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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.     )

Filed by the Registrant ☒  Filed by a Party other than the Registrant ☐

Check the appropriate box:

 

☐  

Preliminary Proxy Statement

 

☐ 

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

☒ 

Definitive Proxy Statement

 

☐ 

Definitive Additional Materials

 

☐ 

Soliciting Material under to §240.14a-12

Annaly Capital Management, Inc.

 

(Name of Registrant as Specified in its Charter)

 

  

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check all boxes that apply):

 

No fee required.

 

☐ 

Fee paid previously with preliminary materials.

 

Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11.


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LOGO


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Message from our Chief Executive Officer & President

Dear Fellow Stockholders,

2021 was a year of tremendous change and opportunity for Annaly. The year was marked not only by the transformative sale of our commercial real estate business for $2.33 billion, but also by the opportune buildout of our mortgage servicing rights platform, which grew to $645 million in assets by year end, and the successful launch of our residential whole loan correspondent channel. Collectively, these initiatives have expanded the Company’s presence across all aspects of the residential mortgage finance market, which has been the cornerstone of Annaly’s strategy since our founding. The Company’s high-level execution of these strategic milestones against the backdrop of a continuing pandemic would not have been possible without the unfailing efforts of our employees, the guidance of our Board or the support of our stockholders.

We are very fortunate to have sustained and even enhanced our dialogue with stockholders over the last year despite the challenges posed by a largely remote work environment. Our stockholders’ response to the internalization of our management structure in 2020 and the resulting enhancements to our disclosure and process for executive compensation has been particularly gratifying. We hope that the continued evolution of our executive compensation, corporate governance and corporate responsibility frameworks since that time reflect the sincerity of our commitment to the objectives of the internalization and to the creation of long-term value for all stockholders.

Following the internalization and the re-design of our executive compensation program in 2020, the Company introduced a host of additional compensation enhancements for 2021. As detailed in this proxy statement, these measures are intended to further the alignment between our executives and our stockholders and include increasing the relative weighting of equity as a percentage of total compensation opportunity, along with the proportion of performance-based equity as a percentage of total equity compensation. As a steward of stockholder value, the interests and priorities of our stockholders are critical to the way we manage the Company. One theme that emerged from our discussions with stockholders over the last few years is the importance of providing stockholders with meaningful access to the Company. In response, the Board took the significant step in February 2022 of amending our bylaws to halve the threshold for stockholders to call a special meeting from a majority of shares to 25%.

Our Board was honored to be named a finalist for the 2021 National Association of Corporate Directors (“NACD”) Diversity, Equity & Inclusion (“DE&I”) Awards. The Company’s development, implementation and effectiveness of its DE&I policies and strategies is overseen by the Management Development and Compensation Committee of the Board and our DE&I practices and initiatives are regularly discussed by the full Board. In 2021, the firm made meaningful progress against our DE&I objectives, including expanding the number of employee-sponsored affinity groups to seven and hosting firmwide educational events on allyship and other critical inclusion topics. In addition, last August, we publicly released our 2019 and 2020 EEO-1 Reports and pledged to provide annual disclosure of workforce diversity statistics going forward. At Annaly, we are proud that our policies are manifested by our practices. 45% of our Directors and 43% of our Operating Committee members are women. Moreover, 100% of Annaly’s Board Committees are chaired by women and 27% of our Directors are racially/ethnically diverse.

In July 2021, we were immensely pleased to publish our second corporate responsibility report. The report builds on the disclosures in our inaugural corporate responsibility report and outlines the Company’s progress towards our environmental, social and governance ("ESG") goals across five key areas: corporate governance, human capital, responsible investments, risk management and environment. In line with our stockholders’ feedback, these ESG goals include a commitment to further assess climate change risks and opportunities taking into consideration the recommendations of the Task Force on Climate-related Financial Disclosures (“TCFD”). In furtherance of this commitment, we published supplemental climate-related disclosures on our corporate website in February 2022 outlining climate-related risks and opportunities across our business in the short-, medium- and long-term horizons. Our Board is also committed to the identification and management of ESG risks and opportunities, and in October 2021, the Board formalized this commitment by updating our Corporate Governance Guidelines and Board Committee Charters to reflect integrated ESG oversight across the Board and its Committees.

We are honored by the trust you have shown in us as we have executed on these initiatives, and we hope that you’ll join us for this year’s Annual Meeting of Stockholders, which will be conducted via an interactive online meeting format on May 18th. We look forward to speaking to you soon.

Sincerely,

 

 

LOGO

David L. Finkelstein

Chief Executive Officer & President

April 6, 2022


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LOGO

 


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Notice of Annual Meeting of Stockholders

To the Stockholders of Annaly Capital Management, Inc.:

Annaly Capital Management, Inc., a Maryland corporation (“Annaly” or the “Company”), will hold its annual meeting of stockholders (the “Annual Meeting”) on May 18, 2022, at 9:00 a.m. (Eastern Time) online at www.virtualshareholdermeeting.com/NLY2022. At the Annual Meeting, you will be asked to:

 

 

1.  Elect eleven Directors for a term ending at the 2023 annual meeting of stockholders and when their respective successors are duly elected and qualify, as set forth in the accompanying Proxy Statement;

2.  Approve, on an advisory basis, the Company’s executive compensation, as described in the Proxy Statement; and

3.  Ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2022.

The Company will also transact any other business as may properly come before the Annual Meeting or any postponement or adjournment thereof. Only common stockholders of record at the close of business on March 21, 2022, the record date for the Annual Meeting, may vote at the Annual Meeting and any postponements or adjournments thereof.

Your vote is very important. Please exercise your right to vote.

The Company’s Board of Directors (“Board”) is soliciting proxies in connection with the Annual Meeting. The Company is sending the Notice of Internet Availability of Proxy Materials (“Notice”), or a printed copy of the proxy materials, as applicable, commencing on or about April 6, 2022.

To view the Proxy Statement and other materials about the Annual Meeting, go to www.proxydocs.com/NLY or www.proxyvote.com.

All stockholders are cordially invited to attend the Annual Meeting, which will be conducted via a live webcast. The Company believes that the virtual meeting format allows enhanced participation of, and interaction with, our global stockholder base, while also being sensitive to any public health and travel concerns that our stockholders may have. During the upcoming virtual meeting, you may ask questions and will be able to vote your shares electronically from your home or any remote location with Internet connectivity. You may also submit questions in advance of the Annual Meeting by visiting www.proxyvote.com. The Company will respond to as many inquiries that are pertinent to the Company at the Annual Meeting as time allows.

An audio broadcast of the Annual Meeting will also be available to stockholders by telephone toll-free at 1-833-654-9116 in the United States or 1-516-575-8757 if calling from outside the United States, and providing Conference ID 2451939. If you plan to attend the Annual Meeting online or listen to the telephonic audio broadcast, you will need the 16-digit control number included in your Notice, on your proxy card or on the instructions that accompany your proxy materials. Please note that listening to the audio broadcast will not be deemed to be attending the Annual Meeting, and you cannot ask questions or vote from such audio broadcast. The Annual Meeting will begin promptly at 9:00 a.m. (Eastern Time). Online check-in will begin at 8:30 a.m. (Eastern Time), and you should allow ample time for the online check-in procedures.

By Order of the Board of Directors,

 

 

LOGO

Anthony C. Green

Chief Corporate Officer, Chief Legal Officer and Secretary

April 6, 2022

 

 

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to be Held on May 18, 2022.

The Company’s Proxy Statement and 2021 Annual Report to Stockholders are available at www.proxyvote.com.

 

 


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Proxy Summary

This summary contains highlights about the Company and the Annual Meeting. This summary does not contain all of the information that you should consider in advance of the Annual Meeting, and the Company encourages you to read the entire Proxy Statement and the Company’s 2021 Annual Report on Form 10-K carefully before voting.

 

 
2021 ANNUAL MEETING OF STOCKHOLDERS

LOGO

  TIME AND DATE:   Wednesday, May 18, 2022 at 9:00 a.m. (Eastern Time)

LOGO

  PLACE:   www.virtualshareholdermeeting.com/NLY2022

LOGO

  RECORD DATE:   Close of business on March 21, 2022

LOGO

  VOTING:  

Stockholders are able to vote by Internet at www.proxyvote.com; telephone at 1-800-690-6903; by completing and returning their proxy card; or online at the Annual Meeting

 

VOTING MATTERS      
      Board Vote
Recommendation
   Page
Number
Proposal No. 1: Election of Directors    FOR each Director
nominee
   11

 

  

 

  

 

Proposal No. 2: Approval, on an advisory basis, of the Company’s executive compensation    FOR    57

 

  

 

  

 

Proposal No. 3: Ratification of the appointment of Ernst  & Young LLP for the year ending December 31, 2022

 

   FOR    58
 

 

PARTICIPATE IN THE ANNUAL MEETING

The virtual meeting will be available to stockholders across the globe via any Internet-connected device and has been designed to provide the same rights to participate as you would have at an in-person meeting, including providing opportunities to vote, make statements and ask questions. This approach is sensitive to any public health and travel concerns, aligns with the Company’s broader sustainability goals and reduces costs for both the Company and its stockholders.

VOTING

Stockholders may
vote by

                

  LOGO  

                

 

INTERNET

www.proxyvote.com

    LOGO    
 

TELEPHONE

1-800-690-6903

    LOGO    
 

MAIL

completing and returning
their proxy card

    LOGO    
 

ONLINE

at the Annual Meeting

 

INFORMATION

www.proxydocs.com/NLY

 

 

You are entitled to participate, vote and ask questions at the Annual Meeting by visiting www.virtualshareholdermeeting.com/NLY2022. An audio broadcast of the Annual Meeting will also be available to stockholders by telephone toll-free at 1-833-654-9116 in the United States or 1-516-575-8757 if calling from outside the United States, and providing Conference ID 2451939. Please note that listening to the audio broadcast will not be deemed to be attending the Annual Meeting and you cannot ask questions or vote from such audio broadcast. If you plan to attend the Annual Meeting online or listen to the telephonic audio broadcast, you will need the 16-digit control number included in your Notice, on your proxy card or on the instructions that accompany your proxy materials. Stockholders can access Annaly’s interactive pre-meeting forum, where you can submit questions in advance of the Annual Meeting and view copies of the Company’s proxy materials, by visiting www.proxyvote.com. The Company will respond to as many inquiries that are pertinent to the Company at the Annual Meeting as time allows.

