive officers’ compensation is subject to the following forfeiture and repayment provisions, also known as “clawback” provisions:
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. The Compensation Committee plans to review our 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 because of the difficulty of meeting the requirements at current market prices and because we had ceased paying our executives stock-based
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Table of Contentscompensation. 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 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. We have not adopted a policy requiring all compensation to be deductible under section 162(m). The impact of a potential lost deduction because of Section 162(m) is substantially mitigated by our current and projected tax losses, and this approach allows us flexibility in light of the conservatorship. Deferred salary and long-term incentive awards received by the named executives do not qualify as performance-based compensation under section 162(m). 2012 Executive Compensation Program On March 8, 2012, FHFA instituted new compensation arrangements it designed for our named executives, in consultation with Treasury. The Board of Directors authorized management to implement these compensation arrangements. As further described below, the 2012 executive compensation program (the “2012 Program”) applies to our named executives other than Mr. Hisey and is effective as of January 1, 2012. The 2012 Program does not apply to Mr. Hisey because he left the company in February 2012. Under the 2012 Program, FHFA has directed us to reduce the target compensation of each named executive by 10% in 2012. This reduction in compensation seeks to balance our objective of reducing taxpayer costs with our objective of attracting and retaining the executives needed to effectively manage the company. Under the 2012 Program, which is described in the table below, direct compensation consists solely of salary paid in cash. Salary has two components: base salary and deferred salary.
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Table of ContentsSummary of 2012 Program
Effect of Termination of Employment. The treatment of deferred salary for 2012 and subsequent performance years upon the termination of a named executive’s employment for any reason other than for cause is as follows:
All deferred salary paid following a named executive’s termination of employment will be paid on the same quarterly schedule as if the named executive had not terminated employment. Compensation Recoupment Policy. Deferred salary is subject to the terms of our forfeiture and repayment provisions for executive officers. Our compensation forfeiture and repayment provisions are described under “Other Executive Compensation Considerations—Compensation Recoupment Policy.”
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Table of Contents2012 Corporate Performance Objectives On March 8, 2012, FHFA directed us to implement the 2012 corporate performance objectives and related targets/measures set forth in the table below, including the relative weighting of each objective. FHFA developed these objectives with input from management and the Board of Directors. The Board of Directors authorized management to implement these corporate objectives. One-half of the named executives’ 2012 at-risk deferred salary is subject to reduction based on the company’s performance against these objectives. FHFA will have the primary role in determining whether the company has achieved these objectives, with advice from management and the Board of Directors.
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2012 Program Compensation Amounts The following table sets forth the components of 2012 salary on an annual basis for each of our named executives, other than Mr. Hisey, who is not covered by the 2012 Program as he left the company in February 2012.
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COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors of Fannie Mae has reviewed and discussed the Compensation Discussion and Analysis included in this Form 10-K with management. Based on such review and discussions, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Form 10-K.
COMPENSATION RISK ASSESSMENT
We conducted a risk assessment of our 2011 employee compensation policies and practices. In conducting this risk assessment, we reviewed, among other things, our compensation plans, pay profiles, performance goals and performance appraisal management process. We also assessed whether policies, procedures or other mitigating controls existed that would reduce the opportunity for excessive or inappropriate risk-taking within our compensation policies and practices. Based on the results of our risk assessment, we concluded that our 2011 employee compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the company. Several factors contributed to our conclusion, including:
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Summary Compensation Table for 2011, 2010 and 2009 The following table shows summary compensation information for 2011, 2010 and 2009 for the named executives. The amounts shown in the “Long-Term Incentive Awards and Other” sub-column of the “Non-Equity Incentive Plan Compensation” column are not comparable for 2009, 2010 and 2011 because of a change to the company’s compensation structure in 2010, as described in footnote 5 to the table.
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The table below provides details on the amounts of each of these awards for each named executive:
Both the first installment of the 2011 long-term incentive award and the second installment of the 2010 long-term incentive award were paid in February 2012. The second installment of the 2011 long-term incentive award will be determined and paid in the first quarter of 2013 based on corporate and individual performance for both 2011 and 2012, and therefore is not included as 2011 compensation in this table. More information about long-term incentive awards is presented in “Compensation Discussion and Analysis—2011 Executive Compensation Program—Elements of 2011 Compensation Program.” Amounts shown for 2010 in this sub-column consist solely of the first installment of the 2010 long-term incentive award, which was based on corporate and individual performance for 2010. Amounts shown for 2009 in this sub-column consist of: (1) the 2009 long-term incentive award, which was based on corporate and individual performance for 2009; and (2) for Messrs. Williams, Hisey and Benson, the performance-based portion of their 2008 Retention Program award, which was based on 2009 corporate performance. Mr. Mayopoulos joined the company in 2009 and therefore did not receive a 2008 Retention Program award.
