Annual Report - CoBank

Senior Officers Compensation Discussion and AnalysisCoBank, ACBThe actual short-term incentive award is determined as follows:Salary × Annual Short-Term Incentive Target × Corporate Performance Factor × Individual Performance FactorBased on corporate and individual performance factors, participants can earn from zero to 400 percent of their individual annualshort-term incentive target. Payments are typically made during March, but always following the end of the year to which the award isapplicable. Participants are not eligible to receive a short-term payout if they are no longer employed by CoBank at the time of thescheduled payout, unless otherwise provided for in an employment agreement. The key elements of the actual payout are describedbelow.Annual Short-Term Incentive Target — Annual short-term incentive targets are set for all employees at the beginning of theyear. For the 2011 performance period, the target short-term incentive level for the President and CEO was 65 percent ofsalary. For the other senior officers, the targets ranged from 35 to 55 percent.Corporate Performance Factor — Corporate performance is determined at the end of the year based on annual actualbusiness results relative to a balanced scorecard of bankwide financial and strategic business objectives, as established at thebeginning of each year by the Board of Directors, and is the same for all employees, including the President and CEO andother senior officers. The Board of Directors retains the right to make adjustments to the corporate performance factor, whereappropriate, in addition to providing a subjective performance result for the achievement of strategic business objectives.CoBank utilizes a balanced scorecard for measuring short-term corporate performance to emphasize overall success inexecuting our strategy and managing risks. The short-term corporate scorecard establishes certain key performanceindicators, of which 80 percent focus on the achievement of specified financial measures related to profitability, loan qualityand operating efficiency, and 20 percent focus on the achievement of strategic business objectives, as determined at thebeginning of each year by the Board of Directors. The final performance result, or corporate performance factor, isdetermined by comparing the actual performance of each measure to the targets established at the beginning of the year. Eachscorecard performance measure is weighted separately, and the factor is set such that if performance of each measure exactlymeets the established target, the result is a performance factor of 100 percent. The corporate performance factor can varyfrom zero to a maximum of 200 percent, depending on performance against the targets. The 2011 Short-Term CorporateScorecard is as follows:2011 Short-Term Corporate ScorecardPerformance MeasureWeightNet Income 30 %Return on Common Equity 20 %Strategic Business Objectives 20 %Loan Quality (Adverse Loans to Risk Funds) 20 %Operating Expense Ratio 10 %Individual Performance Factor — At the beginning of each year, all CoBank employees, including the President and CEOand other senior officers, establish individual goals they seek to achieve that year in support of the business. These individualgoals are anchored to the Bank’s business and financial plan, as well as the Bank’s strategic business objectives and alsoinclude key behavioral competencies appropriate for that employee. The President and CEO is responsible for administeringthe short-term incentive plan and approves the individual performance factors of the other senior officers. The Board ofDirectors approves the goals and individual performance factor of the President and CEO. The assessment of an individual’sactual performance with respect to his or her annual goals is reflected as an individual performance factor and ranges fromzero to 200 percent.CoBank 2011 Annual Report131