 

1


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ANNALY AT A GLANCE

 

     

NLY

New York Stock
Exchange (“NYSE”) Traded

   

1997

Initial Public Offering

   

mREIT

Largest mREIT in the world(1)

EVOLUTION OF ANNALY

Annaly has significantly enhanced its position as a leader in the residential housing finance space since the beginning of 2021 through a number of strategic milestones (as illustrated in the timeline below) including the sale of its Commercial Real Estate business, buildout of its mortgage servicing rights (“MSR”) platform and launch of its residential whole loan correspondent channel. Further, Annaly’s commitment to robust governance, organizational and human capital practices continue to enhance the firm’s alignment with stockholders, as demonstrated by the Board’s amendment of our stockholder rights bylaws to lower the threshold for stockholders to call a special meeting from a majority of shares outstanding to 25%.

 

LOGO

EXECUTIVE COMPENSATION

In the Company’s first full year as an internally-managed Company, the Management Development and Compensation Committee ("MDC Committee") introduced a number of additional enhancements to the Company’s executive compensation program, which are intended to institutionalize a market competitive program that incentivizes strong performance, drives alignment with stockholders and reflects best practices, market insights and robust governance. These enhancements included:

 

 

Reducing discretion and providing for a more formulaic approach to determining annual incentive opportunities for the Company’s named executive officers (“NEO”) with 75% based on corporate/organizational metrics and 25% based on individual metrics

 

   

Increasing the proportion of objective financial metrics as a percentage of corporate/organizational metrics from 50% to 60%

 

 

Introducing pre-established target amounts for all NEO annual incentive opportunities with payout ranging from 80% to a maximum of 120% of target

 

 

For the CEO, increasing the relative weighting of equity as a percentage of total incentive compensation opportunity to greater than 50% (with a majority of the NEOs at 50% or greater for 2021 and all NEOs at 50% or greater for 2022)

 

 

For all NEOs, increasing the proportion of performance stock units (“PSUs”) as a percentage of total equity compensation to 50%

 

Note: For footnoted information, please refer to “Annaly at a Glance” in Endnotes  section.

 

2


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RECENT OPERATING ACHIEVEMENTS

 

Dividend     Commercial Real Estate Sale      Credit Activity
        
     

11.3%

dividend yield(1) at the end of 2021

   

$2.33 billion   

sale of Commercial Real Estate  

Business, completed during the third quarter  

    

$6.1 billion

of originations

across Annaly’s credit

businesses in 2021(2)

        
Liquidity     Leverage      Operating Efficiency
        
     

$9.3 billion 

of unencumbered assets at the end of 2021,  

including cash and unencumbered Agency  

MBS of $5.2 billion  

   

5.7x 

economic leverage, down half a turn year-  

over-year (“YoY”)  

    

1.35% 

operating expense ratio(3) for FY 2021;  

down 20 basis points YoY following the  

Company’s management internalization and  

Commercial Real Estate sale  

        

ANNALYS SHARED CAPITAL MODEL AND STRATEGIC FOCUS

We believe we efficiently diversify our investments across our businesses through a rigorous shared capital model and capital allocation process. In March 2021, the Company signed a definitive agreement to sell our commercial real estate business to Slate Asset Management for $2.33 billion. We believe the transaction provided compelling execution for our stockholders, while also generating additional capacity and strategic flexibility to further expand our leadership and operational capabilities across all aspects of the residential housing finance market. Combined with recent initiatives, including the buildout of our MSR platform and expansion of our residential credit business, we believe that Annaly is well-positioned to allocate capital across the housing finance space.

 

 

LOGO

Note: For footnoted information, please refer to “Recent Operating Achievements & Annaly’s Shared Capital Model and Strategic Focus” in Endnotes section.     

 

3


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DELIVERING SIGNIFICANT VALUE FOR STOCKHOLDERS

 

       

$22 billion+

of common and preferred
dividends declared
since Annaly’s IPO(1)

   

25

years of delivering yield

to stockholders

   

$1.4 billion

of common and preferred

dividends declared in 2021

   

925%

total shareholder return since Annaly’s IPO(1)

Since inception, Annaly has declared over $22 billion in cumulative common and preferred dividends to stockholders, returning significant value to stockholders.

 

 

LOGO

STOCKHOLDER OUTREACH AND RESULTS OF 2021 SAY-ON-PAY VOTE

 

     

100%

of top 100 institutional investors
included in 2021—2022
outreach efforts

   

~90%

of all institutional investors
included in 2021—2022
outreach efforts

   

>100

meetings with
stockholders across the U.S.,
Canada and Europe since 2021

The Company is committed to ongoing engagement with both retail and institutional stockholders through a wide range of mediums, including: in-person and virtual meetings, conferences, phone calls, electronic communication and social media. Following the results of Annaly’s 2021 advisory resolution on executive compensation (commonly known as a “Say-on-Pay” vote), which received support from over 90% of votes cast, the Company has continued its multi-pronged stockholder outreach campaign to solicit feedback on a number of issues, including (i) the Company’s executive compensation practices and disclosures, (ii) the Company’s human capital management, including diversity, equity and inclusion efforts, (iii) the Company’s stockholder rights framework, and (iv) the Company’s corporate responsibility and ESG initiatives.

Annaly’s stockholder engagement efforts generated significant feedback for both the Board and management and have resulted in a number of enhancements to the Company’s management structure and its corporate governance, corporate responsibility and executive compensation practices and disclosures over the last few years. Annaly’s stockholders have been instrumental to, and supportive of, these governance and disclosure enhancements and the Company looks forward to continuing to find innovative ways to engage over the course of 2022 and beyond.

Note: For footnoted information, please refer to “Delivering Significant Value for Stockholders” in Endnotes section.

 

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The Company’s stockholder outreach is complemented by related initiatives, including:

 

  Analysis of market governance, compensation and ESG practices at peer companies

  Advice from external advisors, including governance, compensation and ESG consultants, board search firms and proxy solicitors

  Attendance at investor conferences

  Discussions with proxy advisory services and corporate governance research firms

 

2021 – 2022 STOCKHOLDER ENGAGEMENT EFFORTS

 

WHAT THE
COMPANY HEARD

  WHAT THE COMPANY DID

 

Augment Stockholder Rights Framework

 

 

 Conducted extensive stockholder outreach to assess desired enhancements to stockholder rights framework

 Proactively amended our bylaws in February 2022 to lower the threshold for stockholders to call a special meeting from the previous majority threshold to 25% of shares outstanding

 

Continue to Enhance

Executive Compensation

Practices

 

 

 Reduced discretion and provided for a more formulaic approach to determining NEO annual incentive opportunities with 75% based on corporate/organizational metrics and 25% based on individual metrics

–  Increased the proportion of objective financial metrics as a percentage of corporate/organizational metrics from 50% to 60%

 Introduced pre-established target amounts for all NEO annual incentive opportunities with payout ranging from 80% to a maximum of 120% of target

 For the CEO, increased the relative weighting of equity as a percentage of total incentive compensation opportunity to greater than 50% (with a majority of the NEOs at 50% or greater for 2021 and all NEOs at 50% or greater for 2022)

 For all NEOs, increased the proportion of PSUs as a percentage of total equity compensation to 50%

 

Expand DE&I Initiatives

 

 

 Publicly released our 2019 and 2020 EEO-1 Reports and pledged to provide annual disclosure of workforce diversity statistics going forward

 Became a signatory of the CEO Action for Diversity & Inclusion

 Launched seven employee-sponsored affinity groups

 Conducted firmwide inclusion educational events on allyship and related topics

 Sponsored Individual Style Profile assessments for all employees to foster informed and inclusive thinking and behaviors around different individual styles

 Continued to monitor key human capital diversity metrics: hiring, turnover, promotion

 

Focus on Corporate

Responsibility and ESG

 

 

 Published second Corporate Responsibility Report in July 2021

–  Report outlines the Company’s progress towards our ESG goals and commitments across our five key ESG areas: corporate governance, human capital, responsible investments, risk management and environment

 Published climate-related disclosures on our website and issued new ESG goals and commitments, including a commitment to assess our climate change risks and opportunities taking into consideration the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD)

 Continued to track, measure and disclose our total greenhouse gas (GHG) emissions and energy consumption as well as fully offsetting 100% of our Scope 2 GHG emissions

 Updated the Company’s governance documents to reflect integrated ESG oversight across the Board and its Committees

 

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BOARD COMPOSITION, STRUCTURE AND REFRESHMENT

 

 

The Nominating/Corporate Governance (“NCG”) Committee endeavors to have a Board representing diverse backgrounds and a wide range of professional experiences. The NCG Committee annually evaluates its overall composition and rigorously evaluates individual Directors to ensure a continued match of their skill sets and projected tenure against the needs of the Company. For additional information about individual Directors’ qualifications and experience, please see the Director biographies beginning on page 12.