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Table of ContentsThe table below provides details on the amounts of each of these awards for each named executive who was employed by Fannie Mae in 2009:
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Grants of Plan-Based Awards in 2011 The following table shows grants of awards made to the named executives during 2011 under our long-term incentive plan and deferred salary plan. The terms of these long-term incentive and deferred salary awards are described above in “Compensation Discussion and Analysis—2011 Executive Compensation Program—Elements of 2011 Compensation Program.” Deferred salary amounts shown represent only the performance-based portion (50%) of the named executives’ 2011 deferred salary award.
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Outstanding Equity Awards at 2011 Fiscal Year-End The following table shows outstanding stock option awards and unvested restricted stock held by the named executives as of December 31, 2011. The market value of stock awards shown in the table below is based on a per share price of $0.2012, which was the closing market price of our common stock on December 30, 2011. As of December 30, 2011, the exercise prices of all of the outstanding options referenced in the table below were substantially higher than the market price of our common stock.
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Option Exercises and Stock Vested in 2011 The following table shows information regarding vesting of restricted stock held by the named executives during 2011. We have calculated the value realized on vesting by multiplying the number of shares of stock by the fair market value (based on the average of the high and low prices) of our common stock on the vesting date. We have provided no information regarding stock option exercises because no named executives exercised stock options during 2011.
Pension Benefits Retirement Savings Plan The Retirement Savings Plan is a defined contribution plan that includes a 401(k) before-tax feature, a regular after-tax feature and a Roth after-tax feature. Under the plan, eligible employees may allocate investment balances to a variety of investment options. Subject to IRS limits for 401(k) plans, we match in cash employee contributions up to 3% of base salary for employees who are grandfathered participants in our Retirement Plan and up to 6% of base salary and eligible incentive compensation (which for the applicable named executives includes deferred salary under our executive compensation program in place for 2009 through 2011) for employees who are not grandfathered participants in our Retirement Plan. All non-grandfathered employees are 100% vested in our matching contributions. Grandfathered employees receive benefits under the 3% of base salary matching program and are fully vested in our matching contributions after five years of service. Messrs. Williams, Hisey and Benson are grandfathered employees under our Retirement Plan and therefore receive benefits under the 3% matching program, while Ms. McFarland and Messrs. Edwards and Mayopoulos are non-grandfathered employees and therefore receive benefits under the 6% matching program. All regular employees, with the exception of those who participated in the Executive Pension Plan (which includes Mr. Williams), receive an additional 2% contribution (based on base salary for grandfathered employees and on base salary and eligible incentive compensation for non-grandfathered employees) from the company regardless of employee contributions to this plan. Participants are fully vested in this 2% contribution after three years of service. Defined Benefit Pension Plans Retirement Plan. Participation in the Retirement Plan has been frozen, and employees hired after December 31, 2007 and employees who did not satisfy the age and service requirements to be grandfathered participants under the Retirement Plan do not earn benefits under the Retirement Plan. Prior to 2007, participation in the Retirement Plan was generally available to employees. Participants are fully vested in the Retirement Plan when they complete five years of credited service. Messrs. Williams, Hisey and Benson are the only named executives who participate in the Retirement Plan. Under the Retirement Plan, normal retirement benefits are computed on a single life basis using a formula based on final average annual earnings and years of credited service. For years of service after 1988, the pension formula is:
