Annual Report - CoBank

Senior Officers Compensation Discussion and AnalysisCoBank, ACBThe actual short-term incentive awards for 2011, 2010 and 2009 for the President and CEO and other senior officers are presentedin the Summary Compensation Table on page 137.Long-Term IncentivesOverviewLong-Term Incentive Plan (LTIP)o Awards based upon corporate performance for overlapping three-year periodso Corporate financial performance measures are balanced: profitability, loan quality and capital adequacyo Board of Directors also provides subjective evaluation related to the achievement of corporate strategicbusiness objectiveso For the 2009 to 2011 performance period, CoBank performed at or above maximum award levels on twocorporate performance goals and between target and maximum award levels on three corporate performancegoalsCoBank utilizes a long-term incentive compensation plan that provides senior officers and specified other senior managers withthe opportunity for wealth accumulation tied to CoBank’s sustained success. The long-term incentive plan provides the accountabilityand balance for the annual outcomes embodied in the short-term plan. Participants in the long-term plan are directly impacted by thelonger-term outcomes of actions and risks taken during each annual employment period, which provides the proper balance betweenshort-term results and long-term value creation. Eligibility for participation is limited to those individuals who clearly have the abilityto drive the success of strategies critical to long-term value creation for shareholders. The purpose of this plan is to encourage longertermretention of plan participants, to promote the creation of profitable growth in shareholder and customer value, and to enhance thesustainability of CoBank to serve its customers while providing proper balance to the risk profile of the Bank. The long-term incentiveplan aligns the interests of shareholders and senior officers through the establishment of bankwide financial and strategic businessobjectives, and reinforces a long-term focus on financial performance, strategic positioning and risk management.Long-term incentive plan payouts are based on corporate performance in the achievement of key financial metrics and strategicbusiness objectives over a three-year performance period, as defined by CoBank’s long-term corporate scorecard. These three-yearperformance metrics and objectives are established at the beginning of each three-year performance period by the Board of Directorsin connection with the annual business and financial plan. A minimum return on active patron stock investment must be achieved ineach year of the three-year performance period for a full payout to be approved, ensuring that shareholders are rewarded first. Thereturn minimum is 11 percent for the 2009 through 2011, 2010 through 2012, and 2011 through 2013 performance periods.The actual long-term incentive award is determined as follows:Salary × Long-Term Incentive Target × Corporate Performance FactorCoBank 2011 Annual Report132