   

15 or 73

Independent Directors may not stand for re-election upon the earlier of 15 years of service or their 73rd birthday

 

   
   

64%

 

of Directors identify as women and/or racially/ethnically diverse

 

Skill / Experience Summary of Directors

 

                         
Skill / Experience   Bovich   Denahan   Fallon   Finkelstein   Hamilton   Hannan   Haylon   Reeves   Schaefer   Williams   Votek   Total
Complex and regulated industries                         11
Compliance    

 

       

 

   

 

         

 

     

 

  6
Corporate governance                         11
ESG      

 

       

 

     

 

     

 

     

 

  6
Finance and accounting        

 

   

 

         

 

        8
Financial expert    

 

   

 

   

 

   

 

   

 

       

 

   

 

   

 

    3
Financial services                  

 

     

 

    9
Government, public policy and regulatory affairs    

 

         

 

   

 

   

 

   

 

     

 

   

 

  4
Industry knowledge              

 

     

 

     

 

    8
Information technology/cybersecurity    

 

     

 

   

 

   

 

   

 

   

 

   

 

   

 

      3
Legal expertise    

 

   

 

   

 

   

 

   

 

   

 

   

 

     

 

   

 

   

 

  1
Mergers & acquisitions    

 

     

 

                  9
Operations/human capital management                  

 

        9
Other public company board experience      

 

   

 

   

 

   

 

       

 

   

 

   

 

   

 

  3
Private company board experience      

 

   

 

   

 

       

 

       

 

    6
Public company CEO    

 

     

 

     

 

   

 

   

 

   

 

   

 

   

 

    3
Risk management        

 

                  10
Strategy development and implementation    

 

               

 

        9
Gender diversity          

 

   

 

     

 

   

 

   

 

     

 

  5
Racial/ethnic diversity    

 

   

 

   

 

   

 

   

 

     

 

     

 

   

 

    3
Audit Committee financial expert    

 

   

 

   

 

   

 

   

 

       

 

   

 

   

 

    3
Total   11   14   10   11   10   16   13   9   11   11   15  

 

As evidenced by the composition of our Board, the Company is committed to seeking out highly qualified candidates of diverse gender and race/ethnicity, as well as taking into account other factors that promote principles of diversity. The Board’s Corporate Governance Guidelines formalize the Board’s commitment to seeking out highly qualified candidates of diverse gender and race/ethnicity and include a director refreshment policy requiring that Independent Directors may not stand for re-election following the earlier of their 15th anniversary of service on the Board or their 73rd birthday. In extraordinary circumstances, the Board may determine that an Independent Director may stand for re-election after having reached such age or term limit for up to three additional one-year terms.

 

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Director Diversity(1)

LOGO   LOGO   LOGO   LOGO

ENVIRONMENTAL, SOCIAL AND GOVERNANCE (“ESG”)

We are convinced that our ESG initiatives strengthen how we manage the Company and as a responsible steward of capital, we actively focus on integrating ESG considerations into our overall strategy. The Company views ESG risks and opportunities as critical components for achieving strategic business objectives, managing risks and delivering attractive risk-adjusted returns over the long-term. We strive to have a positive impact in the communities where we live, work and invest by conducting our business in accordance with the highest ethical standards, guided by our strong corporate values.

In July 2021, the Company published its second Corporate Responsibility Report titled Leading with Purpose. The report outlines the Company’s progress towards meeting the ESG goals and commitments outlined in our inaugural Corporate Responsibility Report, which span five key areas: corporate governance, human capital, responsible investments, risk management and the environment. The report also includes new ESG goals and commitments, including a pledge to further assess climate change risks and opportunities taking into consideration the recommendations of the TCFD. Additionally, the report includes supplemental disclosures under the Sustainability Accounting Standards Board framework, including new disclosures under the Mortgage Finance Accounting Standard, and references the Global Report Initiative. In August 2021, the Company also publicly released our 2019 and 2020 EEO-1 Reports and pledged to provide annual disclosure of workforce diversity statistics going forward.

 

 

LOGO

 

Note: For footnoted information, please refer to “Director Diversity” in Endnotes section.

 

7


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In 2021, the Board amended our Corporate Governance Guidelines and Board Committee charters to reflect integrated oversight of ESG practices, initiatives and related risk across the Board and its Committees. As outlined below, the full Board has overall responsibility for ESG oversight, and each of the Board Committees has oversight responsibility of specific ESG-related matters relating to the purpose, duties and responsibilities of each committee.

 

 

LOGO

 

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Table of Contents

 

Notice of Annual Meeting of Stockholders   
Proxy Summary      1  
Corporate Governance at Annaly      10  
Proposal 1: Election of Directors      11  

Director Nominees

     12  

Recent Corporate Governance and Corporate Responsibility Highlights

     17  

Governing Documents

     18  
Board Committees      19  

Audit Committee

     20  

Corporate Responsibility Committee

     20  

MDC Committee

     21  

NCG Committee

     21  

Risk Committee

     22  
Board Structure and Processes      23  

Board Leadership Structure

     23  

Independence of Directors

     23  

Executive Sessions of Independent Directors

     23  

Board Oversight of Risk

     24  

CEO Performance Reviews and Management Succession Planning

     24  

Board Effectiveness, Self-Evaluation and Refreshment

     25  

Director Criteria and Qualifications

     25  

Consideration of Board Diversity

     26  

Director Nomination Process

     26  

Stockholder Recommendation of Director Candidates

     26  

Communications with the Board

     26  

Director Attendance

     26  

Board Commitment and Over-Boarding Policy

     27  

Director Orientation and Continuing Education

     27  

Certain Relationships and Related Party Transactions

     27  

Compensation of Directors

     28  
Executive Officers      30  
Compensation Discussion and Analysis      31  

Executive Summary

     31  

How Executive Compensation Decisions are Made

     38  

Executive Compensation Design and Award Decisions for 2021

     40  

Executive Compensation Policies

     48  

Report of the Compensation Committee

     49  
Executive Compensation Tables      50  

Summary Compensation Table

     50  

Grants of Plan-Based Awards

     51  

Outstanding Equity Awards at Fiscal Year-End

     52  

Stock Vested

     52  

Pension Benefits and Nonqualified Deferred Compensation

     53  

Potential Payments upon Termination or Change in Control

     53  

Compensation Committee Interlocks and Insider Participation

     55  

CEO Pay Ratio

     56  
Proposal 2: Advisory Approval of Executive Compensation      57  
Audit Committee Matters      58  
Proposal 3: Ratification of Appointment of Independent Registered Public Accounting Firm      58  

Report of the Audit Committee

     58  

Relationship with Independent Registered Public Accounting Firm

     59  
Stock Ownership Information      60  

Security Ownership of Certain Beneficial Owners and Management

     60  
Other Information      62  

Where You Can Find More Information

     62  

Stockholder Proposals

     62  

Other Matters

     62  

Questions and Answers About the Annual  Meeting

     62  

Cautionary Note Regarding Forward-Looking Statements

     67  
Endnotes      68  

Appendix - Non-GAAP Reconciliations

     70  
 

 

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Table of Contents

Corporate Governance at Annaly

The Company is committed to maintaining a strong ethical culture and robust governance practices that benefit the long-term interests of stockholders, which include:

 

 

DIRECTOR INDEPENDENCE AND OVERSIGHT

 

 

 Separate CEO and Independent Chair of the Board

 

 Majority of Directors are Independent

 

 Regular executive sessions of Independent Directors

 

 Independent key Board Committees (Audit, MDC and NCG)

 

 Board oversees a succession plan for the CEO and other senior executives

 

 
     
 

BOARD REFRESHMENT AND DIVERSITY

 

 Board refreshment policy triggered upon earlier of 15 years of service or 73rd birthday

 

–  64% of Directors have tenure of less than 5 years

 

  Board is committed to seeking out highly qualified candidates of diverse gender and race/ethnicity, as well as taking into account other factors that promote principles of diversity

 

–  45% of Directors are women

 

–  27% of Directors are racially/ethnically diverse

 

–  100% of Committee leadership positions are held by women

 

  Named a top 10 finalist for the 2021 NACD Diversity, Equity & Inclusion Awards

 

 
     
 

DIRECTOR QUALIFICATIONS

AND EVALUATION

 

 Annual Board, Committee and individual Director self-evaluations with periodic use of an external facilitator

 

 Comprehensive Board succession planning process

 

 Robust over-boarding policy limits the number of outside public company boards, other than Annaly, on which Directors can serve to three other boards for non-CEOs and one other board for sitting CEOs

 

 Multiple Audit Committee financial experts

 

 
     
 
STOCKHOLDER RIGHTS AND ENGAGEMENT  

 All Directors are elected annually

 

 Majority vote standard for uncontested elections

 

 Annual stockholder advisory vote on executive compensation

 

 Majority voting to approve amendments to the Company’s charter and bylaws

 

 Stockholders representing at least 25% of votes entitled to be cast on a matter may request a special meeting of the Company

 

 Virtual meeting format enables participation from global stockholder base

 

 Stockholders can submit questions for the Annual Meeting through an interactive pre-meeting forum and during the Annual Meeting

 

 
     
 

CORPORATE RESPONSIBILITY

& ESG

 

 Board created Corporate Responsibility Committee in 2017

 

 Included in the 2022 Bloomberg Gender-Equality Index for the fifth consecutive year

 

 Annual Corporate Responsibility Reports

 

 Corporate Governance Guidelines and Board Committee charters reflected integrated ESG oversight across the Board and its Committees

 

 Annually publishes new ESG goals and commitments and discloses progress against prior ones

 

 Signatory of the CEO Action for Diversity & Inclusion pledge

 

 Seven employee-sponsored affinity groups

 

 Discloses workforce diversity statistics, including EEO-1 Reports

 

 

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PROPOSAL

01

 

Election of Directors

 

At the Annual Meeting, stockholders will vote to elect eleven nominees to serve as Directors, whose terms will expire at the annual meeting of stockholders in 2023 (“2023 Annual Meeting”) and when their respective successors are duly elected and qualify. The table below provides summary information about each of the Directors.

