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EX-99.1 - 2015 EXECUTIVE INCENTIVE PLAN - Federal Home Loan Bank of Bostonexhibit991-2015executivein.htm





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 8-K


CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) March 27, 2015

FEDERAL HOME LOAN BANK OF BOSTON
(Exact name of registrant as specified in its charter)


 
 
 
 
 
Federally chartered corporation
 
000-51402
 
04-6002575
(State or other jurisdiction
of incorporation)
 
(Commission File Number)
 
(IRS Employer
Identification No.)

800 Boylston Street
Boston, MA 02199
(Address of principal executive offices, including zip code)
(617) 292-9600
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[ ]    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ]    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ]    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ]    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))





Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
 
2015 Executive Incentive Plan

On March 27, 2015, the Federal Home Loan Bank of Boston’s (the “Bank’s”) board of directors (the “Board”) approved a 2015 Executive Incentive Plan (the “EIP”), an incentive compensation plan for certain Bank officers, which is effective for fiscal year 2015. The Bank's principal executive officer, principal financial officer, and other named executive officers, as identified in the Bank’s Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 23, 2015 (the “2014 Annual Report”), are participants in the EIP.

Named Executive Officers' Incentive Goals

As EIP participants, each named executive officer has an incentive award opportunity that combines short- and long-term incentives providing for the award of bonuses based on performance over one- and three-year periods calculated using weighted performance goals.

Short-Term Goals under the EIP

The following table sets forth the short-term goals and related weighting for each of the named executive officers, excluding the executive vice president/chief risk officer.






Goal
Weight
Threshold
Target
Excess
Pre-assessment, Pre- OTTI Core Return on Capital Stock(1), subject to risk limits(2)
30%
3.08%, as adjusted for interest rates and excess stock level.(3)
3.43%, as adjusted for interest rates and excess stock level.(3)
4.11%, as adjusted for interest rates and excess stock level.(3)
New Business and Mission Goal
25%
$1.25 billion in new long term advances disbursed.
$2.5 billion in new long term advances disbursed.
$3.75 billion in new long term advances disbursed.
Insurance Advances Disbursements
15%
$300 million.
$600 million.
$1 billion.
Insurance Membership
10%
3 new members.
5 new members.
7 new members.
Housing Finance Agency (“HFA”) Goal
5%
Minimum of four meetings with HFAs with one or more Management Committee members in attendance.

Present specific lien option to two HFAs yet to sign advances agreement.
Achieve threshold criteria.

Present the Mortgage Partnership Finance® (“MPF”) program to one or more HFAs.

Complete analysis and consider specific criteria for HFA bond investments and present to the Bank’s Asset-Liability Committee by April 30, 2015.
Achieve threshold criteria.

Disburse a minimum of one advance to a New England HFA.

Approve one HFA as an MPF program participating financial institution (“PFI”) or purchase one or more loans from an existing HFA PFI.
Economic and Community Development Initiative
5%
N/A
Complete legal, regulatory and financial analysis of alternative strategies to promote economic and community development in the Bank’s district.

Meet with a minimum of 3 financial intermediaries and present report of alternative strategies to the board at March 2015 meeting.
N/A
Individual, Bankwide, or Department-Specific Initiatives
10%
As documented by manager.
As documented by manager.
As documented
by manager.
_____________________________________________________________________________________

(1) “Pre-assessment, Pre-OTTI Core Return on Capital Stock” means A divided by B. “A” is net income for fiscal year 2015 reported in accordance with United States Generally Accepted Accounting Principles excluding the effects of prepayment fees in excess of certain historical prepayment fees, certain net fair-value adjustments based on unrealized gains and losses from hedging activities and trading securities, debt retirement costs in excess of certain historical debt retirement costs, the credit portion of losses attributable to the other-than-temporary-impairment of investment securities, income due to increased accretable yields of investment





securities for which we had previously recognized other-than-temporary impairment credit losses, required assessments in connection with the Bank's Affordable Housing Program (“AHP”), and income arising from Bank litigation based on certain of its investment securities. The AHP-required assessments are discussed in Item 1- Business - AHP Assessment in the 2014 Annual Report. “B” is the Bank’s average daily outstanding balance of capital stock (including mandatorily redeemable capital stock).

(2) Achievement of the goal is subject to compliance with the Bank's value at risk and duration of equity limits for at least 10 of the 12 months of the year. These limits are discussed in Item 7A - Quantitative and Qualitative Disclosure About Market Risk - Measurement of Market and Interest-Rate Risk in the 2014 Annual Report. If this requirement is not met, the Board may use its discretion to reduce or eliminate payouts for this goal.