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A different formula applies for years of service after 35 years. Final average annual earnings are average annual earnings in the participant’s highest paid 36 consecutive calendar months during the participant’s last 120 calendar months of employment. Earnings are base salary. Provisions of the Internal Revenue Code of 1986, as amended, limit the amount of annual compensation that may be used for calculating pension benefits and the annual benefit that may be paid. For 2011, the statutory compensation and benefit caps were $245,000 and $195,000, respectively. Early retirement under the Retirement Plan is generally available at age 55. For employees who retire before age 65, benefits are reduced by stated percentages for each year that they are younger than 65. Supplemental Pension Plan and 2003 Supplemental Pension Plan. The purpose of the Supplemental Pension Plan is to provide supplemental retirement benefits to employees whose base salary exceeds the statutory compensation cap applicable to the Retirement Plan or whose benefit under the Retirement Plan is limited by the statutory benefit cap applicable to the Retirement Plan. The purpose of the Supplemental Pension Plan of 2003 (the “2003 Supplemental Pension Plan”) is to provide additional benefits based on eligible incentive compensation not taken into account under the Retirement Plan or the Supplemental Pension Plan. For executive officers, eligible incentive compensation includes Annual Incentive Plan bonuses, and awards under the 2008 Retention Program. Eligible incentive compensation for executive officers also includes deferred salary awards under our executive compensation program in place for 2009 through 2011. For purposes of determining benefits under the 2003 Supplemental Pension Plan, the amount of an officer’s eligible incentive compensation taken into account is limited in the aggregate to 50% of the officer’s base salary. Benefits under these plans vest at the same time as benefits under the Retirement Plan, and benefits under these plans typically commence at the later of age 55 or separation from service. Messrs. Williams, Hisey and Benson are the only named executives who participate in the Supplemental Pension Plan and the 2003 Supplemental Pension Plan. In general, officers who are eligible to participate in the Executive Pension Plan receive the greater of their Executive Pension Plan benefits or combined Supplemental Pension Plan and 2003 Supplemental Pension Plan benefits. However, for 2010 and 2011, Mr. Williams accrued benefits under the Supplemental Pension Plan and the 2003 Supplemental Pension Plan that will not be offset by his Executive Pension Plan benefit. In light of its decision to freeze Mr. Williams’ benefit under the Executive Pension Plan, the Board adopted this change for 2010 and 2011, with the approval of FHFA, to provide Mr. Williams a pension benefit for 2010 and 2011. Executive Pension Plan. The Executive Pension Plan was designed to supplement the benefits payable under our tax-qualified defined benefit retirement plan (the Federal National Mortgage Association Retirement Plan for Employees Not Covered Under Civil Service Retirement Law or “Retirement Plan”). Mr. Williams is the only named executive with a benefit under the Executive Pension Plan, and his benefit under the plan was frozen as of December 31, 2009. Because the Executive Pension Plan is frozen, Mr. Williams’ compensation, years of service and Retirement Plan benefits earned for years after 2009 are not taken into account in determining his benefit under the Executive Pension Plan. Executive Pension Plan benefits vested after ten years of participation in the plan, and Mr. Williams was 90% vested at the time the plan was frozen. Mr. Williams’ maximum annual pension benefit under the Executive Pension Plan, based on his status as 90% vested and a pension goal formula of 40%, is 36% of his average annual covered compensation earned for the years 2007, 2008 and 2009. Covered compensation is Mr. Williams’ average annual base salary, including deferred compensation, plus eligible incentive compensation. For this purpose, eligible incentive compensation is limited in the aggregate to 50% of Mr. Williams’ base salary, and consists of Annual Incentive Plan cash bonuses and 2008 Retention Program awards. His payments under the Executive Pension Plan are reduced by his Retirement Plan benefit determined as of December 31, 2009. Early retirement is available under the plan at age 55, with a reduction in the plan benefit of 2% for each year between the year in which benefit payments begin and the year in which the participant turns 60. The benefit payment for Mr. Williams is a monthly amount equal to 1/12th of his annual retirement benefit payable during
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Table of Contentsthe lives of Mr. Williams and his surviving spouse. If he dies before receiving benefits under the Executive Pension Plan, his surviving spouse will be entitled to a death benefit that begins when Mr. Williams would have reached age 55, based on his pension benefit at the date of death. The table below shows the years of credited service and the present value of accumulated benefits for each named executive under our defined benefit pension plans as of December 31, 2011. Pension Benefits for 2011