 

   
   

 

LOGO

 

 

The Board has nominated and unanimously recommends a vote FOR each of Francine J. Bovich, Wellington J. Denahan, Katie Beirne Fallon, David L. Finkelstein, Thomas Hamilton, Kathy Hopinkah Hannan, Michael Haylon, Eric A. Reeves, John H. Schaefer, Glenn A. Votek and Vicki Williams as Directors, with each to hold office until the 2023 Annual Meeting, and until their respective successors are duly elected and qualify. Unless you specify a contrary choice, the persons named in the enclosed proxy will vote in favor of these nominees. In the event that these nominees should become unavailable for election due to any presently unforeseen reason, the persons named in the proxy will have the right to use their discretion to vote for a substitute.

 

       

Name

 

  Age  

 

Principal Occupation

 

Independent

 

Committees

    

    Francine J. Bovich   70  

Former Managing Director

Morgan Stanley Investment Management

  Yes   NCG (Chair)
CR
   

 

    Wellington J. Denahan   58  

Former Executive Chairman and Co-Founder

Annaly Capital Management, Inc.

  No   Risk (Chair)
CR
   

 

    Katie Beirne Fallon   46  

Chief Global Impact Officer

McDonald’s Corporation

  Yes   CR (Chair)
NCG
   

 

    David L. Finkelstein   49  

Chief Executive Officer and President

Annaly Capital Management, Inc.

  No  
   

 

    Thomas Hamilton   54  

Owner and Director

Construction Forms, Inc.

  Yes  

Audit MDC

Risk

   

 

    Kathy Hopinkah Hannan       60  

Former National Managing Partner, Global Lead Partner

KPMG LLP

  Yes  

Audit (Chair) MDC

NCG

   

 

    Michael Haylon*   64  

Managing Director and Head of Conning North America

Conning, Inc.

  Yes  

Audit

Risk

   

 

    Eric A. Reeves   49  

Managing Director, Head of Private Capital Investments

Duchossois Capital Management

  Yes   CR
NCG
   

 

    John H. Schaefer   70  

Former President and Chief Operating Officer

Morgan Stanley Global Wealth Management

  Yes  

Risk

Audit

MDC

   

 

    Glenn A. Votek   63  

Former Senior Advisor

Annaly Capital Management, Inc.

  No  

CR

Risk

   

 

    Vicki Williams   49  

Chief Human Resources Officer

NBCUniversal

  Yes   MDC (Chair) Audit
   

 

“CR” refers to the Corporate Responsibility Committee, “MDC” refers to the Management Development and Compensation Committee and “NCG” refers to the Nominating/Corporate Governance Committee.

Vice Chair of the Board.

*

Independent Chair of the Board.

 

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DIRECTOR NOMINEES

 

Francine J. Bovich

Director since

2014

 

Committees

NCG (Chair), CR

 

Ms. Bovich has over 30 years of investment management experience lastly serving as a Managing Director of Morgan Stanley Investment Management from 1993 to 2010. Since 2011, Ms. Bovich has been a trustee of The Bradley Trusts. Ms. Bovich has also served as a board member of The BNY Mellon Family of Funds (formerly known as The Dreyfus Family of Funds) since 2012, and serves as a board member of a number of registered investment companies within the fund complex. These funds represent a broad scope of investment strategies including equities (U.S., non-U.S., global and emerging markets), taxable fixed income (U.S., non-U.S., global and emerging markets), municipal bonds, and cash management. From 1991 through 2005, Ms. Bovich served as the U.S. Representative to the United Nations Investment Committee, which advised a global portfolio of approximately $30 billion. Ms. Bovich is a member of the Economic Club of New York and an emeritus trustee of Connecticut College and chair of the Investment Sub-Committee for its endowment. Ms. Bovich received a B.A. in Economics from Connecticut College and a M.B.A. in Finance from New York University.

 

Director Qualification Highlights

The Board believes that Ms. Bovich’s qualifications include her significant investment management experience and her experience serving as a trustee and board member.

 

Wellington J. Denahan

Director since

1997

 

Committees

Risk (Chair), CR

 

Vice Chair of the Board

 

Ms. Denahan co-founded the Company in 1996 and has served as a Director since the Company’s initial public offering. Until December 2017, Ms. Denahan served as Chairman of the Board of the Company (from November 2012) and Executive Chairman of the Company (from September 2015). Previously, Ms. Denahan served as CEO of the Company from November 2012 to September 2015 and as Co-Chief Executive Officer of the Company from October 2012 to November 2012. Ms. Denahan was the Company’s Chief Operating Officer from January 2006 to October 2012 and Chief Investment Officer from 2000 to November 2012. Ms. Denahan received a B.S. in Finance from Florida State University.

 

Director Qualification Highlights

The Board believes that Ms. Denahan’s qualifications include her significant oversight experience related to fixed income trading operations through years of serving as the Company’s Chief Operating Officer and Chief Investment Officer, her industry experience and expertise in the mortgage-backed securities markets, and her operational expertise, including her service as the Company’s former Chief Executive Officer.

 

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Katie Beirne Fallon

Director since

2018

 

Committees

CR (Chair), NCG

 

Ms. Fallon has served as Chief Global Impact Officer for McDonald’s Corporation, a global foodservice retailer, since October 2020, where she is responsible for the company’s government relations, communications, sustainability and McDonald’s corporate philanthropy and Environmental, Social and Governance (ESG) strategy. Prior to McDonald’s, Ms. Fallon served as Global Head of Corporate Affairs for Hilton Worldwide Holdings Inc., a multinational hospitality company, starting in November 2016, where she was responsible for managing the company’s communications, government relations and corporate responsibility efforts. Prior to Hilton, from 2014 to 2016, Ms. Fallon was Senior Advisor and Director of Legislative Affairs for President Obama. Before becoming the President’s chief liaison to the Hill, Ms. Fallon served from May 2013 to December 2013 as President Obama’s Deputy Communications Director at the White House where she devised and executed communications strategies for the President to promote his economic agenda across the country. From 2011 until May 2013, Ms. Fallon was the Staff Director of the Senate Democratic Policy and Communications Center in the U.S. Congress. Ms. Fallon’s prior roles in government and politics include Legislative Director to Senator Chuck Schumer (D-NY), Deputy Staff Director of the Joint Economic Committee and Policy Director at the Democratic Senatorial Campaign Committee. Ms. Fallon received a B.A. in Government and International Studies from the University of Notre Dame and as a Marshall Scholar received a M.A. in Conflict Regulation from Queen’s University Belfast, Northern Ireland and a M.Sc. in Comparative Politics from the London School of Economics.

 

Director Qualification Highlights

The Board believes that Ms. Fallon’s qualifications include her significant experience in serving at a senior executive level with a multinational public company and her experience serving as a top leadership aide in the highest levels of the U.S. government.

 

David L. Finkelstein

Director since

2020

 

Chief Executive Officer and President

 

Mr. Finkelstein has served as Chief Executive Officer and President of the Company since March 2020. Mr. Finkelstein previously served as the Company’s Chief Investment Officer from November 2016 until December 2021. Previously, Mr. Finkelstein served as the Company’s Chief Investment Officer, Agency and RMBS beginning in February 2015 and as the Company’s Head of Agency Trading beginning in August 2013. Prior to joining the Company in 2013, Mr. Finkelstein served for four years as an Officer in the Markets Group of the Federal Reserve Bank of New York where he was the primary strategist and policy advisor for the MBS purchase program. Mr. Finkelstein has over 20 years of experience in fixed income investment. Prior to the Federal Reserve Bank of New York, Mr. Finkelstein held Agency MBS trading positions at Salomon Smith Barney, Citigroup Inc. and Barclays PLC. Mr. Finkelstein is a member of the Treasury Markets Practice Group sponsored by the Federal Reserve Bank of New York. Mr. Finkelstein received his B.A. in Business Administration from the University of Washington and his M.B.A. from the University of Chicago, Booth School of Business. Mr. Finkelstein also holds the Chartered Financial Analyst® designation.

 

Director Qualification Highlights

The Board believes that Mr. Finkelstein’s qualifications include his deep expertise in fixed income investments, his experience serving as the Company’s Chief Executive Officer and President and his extensive markets and policy experience.

 

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Thomas Hamilton

Director since

2019

 

Committees

Audit, MDC, Risk

 

Mr. Hamilton has served as an Owner and Director of Construction Forms, Inc. (“Con Forms”), an industrial manufacturing company, since 2013. From 2013 until September 2020, Mr. Hamilton also served as Con Forms’ President and Chief Executive Officer. Prior to his roles at Con Forms, Mr. Hamilton spent 24 years in a number of leadership positions in the financial industry. Most recently, Mr. Hamilton served as a Strategic Advisor to the Global Head of Fixed Income, Currencies and Commodities at Barclays Capital in New York. Mr. Hamilton’s prior roles at Barclays include serving as the Global Head of Securitized Product Trading and Banking, in which capacity he was responsible for the build out of the Barclays’s Global Securitized Product businesses, and as the Head of Municipal Trading and Investment Banking. Prior to Barclays, Mr. Hamilton held various Managing Director roles at Citigroup, Inc. and Salomon Brothers, Inc., where he began his career. Mr. Hamilton has served as a Director of Larimar Therapeutics, Inc., a clinical-stage biotechnology company focused on developing treatments for rare complex diseases, since May 2020 when Chondrial Therapeutics, Inc. merged with Zafgen, Inc. and the combined company began operating as Larimar. Prior to the merger, Mr. Hamilton had served as Chairman of the Board of Chondrial Therapeutics, Inc., a biotechnology company he started to cure a rare neurodegenerative disease called Friedreich’s Ataxia, since 2013. He is also a Director of the Friedreich’s Ataxia Research Alliance, along with Co-Founder of his own charitable scientific effort, the CureFA Foundation. Mr. Hamilton received a B.S. in Finance from the University of Dayton.

 

Director Qualification Highlights

The Board believes that Mr. Hamilton’s qualifications include his expertise in fixed income, mortgage-related assets, strategies and markets and significant leadership experience.