(3) Each of the performance levels will be adjusted up or down by 1.25 basis points for every basis point by which the average daily federal funds rate is greater or less than the 0.25% rate assumed in an internal Bank forecast. Additionally, each of the performance levels will be adjusted up or down by one basis point for every $7.5 million by which the quantity of the Bank’s average stock shares outstanding minus the average aggregate stock investment requirement for all shareholders is greater or less than the quantity projected in an internal Bank forecast.

"Mortgage Partnership Finance" and "MPF" are registered trademarks of the Federal Home Loan Bank of Chicago.

The following table sets forth the short-term goals and related weighting for the executive vice president/chief risk officer.






Goal
Weight
Threshold
Target
Excess
Bankwide Enterprise Risk Management Department Initiatives
35%
As set forth in Appendix A to the EIP.
As set forth in Appendix A to the EIP.
As set forth in Appendix A to the EIP.
Remediation of 2014 Report of Examination Matters Requiring Attention (“MRAs”) and Recommendations
20%
Clear all MRAs and 75% of the recommendations.
Clear all MRAs and recommendations.
Achieve target criteria plus receive fewer MRAs than on the 2014 examination.
Pre-assessment, Pre OTTI Core Return on Capital Stock, subject to risk limits(1)
25%
3.08%, as adjusted for interest rates and excess stock level.(2)
3.43%, as adjusted for interest rates and excess stock level.(2)
4.11%, as adjusted for interest rates and excess stock level.(2)
HFA Goal
5%
Minimum of four meetings with HFAs with one or more Management Committee members in attendance.

Present specific lien option to two HFAs yet to sign advances agreement.
Achieve threshold criteria.

Present the MPF program to one or more HFAs.

Complete analysis and consider specific criteria for HFA bond investments and present to the Bank’s Asset-Liability Committee by April 30, 2015.
Achieve threshold criteria.

Disburse a minimum of one advance to a New England HFA.

Approve one HFA as a PFI or purchase one or more loans from an existing HFA PFI.
Economic and Community Development Initiative
5%
N/A
Complete legal, regulatory and financial analysis of alternative strategies to promote economic and community development in the Bank’s district.

Meet with a minimum of 3 financial intermediaries and present report of alternative strategies to the board at March 2015 meeting.
N/A
Individual, Bankwide or Department-Specific Initiatives
10%
As documented by manager.
As documented by manager.
As documented
by manager.
_____________________________________________________________________________________

(1) Achievement of the goal is subject to compliance with the Bank's value at risk and duration of equity limits for at least 10 of the 12 months of the year. These limits are discussed in Item 7A - Quantitative and Qualitative Disclosure About Market Risk - Measurement of Market and Interest-Rate Risk in the 2014 Annual Report. If this requirement is not met, the Board may use its discretion to reduce or eliminate payouts for this goal.

(2) Each of the performance levels will be adjusted up or down by 1.25 basis points for every basis point by which the average daily federal funds rate is greater or less than the 0.25% rate assumed in an internal Bank forecast.





Additionally, each of the performance levels will be adjusted up or down by one basis point for every $7.5 million by which the quantity of the Bank’s average stock shares outstanding minus the average aggregate stock investment requirement for all shareholders is greater or less than the quantity projected in an internal Bank forecast.

Long-Term Goals under the EIP

The EIP includes two long-term goals. One is a long-term goal based on the Bank's average annual Pre-assessment, Pre-OTTI Core Return on Capital Stock over the period from January 1, 2015 until December 31, 2017. This goal is weighted at 67% in determining the long-term incentive award. The following table sets forth the goal’s criteria.

 
Threshold
Target
Excess
Average Annual Pre-assessment, Pre-OTTI Core Return on Capital Stock(1) from January 1, 2015 until December 31, 2017.
3.42%
4.27%
5.12%

_____________________________________________________________________________________

(1) Each of the performance levels will be adjusted up or down by 1.45 basis points for every basis point by which the average daily federal funds rate is greater or less than the 1.06% rate assumed in an internal Bank forecast. Additionally, each of the performance levels will be adjusted up or down by one basis point for every $7.5 million by which the quantity of the Bank’s average stock shares outstanding minus the average aggregate stock investment requirement for all shareholders is greater or less than the quantity projected in an internal Bank forecast.

The second long-term goal is based on the achievement of targeted regulatory goals by December 31, 2017. This goal is weighted at 33% in determining the long-term incentive award.

