Annual Report - CoBank

Senior Officers Compensation Discussion and AnalysisCoBank, ACBThe Committee generally makes a final decision regarding the President and CEO’s salary and incentive compensation in itsFebruary meeting to fully take into consideration the prior year’s Bank and individual performance. Decisions may also occur at othermeetings in the year, as considered appropriate. The Committee utilizes an independent executive compensation consultant, PayGovernance LLC (Consultant), to annually compare the President and CEO’s compensation level to a select peer group of financialinstitutions. This evaluation helps ensure that such compensation is competitive with positions of similar scope and complexity atrelevant financial institutions. The comparative peer group is composed of companies with significant corporate and commerciallending activities, and which have other similar characteristics such as asset size, net income or significant customer relationships.Substantially all work performed by the Consultant in 2011 was completed under the direction of the Committee. Certain limited workwas performed by the Consultant on behalf of the Bank with the prior approval of the Committee.Components of CoBank Total Compensation ProgramGiven the cooperative ownership structure of CoBank, no equity or stock-based plans are used to compensate any employee,including senior officers. Senior officers’ compensation primarily consists of four components – salary, short-term incentive plan,long-term incentive plan and retirement benefits – as described below. All employees participate in salary, the short-term incentiveplan and retirement benefits, while senior officers and specified other senior managers are also eligible to participate in the long-termincentive plan. All senior officers can elect to defer certain incentive payments through a nonqualified deferred compensation plan. Inaddition, senior officers are eligible for supplemental retirement benefits, as discussed on page 134.Overview of Senior Officers’ CompensationComponent CoBank Philosophy Design CharacteristicsSalary Market-based compensation Provides a foundation for othercomponents Competitive relative to positions ofsimilar scope at a select peer group offinancial institutions Reflects individual performance,competencies and responsibilitiesShort-Term Incentive Plan Links rewards to achievement of annualgoals Recognizes corporate and individualperformance Aligns the interests of shareholders andsenior officers through bankwidefinancial and strategic businessobjectives Balances short-term results with the riskprofile of the BankLong-Term Incentive Plan Provides opportunity for wealthaccumulation tied to CoBank’s sustainedperformance Reinforces accountability and balancefor the annual outcomes embodied in theshort-term incentive plan Balances short-term results and longtermvalue creation Encourages longer-term retention ofplan participants Promotes the creation of profitablegrowth in shareholder and customervalue, and enhances the sustainability ofCoBank to serve its customers whileproviding proper balance to the riskprofile of the Bank Aligns the interests of shareholders andsenior officers through bankwidefinancial and strategic businessobjectivesMultiple corporate financial and nonfinancialgoalsMinimum performance for each goalrequiredMinimum return on active patron stockinvestment of 11% required in year ofpayoutIndividual and corporate performanceweighted equallyMultiple corporate financial and nonfinancialgoalsThree-year performance periodsNew plan starts each year (plansoverlap)Minimum performance for each goalrequiredMinimum return on active patron stockinvestment of 11% must be achieved ineach year of the plan for a full payoutCoBank 2011 Annual Report129