 

Kathy Hopinkah Hannan, PhD, CPA

Director since

2019

 

Committees

Audit (Chair), MDC, NCG

 

Dr. Hannan is a former Global Lead Partner, National Managing Partner and Vice Chairman of KPMG, LLP, the U.S. member firm of the global audit, tax and advisory services firm KPMG International. Dr. Hannan has over 30 years of industry experience and held numerous leadership roles during her distinguished career with KPMG. From 2015 until her 2018 retirement, Dr. Hannan served as Global Lead Partner, Senior Advisor for KPMG’s Board Leadership Center and National Leader Total Impact Strategy. Dr. Hannan also served as the Midwest Area Managing Partner for KPMG’s Tax Services from 2004 to 2009. Subsequent to that role, from 2009 to 2015, Dr. Hannan served as the National Managing Partner of Diversity and Corporate Responsibility. While at KPMG, Dr. Hannan also founded the KPMG Women’s Advisory Board. In addition to her roles at KPMG, as a Native American Indian and member of the Ho-Chunk Nation Tribe, Dr. Hannan served on President George W. Bush’s National Advisory Council on Indian Education. Currently, Dr. Hannan serves on the boards of directors of Otis Elevator Co. (NYSE: OTIS) and Blue Trail Holdings, is Chairman of the Board of Trustees and a member of the Executive Committee of the Smithsonian National Museum of the American Indian, is a Trustee of the Committee for Economic Development in Washington D.C. and is an active member of Women Corporate Directors. From 2014 to 2020, Dr. Hannan served as Chairman of the Board & National President for Girl Scouts of the USA. Dr. Hannan received a Ph.D. in Leadership Studies from Benedictine University and a B.A. from Loras College. She is also a graduate of the Chicago Management Institute at the University of Chicago, Booth School of Business and the Institute of Comparative Political & Economic Systems at Georgetown University. In addition, Dr. Hannan has completed the Carnegie Mellon/NACD Cyber-Risk Oversight Program and earned the CERT Certificate in Cybersecurity Oversight.

 

Director Qualification Highlights

The Board believes that Dr. Hannan’s qualifications include her expertise in financial, tax and accounting matters as well as her significant experience in enterprise sustainability, corporate governance and organizational effectiveness.

 

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Michael Haylon

Director since

2008

 

Committees

Audit, Risk

 

Independent Chair of the Board

 

Mr. Haylon has served as Managing Director and Head of Conning North America at Conning, Inc., a global provider of investment management solutions, services and research to the insurance industry, since June 2018. Mr. Haylon has served as a Managing Director at Conning, Inc. since January 2012 and previously served as Head of Asset Management Sales, Products and Marketing from December 2014 until June 2018 and as Head of Investment Products from January 2012 until December 2014. From September 2010 to December 2011, Mr. Haylon served as Head of Investment Product Management at General Re – New England Asset Management. He was Chief Financial Officer of the Phoenix Companies, Inc. from 2004 until 2007, and Executive Vice President and Chief Investment Officer of the Phoenix Companies in 2002 and 2003. From 1995 until 2002, he held the position of Executive Vice President of Phoenix Investment Partners, Ltd., and President of Phoenix Investment Counsel, where he was responsible for the management and oversight of $25 billion in closed-end and open-end mutual funds, corporate pension funds and insurance company portfolios. Mr. Haylon has previously served on the boards of Aberdeen Asset Management and Phoenix Investment Partners. Mr. Haylon received a B.A. from Bowdoin College and a M.B.A. from the University of Connecticut.

 

Director Qualification Highlights

The Board believes that Mr. Haylon’s qualifications include his significant leadership and management experience from his years of management and oversight of large financial asset portfolios, his prior board experience with other companies and his expertise in financial matters.

 

Eric A. Reeves

Director since

2021

 

Committees

NCG, CR

 

Mr. Reeves has served as Managing Director, Head of Private Capital Investments of Duchossois Capital Management (“DCM”), a private investment firm, since 2017. Mr. Reeves has also served as General Counsel & Secretary of The Duchossois Group, a family-owned holding company comprised of diversified operating companies and DCM, since 2007 and its Chief Administrative Officer since 2017. Mr. Reeves was formerly a law partner of McDermott, Will & Emery and a corporate attorney at Jones Day. Mr. Reeves serves on the boards of several DCM portfolio companies and funds as well as on the Advisory Board of Ozinga Bros. His civic and philanthropic commitments include trusteeships at Rush University Medical Center and the National Philanthropic Trust. Mr. Reeves is a member of the Henry Crown Fellows at the Aspen Institute and was honored as a Chicago United Business Leader of Color. Mr. Reeves received his B.A. from the University of Michigan and J.D. from the Ohio State University.

 

Director Qualification Highlights

The Board believes that Mr. Reeves’ qualifications include his expertise in sourcing, executing and managing private capital investments, his years of legal experience from serving as a general counsel and a law firm partner and his private company board experience.

 

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John H. Schaefer

Director since

2013

 

Committees

Risk, Audit, MDC

 

Mr. Schaefer has over 40 years of financial services experience including serving as a member of the management committee of Morgan Stanley from 1998 through 2005. He was President and Chief Operating Officer of the Global Wealth Management division of Morgan Stanley from 2000 to 2005. Mr. Schaefer was Executive Vice President and Chief Strategic and Administrative Officer of Morgan Stanley from 1998 to 2000. From 1997 to 1998, he was Managing Director and Head of Strategic Planning and Capital Management. Prior to the 1997 merger of Dean Witter, Discover and Morgan Stanley, Mr. Schaefer was Executive Vice President, Investment Banking and Head of Corporate Finance at Dean Witter, a position he had held since 1991. He began his investment banking career at E.F. Hutton & Company in 1976. Mr. Schaefer served as a board member and chair of the audit committee of USI Holdings Corporation from 2008 through 2012. He received a B.B.A. in Accounting from the University of Notre Dame and a M.B.A. from the Harvard Graduate School of Business.

 

Director Qualification Highlights

The Board believes that Mr. Schaefer’s qualifications include his broad financial services management experience, including management of strategic planning, capital management, human resources, internal audit and corporate communications, as well as his board and audit committee experience.

 

Glenn A. Votek

Director since

2019

 

Committees

CR, Risk

 

Glenn A. Votek served as Senior Advisor to the Company from March 2020 to August 2020 after serving as Interim Chief Executive Officer and President of the Company from November 2019 to March 2020. Previously, he was Chief Financial Officer of the Company from August 2013 to December 2019. Mr. Votek has over 30 years of experience in financial services. Prior to joining the Company in 2013, Mr. Votek was an Executive Vice President and Treasurer at CIT Group since 1999 and also President of Consumer Finance since 2012. Prior to that, he worked at AT&T and its finance subsidiary from 1986 to 1999 in various financial management roles. Mr. Votek holds a B.S. in Finance and Economics from Kean University/University of Arizona, a M.B.A in Finance from Rutgers University and attended the Executive Education Program of the Colgate W. Darden Graduate School of Business Administration at the University of Virginia. In addition, Mr. Votek has completed the Carnegie Mellon/NACD Cyber-Risk Oversight Program and earned the CERT Certificate in Cybersecurity Oversight.

 

Director Qualification Highlights

The Board believes that Mr. Votek’s qualifications include his extensive knowledge of the Company’s operations and assets through his prior roles as the Company’s former Interim Chief Executive Officer and President and former Chief Financial Officer, his significant leadership experience and his financial and accounting expertise.

 

Vicki Williams

Director since

2018

 

Committees

MDC (Chair), Audit

 

Ms. Williams has 20 years of compensation and governance experience. Ms. Williams has served as Chief Human Resources Officer for NBCUniversal, a multinational media conglomerate, since July 2018, where she is responsible for the company’s global human resources function, including compensation, benefits, development and learning, talent acquisition, executive search, HR systems, and the HR service center. Ms. Williams previously served as Senior Vice President, Compensation, Benefits and HRIS at NBCUniversal beginning in 2011. Prior to joining NBCUniversal, Ms. Williams was a Partner with Pay Governance LLC and a Principal with Towers Perrin (now Willis Towers Watson). Ms. Williams received a B.S. in Education with a concentration in mathematics education and a M.B.A. with a concentration in finance and quantitative statistics, each with honors from the University of Georgia.

 

Director Qualification Highlights

The Board believes that Ms. Williams’ qualifications include her broad human resources, executive compensation and governance experience, including serving as Chief Human Resources Officer at a multinational company and as an external compensation consultant.

 

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RECENT CORPORATE GOVERNANCE AND CORPORATE RESPONSIBILITY HIGHLIGHTS

 

The Company is committed to continually enhancing its corporate governance
and corporate responsibility practices

 

2018

 

 

  Added two new Independent Directors

  Adopted enhanced Board evaluation process, including individual Director assessments and periodic use of external facilitator

  Amended bylaws to declassify Board

  Recognized in the 2018 Bloomberg Gender-Equality Index

 

 

 

  Created new executive role to lead the Company’s Corporate Responsibility and ESG initiatives

  Instructed Board search firm to present equal representation in the slate of potential Director candidates, including candidates of diverse gender and race/ethnicity

  Adopted Board refreshment policy with both a term limit and an age limit

  Completed first energy audit of the Company’s corporate office

 

   

2019

 

 

  Increased commitment to social impact investing joint venture

  Added extensive disclosure on the Company’s Corporate Responsibility and ESG efforts to Annaly’s corporate website

  Launched Women’s Interactive Network Mentoring Circles to foster community and connect smaller cohorts of women with senior leaders

 

 

 

  Added two new Independent Directors

  Recognized in the 2019 Bloomberg Gender-Equality Index for the second consecutive year

  Separated the roles of CEO and Chair of the Board and appointed an Independent Chair of the Board

 

   

2020

 

 

 

  Completed internalization to enable stronger alignment of incentives between stockholders and executives and increased transparency and disclosure

  Refined Director “over-boarding” policy to reduce the number of outside boards on which Directors can serve

  Appointed our first Head of Inclusion and formed an Inclusion Support Committee of Executive Sponsors

 

 

 