Named Executive Officers' Incentive Award Opportunities under the EIP

Named executive officers are assigned an incentive award opportunity that combines short- and long-term incentives and is expressed in the following table as a percentage of the participant's 2015 base salary at December 31, 2015 (“Incentive Salary”).

 
Combined Short and Long-Term Incentive Opportunities
 
Threshold
Target
Excess
President
50.0%
75.0%
100.0%
All Other Named Executive Officers
30.0%
50.0%
70.0%

Each EIP participant's short-term goal achievement and resulting short-term award will be determined based on results as of December 31, 2015. The EIP's short-term incentive opportunities for the named executive officers are set forth in the following table in each case expressed as percentage of Incentive Salary.

 
2015 Short-Term Incentive Opportunities
 
Threshold
Target
Excess
President
25.0%
37.5%
50.0%
All Other Named Executive Officers
15.0%
25.0%
35.0%






Awards based on the short-term goals are subject to:

the requirement that the participant be in employment with the Bank on the short-term award payment date in March 2016, although participants that terminate employment by reason of death or disability or who are eligible to retire prior to that date may receive a pro-rata payment of the award in certain instances as detailed in the EIP; and

Board approval and non-objection of the Federal Housing Finance Agency, the Bank’s principal regulator (the “FHFA”), if required.

The remaining fifty (50) percent of the combined award is the target long-term incentive opportunity, with threshold and excess incentive opportunities tied to threshold and excess levels of achievement of the long-term goal, as set forth in the following table.

 
Long-Term Incentive Opportunities
 
Threshold
 
Target
 
Excess
All Named Executive Officers
50% of the remaining 50% of the combined short- and long-term incentive opportunity
 
The remaining 50% of the combined short- and long-term incentive opportunity
 
150% of the remaining 50% of the combined short- and long-term incentive opportunity

The receipt of awards based on the long-term goals is subject to:

the requirement that the participant be in employment with the Bank on the long-term award payment date in March 2018, although participants that terminate employment by reason of death or disability or who are eligible to retire prior to that date may receive payment of the award in certain instances as detailed in the EIP; and
Board approval and review and non-objection by the FHFA (to the extent required by the FHFA).

Additionally, at the discretion of the Board, long-term awards may be reduced (but not to a number that is less than zero) for all EIP participants or for an individual participant, as applicable, if, during calendar years 2016 and/or 2017, any of the following occur such that if it had occurred prior to the year-end 2014 calculations, it would have negatively impacted the goal results and reduced the associated payout calculation:

operational errors or omissions resulting in material revisions to the 2015 financial results, information submitted to the FHFA supporting the goal results or payout calculation, or other data used to determine the combined award at year-end 2015;
submission of significant information to the SEC, Office of Finance (the Bank’s agent for the issuing and servicing of debt), and/or FHFA materially beyond any deadline or applicable grace period, other than late submissions that are caused by Acts of God or other events beyond the reasonable control of the participants; or
failure by the Bank to make sufficient progress, as determined by the FHFA, in the timely remediation of examination and other supervisory findings relevant to the goal results or payout calculation.

EIP Administration

The EIP is administered by the Board’s Human Resources and Compensation Committee (the “Compensation Committee”), which has full power and binding authority to construe, interpret, and administer the EIP, and to adjust it for extraordinary circumstances. The Compensation Committee has the right at any time to amend, suspend, or terminate the EIP in whole or in part, for any reason, and without the consent of any EIP participant but will not do so without re-submission to the FHFA. Participants must receive a performance rating of “consistently meets expectations” or better for fiscal year 2015 in order to be eligible to receive an EIP payout. Subject to certain





limited exceptions in the case of termination of employment by reason of death or disability or in certain instances of retirement, an EIP participant whose employment terminates before the applicable award payment date will not be entitled to any award, except as otherwise determined by the Bank's president/chief executive officer, with the concurrence of the Compensation Committee, in its sole discretion and subject to the review of the FHFA, if required.

*********************************************************************************************

The foregoing description of the EIP is qualified in its entirety by reference to a copy of the EIP included herein as Exhibit 99.1 to this Form 8-K.

The information being furnished pursuant to Item 5.02 of this Current Report on Form 8-K shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.

Item 9.01 Financial Statements and Exhibits

(d) Exhibit

Exhibit 99.1 2015 Executive Incentive Plan




Signature(s)
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date:
April 8, 2015
 
Federal Home Loan Bank of Boston
 
 
 
By:/s/ Frank Nitkiewicz
 
 
 
Frank Nitkiewicz
 
 
 
Executive Vice President and Chief Financial Officer