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Table of ContentsNonqualified Deferred Compensation Our Supplemental Retirement Savings Plan is an unfunded, non-tax-qualified defined contribution plan for non-grandfathered employees. The Supplemental Retirement Savings Plan is intended to supplement our Retirement Savings Plan, or 401(k) plan, by providing benefits to participants whose annual eligible earnings exceed the IRS annual limit on eligible compensation for 401(k) plans (for 2011, the limit was $245,000). Ms. McFarland and Messrs. Edwards and Mayopoulos are the named executives who participated in the Supplemental Retirement Savings Plan in 2011. For 2011, we credited 8% of the eligible compensation for Ms. McFarland and Messrs. Edwards and Mayopoulos that exceeded the IRS annual limit for 2011. Eligible compensation for Ms. McFarland and Messrs. Edwards and Mayopoulos consists of base salary plus any eligible incentive compensation (which includes deferred salary under our executive compensation program in place for 2009 through 2011) earned for that year, up to a combined maximum of two times base salary. The 8% credit consists of two parts: (1) a 2% credit that will vest after the participant has completed three years of service with us; and (2) a 6% credit that is immediately vested. While the Supplemental Retirement Savings Plan is not funded, amounts credited on behalf of a participant under the Supplemental Retirement Savings Plan are deemed to be invested in mutual fund investments similar to the investments offered under our 401(k) plan. Participants may change their investment elections on a daily basis. Amounts deferred under the Supplemental Retirement Savings Plan are payable to participants in the January or July following separation from service with us, subject to a six month delay in payment for the 50 most highly-compensated officers. Participants may not withdraw amounts from the Supplemental Retirement Savings Plan while they are employed by us. The table below provides information on the nonqualified deferred compensation of the named executives for 2011. Nonqualified Deferred Compensation for 2011
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Potential Payments upon Termination or Change-in-Control The information below describes and quantifies certain compensation and benefits that may have become payable to each of our named executives under our existing plans and arrangements if our named executive’s employment had terminated on December 31, 2011, taking into account the named executive’s compensation and service levels as of that date and based on a per share price of $0.2012, which was the closing price of our common stock on December 30, 2011. The discussion below does not reflect retirement or deferred compensation benefits to which our named executives may be entitled, as these benefits are described above under “Pension Benefits” and “Nonqualified Deferred Compensation.” The information below also does not generally reflect compensation and benefits available to all salaried employees upon termination of employment with us under similar circumstances. We are not obligated to provide any additional compensation to our named executives in connection with a change-in-control. As described above under “Compensation Discussion and Analysis—2012 Executive Compensation Program,” FHFA has instituted a new executive compensation program effective for 2012 named executive compensation that has different provisions for payments on termination of employment than what are described below under “Potential Payments to Named Executives.” FHFA Must Approve Any Termination Benefits We Provide Named Executives FHFA, as our regulator, must approve any termination benefits we offer our named executives. Moreover, as our conservator, FHFA has directed that our Board consult with and obtain FHFA’s consent before taking any action involving termination benefits for any officer at the executive vice president level and above and other specified executives. In addition, as described below under “Potential Payments to Named Executives,” any determination by the Board to pay termination benefits to a named executive is subject to the approval of FHFA in consultation with Treasury. Potential Payments to Named Executives We have not entered into agreements with any of our named executives that would entitle the executive to severance benefits, other than the termination agreement with Mr. Hisey described below under “Termination Agreement with our Former Deputy Chief Financial Officer.” Below we discuss various elements of compensation that may become payable in the event a named executive dies or retires, or that may be paid in the event his or her employment is terminated by Fannie Mae. We then quantify the amounts that might have been paid to our named executives in these circumstances, in each case as of December 31, 2011.
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In each case, for any portion of a long-term incentive award or any performance-based portion of a deferred salary award that has not been finally determined, the award will be adjusted based on performance relative to the applicable performance goals and, in the case of a termination by Fannie Mae, cannot exceed 100% of the target award. In addition, installment payments of the awards will be made on the original payment schedule, rather than being provided in a lump sum. In the case of a termination by Fannie Mae, an executive officer must agree to the terms of a standard termination agreement with the company in order to receive these post-termination of employment payments. More information about deferred salary and the long-term incentive awards is provided above in “Compensation Discussion and Analysis—2011 Executive Compensation Program—Elements of 2011 Compensation Program.”