  Recognized in the 2020 Bloomberg Gender-Equality Index for the third consecutive year

  Amended Corporate Governance Guidelines to formalize Board’s commitment to seeking out highly qualified candidates of diverse gender and race/ethnicity

  Published inaugural Corporate Responsibility Report

   

2021

 

 

  Amended the Company’s governance documents to reflect the integrated ESG oversight across the Board and its Committees

  Disclosed racial/ethnic diversity of our Directors in our Board skills and experiences matrix for the first time

  Added new Independent Director

  Became a signatory of the CEO Action for Diversity and Inclusion

 

 

  Published second Corporate Responsibility Report

  Disclosed workforce diversity statistics, including EEO-1 Reports

  Recognized in the 2021 Bloomberg Gender-Equality Index for the fourth consecutive year

  Finalist for the 2021 NACD Diversity, Equity and Inclusion awards

  Expanded to seven employee-sponsored affinity groups

 

   

2022

 

 

  Amended bylaws to lower the threshold for stockholders to call special meetings to 25% of shares outstanding

  Published climate-related disclosures and committed to assess our climate change risks and opportunities taking into consideration the recommendations of the TCFD

 

 

 

  Recognized in the 2022 Bloomberg Gender-Equality Index for the fifth consecutive year

  Enhanced the Company’s parental leave policy, providing extended leave for child and family care as well as access to expanded fertility benefits

 

 

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GOVERNING DOCUMENTS

Code of Business Conduct and Ethics

The Board has adopted a Code of Business Conduct and Ethics (the “Code of Conduct”), which sets forth the basic principles and guidelines for resolving various legal and ethical questions that may arise in the workplace and in the conduct of business. This Code of Conduct is applicable to the Company’s Directors, executive officers and employees, and is also a “code of ethics” as defined in Item 406(b) of Regulation S-K. The Company will make any legally required disclosures regarding amendments to, or waivers of, provisions of the Code of Conduct on the Company’s website.

Corporate Governance Guidelines

The Board has adopted Corporate Governance Guidelines that, in conjunction with our Charter, our Bylaws and the charters of the Board Committees, provide the framework for governance of the Company.

Other Governance Policies

The Company’s Directors, executive officers and employees are also subject to the Company’s other governance policies, including a Foreign Corrupt Practices Act and Anti-Bribery Compliance Policy, an Insider Trading Policy, and a Regulation FD Policy.

Where You Can Find the Code of Conduct, Corporate Governance Guidelines and Committee Charters

The Code of Conduct, Corporate Governance Guidelines, MDC Committee Charter, Audit Committee Charter, NCG Committee Charter, Corporate Responsibility Committee Charter and Risk Committee Charter are available on Annaly’s website (www.annaly.com). The Company will provide copies of these documents free of charge to any stockholder who sends a written request to Investor Relations, Annaly Capital Management, Inc., 1211 Avenue of the Americas, New York, NY 10036.

 

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Table of Contents

Board Committees

The Board has five standing Committees: the Audit Committee, the MDC Committee, the NCG Committee, the Risk Committee and the Corporate Responsibility (“CR”) Committee.

The table below shows the membership as of the date of this Proxy Statement of each Board Committee and number of Committee meetings held in 2021.

 

Director   Audit
Committee
  MDC
Committee
  NCG
Committee
  CR
Committee
  Risk
Committee
Francine J. Bovich           LOGO      

 

Wellington J. Denahan                 LOGO

 

Katie Beirne Fallon             LOGO    

 

David L. Finkelstein                    

 

Thomas Hamilton              

 

Kathy Hopinkah Hannan   LOGO E            

 

Michael Haylon*   E              

 

Eric A. Reeves                

 

John H. Schaefer              

 

Glenn A. Votek(1)                

 

Vicki Williams     LOGO            

 

% of Independent Members:   100%   100%   100%   60%   60%

 

2021 Meetings:   6   7   4   4   5

 

 

 

Member

  LOGO  

  Chair    

       E  

Audit Committee Financial Expert    

      †  

Vice Chair of the Board            *  Independent Chair of the Board

Committee Membership Determinations

The Board annually reviews the membership and chairship of each Board Committee as part of its broader Board and Committee refreshment and succession planning. This review, which is led by the NCG Committee, takes into account, among other factors, the needs of the Committees, the experience, availability and projected tenure of Directors and the desire to balance Committee continuity with fresh insights. For additional detail, see the “Board Effectiveness, Self-Evaluations and Refreshment” section of this Proxy Statement.

Note: For footnoted information, please refer to “Board Committees” in Endnotes section.

 

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AUDIT COMMITTEE

 

 

   

Committee Members:

 

Kathy Hopinkah Hannan
(Chair)
Thomas Hamilton

Michael Haylon

John H. Schaefer

Vicki Williams

 

Number of Meetings in

2021: 6

  

Key Responsibilities:

 

 Appoints the independent registered public accounting firm and reviews its qualifications, performance and independence

 Reviews the plan and results of the auditing engagement with the Chief Financial Officer and the independent registered public accounting firm

 Oversees internal audit activities

 Oversees the quality and integrity of financial statements and financial reporting process

 Oversees the adequacy and effectiveness of internal control over financial reporting

 Reviews and pre-approves the audit and permitted non-audit services and proposed fees of the independent registered public accounting firm

 Prepares the report of the Audit Committee required by the rules of the SEC to be included in the Proxy Statement

 Together with the Risk Committee, jointly oversees practices and policies related to cybersecurity and receives regular reports from management throughout the year on cybersecurity and related risks

 

Each member of the Audit Committee is financially literate and independent of the Company and management under the applicable rules of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the listing standards of the NYSE. The Board has designated Dr. Hannan and Mr. Haylon as audit committee financial experts under applicable SEC rules.

 

For more information on the Audit Committee’s responsibilities and activities, see the “Board Oversight of Risk” and “Report of the Audit Committee” sections of this Proxy Statement.

 

CORPORATE RESPONSIBILITY COMMITTEE

 

 

   

Committee Members:

 

Katie Beirne Fallon (Chair)

Francine J. Bovich

Wellington J. Denahan

Eric A. Reeves

Glenn A. Votek

 

Number of Meetings in

2021: 4

  

Key Responsibilities:

 

Assists the Board in its oversight of the Company’s items of corporate responsibility that reflect the Company’s values and character, including:

 

  corporate philanthropy

  responsible investments, including social impact investments

  environmental and sustainability

  public policy

  reputation

 

For more information on the Corporate Responsibility Committee’s responsibilities, see the “ Board Oversight of Risk” and “Environmental, Social & Governance (ESG)” sections of this Proxy Statement.

 

 

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MDC COMMITTEE

 

 

   

Committee Members:

 

Vicki Williams (Chair)

Thomas Hamilton

Kathy Hopinkah Hannan

John H. Schaefer

 

Number of Meetings

in 2021: 7

  

Key Responsibilities:

 

 Assists the Board in overseeing the Company’s executive compensation policies and practices

 Reviews and recommends to the Independent Directors for approval the compensation of the CEO

 Reviews and approves the compensation of the NEOs, other than the CEO

 Reviews, approves and recommends to the Board the adoption of equity-based compensation or incentive compensation plans

 Assists the Board in its oversight of the development, implementation and effectiveness of the Company’s policies and strategies relating to its human capital management, including recruiting, retention, career development, management succession, corporate culture, diversity and employment

 Reviews the form and amount of Director compensation

 Prepares the report of the Compensation Committee required by the rules of the SEC to be included in the Proxy Statement

 

Each member of the MDC Committee is independent of the Company and management under the listing standards of the NYSE and qualifies as a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act.

 

For more information on the MDC Committee’s responsibilities and activities, see the “Compensation of Directors,” “Compensation Discussion and Analysis,” and “ Report of the Compensation Committee” sections of this Proxy Statement.

NCG COMMITTEE

 

 

   

Committee Members:

 

Francine J. Bovich

(Chair)

Katie Beirne Fallon

Kathy Hopinkah Hannan

Eric A. Reeves

 

Number of Meetings in

2021: 4

  

Key Responsibilities:

 

 Develops and recommends criteria for considering potential Board candidates

 Identifies and screens individuals qualified to become Board members, and recommends to the Board candidates for nomination for election or re-election to the Board and to fill Board vacancies

 Develops and recommends to the Board a set of corporate governance guidelines and recommends modifications as appropriate

 Provides oversight of the evaluation of the Board

 Considers other corporate governance matters such as Director tenure and retirement policies, and potential conflicts of interest of Board members and senior management, and recommends changes as appropriate

 Considers continuing education alternatives for directors and provides oversight of management’s responsibility for providing the Board with educational sessions on matters relevant to the Company and its business

 

Each member of the NCG Committee is independent of the Company and management under the applicable listing standards of the NYSE.

 

For more information on the NCG Committee’s responsibilities and activities, see the “Director Criteria and Qualifications,” “Consideration of Board Diversity,” “Board Effectiveness, Self-Evaluations and Refreshment,” “Director Nomination Process ” and “Stockholder Recommendation of Director Candidates” sections of this Proxy Statement.

 

 

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RISK COMMITTEE

 

 

   
Committee Members:

 

Wellington J.
Denahan
(Chair)

Thomas Hamilton

Michael Haylon

John H. Schaefer

Glenn A. Votek

 

Number of Meetings in

2021: 5

  

Key Responsibilities:

 

Assists the Board in its oversight of the Company’s:

 

 risk governance structure

 risk management and risk assessment guidelines and policies regarding capital, liquidity and funding risk,  investment/market risk, credit risk, counterparty risk, operational risk, compliance, regulatory and legal risk,  and such other risks as necessary to fulfill the Committee’s duties and responsibilities

 risk appetite, including risk appetite levels and capital adequacy and limits

 practices and policies related to cybersecurity (together with the Audit Committee) and receives regular reports  from management throughout the year on cybersecurity and related risks

 

For more information on the Risk Committee’s responsibilities and activities, see the “Board Oversight of Risk ” section of this Proxy Statement.

 

 

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Board Structure and Processes

Over the last few years, the Board has focused on enhancing its structure, composition and effectiveness. Recent enhancements, including declassifying the Board and separating the roles of the Chair of the Board and CEO, have been informed by the Board’s annual self-evaluation and succession planning processes, its review of evolving best practices and feedback from the Company’s long-term stockholders.

BOARD LEADERSHIP STRUCTURE

In November 2019, the Board separated the roles of Chair of the Board and CEO. While the Board believes that whether to have the same person occupy the offices of Chair of the Board and CEO should be decided by the Board from time to time in its business judgment, the Board has determined that having strong independent Board leadership in the form of an Independent Chair is in the best interests of the Company at this time. In addition to the Chair, the Board may elect a Vice Chair to assist the Chair from among its members. Currently, Mr. Haylon serves as Independent Chair of the Board and Ms. Denahan serves as Vice Chair.

The separation of the CEO and Chair roles allows Mr. Finkelstein to focus on the Company’s overall business and strategy, while allowing Mr. Haylon to focus his attention on governance of the Board and oversight of management. Ms. Denahan supports Mr. Haylon in carrying out certain of his responsibilities. The Board believes that its independent oversight function is further enhanced by its policy to hold regular executive sessions of the Independent Directors without management present and the fact that a majority of the Company’s Directors (and every member of the Audit Committee, MDC Committee and NCG Committee) is independent.

 

The Independent Chair of the Board

 Presides at meetings and executive sessions of the Board

 Serves as a liaison between the CEO and the Independent Directors

 Presides over Annual Meetings of Stockholders

 Together with the Board and Vice Chair, serves as an advisor to the CEO

 Participates, together with the MDC Committee, in the performance evaluation of the CEO

 Provides input into the selection of Committee chairs

 Approves Board meeting agendas and schedules

 Advises the CEO on the Board’s informational needs

 Has authority to call and chair meetings and executive sessions of the Board

 Authorizes the retention of advisors and consultants who report to the Board

 Together with the NCG Chair, leads the Board’s annual performance evaluation

 If requested by stockholders, ensures that he or she is available when appropriate for consultation and direct communication with major stockholders

INDEPENDENCE OF DIRECTORS

Annaly’s Corporate Governance Guidelines and NYSE rules require that at least a majority of Board members are Independent Directors. The Board has adopted the definition of “independent director” set forth in Section 303A of the NYSE rules and has affirmatively determined that each Director (other than Ms. Denahan and Messrs. Finkelstein and Votek) has no relationships with the Company other than as a Director (either directly or as a partner, stockholder or officer of an organization that has a relationship with the Company) and is therefore independent under all applicable criteria for independence in accordance with the standards set forth in the NYSE rules and Annaly’s Corporate Governance Guidelines.

EXECUTIVE SESSIONS OF INDEPENDENT DIRECTORS

The Corporate Governance Guidelines require that the Board have at least two regularly scheduled executive sessions of Independent Directors each year. These executive sessions, which are designed to promote unfettered discussions among the Independent Directors, are presided over by the Independent Chair of the Board. During 2021, the Independent Directors, without the participation of Board members who are members of management, held ten executive sessions.

 

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BOARD OVERSIGHT OF RISK

 

 

FULL BOARD

 

Risk management begins with the Board, through review and oversight of the Company’s risk management framework, and continues with executive management, through ongoing formulation of risk management practices and related execution. The Board exercises its oversight of risk primarily through its Risk Committee and Audit Committee with support from the other Board Committees. At least annually, the full Board reviews with management the Company’s risk management program, which identifies and quantifies a broad spectrum of enterprise-wide risks, including cyber and technology-related risks, and related action plans

                             
                                         
 

 

Audit Committee

     

 

Risk Committee

 
 

Assists the Board in its oversight of the quality and integrity of the Company’s accounting, internal controls and financial reporting practices, including appointing the independent auditor and reviewing its qualifications, performance and independence, and compliance with legal and regulatory requirements

     

Assists the Board in its oversight of the Company’s risk governance structure, risk management and risk assessment guidelines and policies, and risk appetite, including risk appetite levels and capital adequacy and limits

 

 
                             
                                                     

 

MDC Committee

     

Corporate Responsibility

Committee

     

 

NCG Committee

Assists the Board in its oversight of risk related to the Company’s compensation policies and practices and human capital management matters, including succession planning

     

Assists the Board in its oversight of any matters that may present reputational or ESG risk to the Company

     

Assists the Board in its oversight of the Company’s corporate governance framework and the annual self-evaluation of the Board

                             

 

MANAGEMENT

 

Responsible for day-to-day risk assessment and risk management. A series of management committees have decision-making responsibilities for risk assessment and risk management activities. These management committees include the Operating Committee, Enterprise Risk Committee, the Asset and Liability Committee, the Investment Committee and the Financial Reporting and Disclosure Committee

As part of their risk oversight responsibilities, the Audit Committee and Risk Committee held two joint meetings in 2021. The Audit Committee and Risk Committee receive regular reports from management throughout the year on cybersecurity and related risks. In 2021, Dr. Hannan and Mr. Votek completed the Carnegie Mellon/NACD Cyber-Risk Oversight Program and earned the CERT Certificate in Cybersecurity Oversight. In addition to the risk oversight processes outlined above, the Board annually reviews its risk assessment of the Company’s compensation policies and practices applicable to the Company’s equity incentive plans. For additional information on this review, please see the “Risks Related to Compensation Policies and Practices” section of this Proxy Statement.

CEO PERFORMANCE REVIEWS AND MANAGEMENT SUCCESSION PLANNING

The Independent Chair of the Board and the Chair of the MDC Committee jointly coordinate and lead the Board’s annual performance evaluation of the CEO, which reflects input from all Non-Employee Directors. The Board, led by the MDC Committee, oversees and maintains a succession plan for the CEO and other senior executives. Executive succession and talent development are a regular agenda item for the Board and, at least once per year, the Board has a fulsome discussion of talent at each business and functional leadership level across the Company. In carrying out this function, the Board endeavors to ensure that the Company’s management has the capabilities to cause the Company to operate in an efficient and business-like fashion in the event of a vacancy in senior management, whether anticipated or sudden.

 

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BOARD EFFECTIVENESS, SELF-EVALUATIONS AND REFRESHMENT

The Company’s comprehensive Board and Committee refreshment and succession planning process is designed to ensure that the Board and each Committee is comprised of highly qualified Directors, with the independence, diversity, skills and perspectives to provide strong and effective oversight. The Board, led by the NCG Committee, annually evaluates the composition of the Board and each Committee, and rigorously evaluates individual Directors to ensure a continued match of their skill sets and tenure against the needs of the Company.

The NCG Committee is also responsible for overseeing an annual self-evaluation process for the Board. The self-evaluation process seeks to identify specific areas, if any, that need improvement or strengthening in order to increase the effectiveness of the Board as a whole and its members and committees.

 

 

LOGO

 

 

Focus areas of the 2021 self-evaluation included Board and Committee leadership structure, dynamics, priorities, skills, processes and fulfillment of responsibilities. Based on the results of the 2021 self-evaluation process, the Board’s practices evolved in a number of ways, including:

 

  Enhanced corporate governance guidelines and Board committee charters to reflect integrated ESG oversight across the Board and its committees

  2022 Board agenda revised to include additional sessions on priority topics

  Additional presentations/education sessions from external experts

DIRECTOR CRITERIA AND QUALIFICATIONS

The NCG Committee seeks to achieve a balance of knowledge, experience and capability on the Board and considers a wide range of factors when assessing potential Director nominees, including a candidate’s background, skills, expertise, diversity, accessibility and availability to serve effectively on the Board. All candidates should (i) possess the highest personal and professional ethics, integrity and values, exercise good business judgment and be committed to representing the long-term interests of the Company and its stockholders, and (ii) have an inquisitive and objective perspective, practical wisdom and mature judgment. It is expected that all Directors will have an understanding of the Company’s business and be willing to devote sufficient time and effort to carrying out their duties and responsibilities effectively.

 

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CONSIDERATION OF BOARD DIVERSITY

The Company endeavors to have a Board representing diverse backgrounds and a wide range of professional experiences. The Company’s Corporate Governance Guidelines reflect the Board’s commitment to seeking out highly qualified candidates of diverse gender and race/ethnicity, as well as taking into account other factors that promote principles of diversity, including diversity of a candidate’s perspective, background, nationality, age and other demographics. The NCG Committee instructs any search firm it engages to include candidates of diverse gender and race/ethnicity in every director candidate pool presented to the NCG Committee.

 

 
The Corporate Governance Guidelines formalize the Board’s commitment to seeking out highly qualified
candidates of diverse gender and race/ethnicity

DIRECTOR NOMINATION PROCESS

The NCG Committee is responsible for identifying and screening nominees for Director and for recommending to the Board candidates for nomination for election or re-election to the Board and to fill Board vacancies. The NCG Committee also seeks to maintain an ongoing list of potential Board candidates. Nominees may be suggested by Directors, members of management, stockholders or professional search firms. In evaluating a Director nomination, the NCG Committee may review materials provided by the nominator, a professional search firm or any other party.

STOCKHOLDER RECOMMENDATION OF DIRECTOR CANDIDATES

Stockholders who wish the NCG Committee to consider their recommendations for Director candidates should submit their recommendations in writing to Anthony C. Green, the Chief Corporate Officer, Chief Legal Officer and Secretary at the Company’s principal executive offices. Following verification of the stockholder status of persons proposing candidates, recommendations are aggregated and considered by the NCG Committee at a regularly scheduled or special meeting. If any materials are provided by a stockholder in connection with the recommendation of a Director candidate, such materials are forwarded to the NCG Committee. Properly submitted recommendations by stockholders will receive the same consideration by the NCG Committee as other suggested nominees.