Potential Payments Upon Death The table below shows the amounts that would have become payable if a named executive’s employment had terminated on December 31, 2011 as a result of his or her death. The table below does not show any amounts that would have become payable if a named executive had retired on December 31, 2011 since as of that date none of the named executives had reached the minimum age required to receive any of these amounts upon his or her retirement. Potential Payments Upon Death as of December 31, 2011(1)
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Potential Payments Upon Termination Other Than For Cause The table below shows the estimated maximum amounts that could have become payable to the named executive if his or her employment was terminated other than for cause on December 31, 2011. Except for Mr. Hisey, the named executives do not have any contractual right or right under the terms of the deferred salary plan or the long-term incentive plan to receive any unpaid deferred salary or long-term incentive awards in the event of a termination by Fannie Mae. Any amounts paid to the named executives if they are terminated other than for cause will be determined on a case-by-case basis in the discretion of our Board of Directors and also subject to the approval of FHFA in consultation with Treasury. We therefore cannot make a reasonable estimate of the amounts that would become payable in such cases. However, FHFA has advised us that, to the extent that it approves the payment of termination pay to an executive officer at the executive vice president level or above, the maximum amount that it would approve would be limited to up to $1,000,000 of the executive’s earned but unpaid deferred salary. As described in more detail under “Termination Agreement with our Former Deputy Chief Financial Officer” below, we entered into a termination agreement with Mr. Hisey in February 2012, pursuant to which he is entitled to receive his unpaid 2011 deferred salary.
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Table of ContentsMaximum Potential Payments Upon Termination Other Than For Cause as of December 31, 2011
Termination Agreement with our Former Deputy Chief Financial Officer Mr. Hisey left the company in February 2012. We entered into a termination agreement with Mr. Hisey in February 2012, the terms of which were approved by FHFA. The agreement provides that Mr. Hisey will receive all of his corporate performance-adjusted 2011 deferred salary ($966,625), in four installments, on the same payment dates as other deferred salary recipients, and that he may elect to receive outplacement services and a subsidy for up to 18 months of medical and dental premiums if he elects COBRA continuation coverage. He will not receive the second installment of his 2011 long-term incentive award. The termination agreement provides that Mr. Hisey may not solicit or accept employment with or act in any way, directly or indirectly, to solicit or obtain employment or work for Freddie Mac for a period of 12 months following termination. Under the termination agreement, Mr. Hisey agreed to a general release of the company from all claims relating to his employment with or termination from the company. Director Compensation Our non-management directors receive cash compensation pursuant to a program authorized by FHFA in November 2008. This compensation for the directors is designed to be reasonable, appropriate and commensurate with the duties and responsibilities of their Board service. The total 2011 compensation for our non-management directors is shown in the table below. Mr. Williams, our only director who also served as an employee of Fannie Mae during 2011, was not entitled to receive any of the benefits provided to our non-management directors other than those provided under the matching charitable gifts program, which is available to all of our employees.
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Table of Contents2011 Non-Employee Director Compensation Table
Compensation Arrangements for our Non-Management Directors Our non-management directors receive a retainer at an annual rate of $160,000, with no meeting fees. Committee chairs and Audit Committee members receive an additional retainer at an annual rate of $25,000 for the Audit Committee chair, $15,000 for the Risk Policy and Capital Committee chair and $10,000 for all other committee chairs and each member of the Audit Committee. In recognition of the substantial amount of time and effort necessary to fulfill the duties of non-executive Chairman of the Board, the annual retainer for our non-executive Chairman, Mr. Laskawy, is $290,000. Our directors receive no equity compensation. Additional Arrangements with our Non-Management Directors Matching Charitable Gifts Program. To further our support for charitable giving, non-employee directors are able to participate in our corporate matching gifts program on the same terms as our employees. Under this program, gifts made by employees and directors to Section 501(c)(3) charities are matched, up to an aggregate total of $5,000 in any calendar year. None of our non-employee directors participated in this program in 2011. Stock Ownership Guidelines for Directors. In January 2009, our Board eliminated our stock ownership requirements for directors and for senior officers in light of the difficulty of meeting the requirements at current market prices and because we have ceased paying stock-based compensation. Other Expenses. We also pay for or reimburse directors for out-of-pocket expenses incurred in connection with their service on the Board, including travel to and from our meetings, accommodations, meals and training. Item 15. Exhibits, Financial Statement Schedules (a) Documents filed as part of this report 1. Consolidated Financial Statements The consolidated financial statements required to be filed in our annual report on Form 10-K are included on pages F-1 to F-134 of our Original Filing filed on February 29, 2012. 2. Financial Statement Schedules None. 3. Exhibits An index to exhibits has been filed as part of this report beginning on page E-1 and is incorporated herein by reference.
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Table of ContentsSIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 9, 2012
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