COMMUNICATIONS WITH THE BOARD

Stockholders and other persons interested in communicating with an individual Director (including the Independent Chair of the Board), the Independent Directors as a group, any committee of the Board or the Board as a whole, may do so by submitting such communication to:

Annaly Capital Management, Inc.

[Addressee]

1211 Avenue of the Americas

New York, NY 10036

Phone: 1-888-8 ANNALY

Facsimile: (212) 696-9809

Email: investor@annaly.com

The Legal Department reviews all communications to the Directors and forwards those communications related to the duties and responsibilities of the Board to the appropriate parties. Certain items such as business solicitation or advertisements, product-related inquiries, junk mail or mass mailings, resumes or other job-related inquiries, spam and unduly hostile, threatening, potentially illegal or similarly unsuitable communications will not be forwarded.

DIRECTOR ATTENDANCE

During 2021, the Board held 10 meetings. All Directors attended at least 75% of the aggregate number of meetings of the full Board and the Committees on which they served, during the period in which they served, in 2021.

The Company encourages each member of the Board to attend the Annual Meeting. All of the Company’s Directors attended the 2021 Annual Meeting of Stockholders (the “2021 Annual Meeting”) except for Ms. Denahan, who was unable to attend the 2021 Annual Meeting due to a personal conflict.

 

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BOARD COMMITMENT AND OVER-BOARDING POLICY

In response to revised policies and commentary from leading institutional investors and the considerable time commitment and responsibilities associated with Board and Committee service, in 2020 the Board refined its Director “over-boarding” policy to provide that:

 

 

   

Directors should not serve on more than three other public company boards in addition to the Company’s Board;

 
   

Directors who also serve as CEOs or hold equivalent positions at other companies should not serve on more than one other public company board in addition to the Company’s Board; and

 
   

A member of the Audit Committee should not serve on the audit committee of more than two other public companies.

 

All Directors are currently in compliance with this policy. Directors are required to notify the Independent Chair of the Board and the Chair of the NCG Committee in advance of accepting an invitation to serve on another public company board.

 

 
The Company’s “over-boarding” policy limits the number of outside boards on which our
Directors can serve

DIRECTOR ORIENTATION AND CONTINUING EDUCATION

The Board believes that Director orientation and continuing education is critical to the Board’s ability to fulfill its responsibilities in a dynamic and constantly evolving business environment. New Directors participate in a robust onboarding process, which includes extensive training materials and personal briefings by senior management on the Company’s strategic plans, financial statements, and key policies and practices. In addition, the Company encourages Directors to participate in external continuing Director education programs, and the Company provides reimbursement for related expenses. Continuing Director education is also provided during Board meetings and as stand-alone information sessions outside of meetings. In line with the Company’s commitment to continuing Board education, the Board is a Full Board Member of the NACD, which gives Directors access to an extensive menu of Board education programs, along with research on governance trends and Board practices.

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Approval of Related Party Transactions

The Board recognizes the fact that transactions with related persons present a heightened risk of conflicts of interests and/or improper valuation (or the perception thereof). The Board has adopted a written policy on transactions with related persons in conformity with NYSE listing standards.

Under this policy any related person transaction, and any material amendment or modification to a related person transaction, must be reviewed and approved in advance by the Audit Committee or any other standing or ad hoc committee of the Board composed solely of Independent Directors who are disinterested or by the disinterested and independent members of the full Board.

In connection with the review and approval of a related person transaction, management must:

 

   

disclose the name of the related person and the basis on which the person is a related person, the material terms of the related person transaction, including the approximate dollar value of the amount involved in the transaction, and all the material facts as to the related person’s direct or indirect interest in, or relationship to, the related person transaction;

 
   

advise as to whether the related person transaction complies with the terms of agreements governing the Company’s material outstanding indebtedness that limit or restrict the Company’s ability to enter into a related person transaction;

 
   

advise as to whether the related person transaction will be required to be disclosed in the Company’s filings under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act (the Exchange Act collectively with the Securities Act, the “Acts”), and related rules, and, to the extent such transaction is required to be disclosed, ensure that the related person transaction is disclosed in accordance with such Acts and related rules; and

 
   

advise as to whether the related person transaction constitutes a “personal loan” for purposes of Section 402 of the Sarbanes-Oxley Act of 2002.

 

 

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In addition, the related person transaction policy provides that a committee or disinterested Directors, as applicable, in connection with any approval or ratification of a related person transaction involving a non-employee Director or Director nominee, should consider whether such transaction would compromise the Director or Director nominee’s status as an “independent,” or “non-employee” Director, as applicable, under the rules and regulations of the SEC, the Acts, the NYSE and the Code of Conduct.

COMPENSATION OF DIRECTORS

The Company compensates the Non-Employee Directors. Any Director who is also an executive officer or employee does not receive compensation for serving on the Board. The MDC Committee is responsible for reviewing, and recommending to the Board, the form and amount of compensation paid to the Non-Employee Directors.

The annual compensation elements paid to the Non-Employee Directors for service on the Board and its standing committees for 2021 are set forth below:

 

Annual Compensation Element

 

  

Amount

 

 

Annual Cash Retainer

  

$100,000

      

Deferred Stock Unit (“DSU”) Grant

  

$145,000 in DSUs

      

Independent Board Chair Retainer

  

$115,000

      

Vice Chair Retainer

  

$10,000

      

Committee Member Retainer

  

$10,000 – all Board committees

      

Committee Chair Retainer(1)

  

$25,000 – Audit Committee

$20,000 – MDC Committee

$15,000 – all other Board committees

      

 

 

1.

Committee Chairs receive Committee Chair Retainers in addition to, and not in lieu of, Committee Member Retainers.

Each DSU is equivalent in value to one share of the Company’s common stock. DSUs are granted on the date of the annual stockholder meeting and vest immediately. DSUs convert to shares of the Company’s common stock one year after the date of grant unless the Director elects to defer the settlement of the DSUs to a later date. DSUs do not have voting rights. DSUs pay dividend equivalents in either cash or additional DSUs at the election of the Director. Directors are also eligible to receive other stock-based awards under the Company’s 2021 Equity Incentive Plan, which includes certain limits on awards to Non-Employee Directors.

The Company reimburses the Directors for their reasonable out-of-pocket travel expenses incurred in connection with their attendance at full Board and committee meetings.

Director Stock Ownership Guidelines

The stock ownership guidelines for Non-Employee Directors provides that each Non-Employee Director should strive to own an amount of the Company’s common stock equal to five times the annual cash retainer. Shares counting toward the guideline include shares that are owned outright, DSUs and any other shares held in deferral accounts. To facilitate achievement of the guideline, the Board has adopted and implemented a “retention ratio” that requires Non-Employee Directors to retain and hold 50% of the net profit shares from DSUs until the specified ownership level is achieved. As of the date of this proxy statement, all of the Non-Employee Directors had met or were on their way to meeting their stock ownership guideline.

 

 
The stock ownership guideline for Non-Employee Directors is 5x the annual cash retainer

Role of the Independent Compensation Consultant

During 2021, the MDC Committee retained an independent compensation consultant, Frederic W. Cook & Co. (“F. W. Cook”), to assist the MDC Committee in its review of the compensation provided to the Non-Employee Directors. F.W. Cook provides market research and analyses on Director compensation programs and proposals,

 

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including reviews of competitive market trends and design practices and relevant peer and market benchmarking. The MDC Committee considered F. W. Cook’s independence in light of SEC regulations and NYSE listing standards. The MDC Committee discussed all relevant factors and concluded that no conflict of interest exists that would prevent F. W. Cook from independently representing the MDC Committee.

Director Compensation

The table below summarizes the compensation paid by the Company to the Non-Employee Directors for the fiscal year ended December 31, 2021.

 

Name    Fees Earned or
Paid in Cash
($)
     Stock
Awards(1)
($)
    

All Other
Compensation

($)

    Total
($)

 

Francine J. Bovich

     135,000        145,000        —       280,000
 

Wellington J. Denahan

     145,000        145,000        —       290,000
 

Katie Beirne Fallon

     135,000        145,000        —       280,000
 

Thomas Hamilton

     130,000        145,000        —       275,000
 

Kathy Hopinkah Hannan

     155,000        145,000        —       300,000
 

Michael Haylon

     235,000        145,000        —       380,000
 

Eric A. Reeves

     120,000        145,000        —       265,000
 

John H. Schaefer

     130,000        145,000        —       275,000
 

Donnell A. Segalas(3)

     65,000        —          —       65,000
 

Glenn A. Votek

     120,000        145,000        23,940 (2)    288,940
 

Vicki Williams

     140,000        145,000        —       285,000
 

 

1)

The amounts in this column represent the aggregate grant date fair value of the DSU awards, computed in accordance with FASB ASC Topic 718 and based on the closing price of the Company’s common stock on the date of grant. DSUs are vested at grant and accrue dividend equivalents as additional DSUs or cash at the election of the Director.

2)

Represents the aggregate incremental cost to the Company for a Bloomberg terminal for the director.

3)

Mr. Segalas served on the Board through May 19, 2021, the date of the 2021 Annual Meeting.

 

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Executive Officers

The following table sets forth certain information with respect to the Company’s executive officers:

 

Name    Age      Title

 

David L. Finkelstein

     49     

Chief Executive Officer and President

               

Serena Wolfe

     42     

Chief Financial Officer

               

Steven F. Campbell

     50     

Chief Operating Officer

               

Ilker Ertas

     51     

Chief Investment Officer

               

Anthony C. Green

     47     

Chief Corporate Officer, Chief Legal Officer and Secretary

               

Biographical information on Mr.  Finkelstein is provided above under the heading “Election of Directors.” Certain biographical information for Ms. Wolfe and Messrs. Campbell, Ertas and Green is set forth below.

Serena Wolfe has served as Chief Financial Officer of the Company since December 2019. Prior to joining the Company in 2019, Ms. Wolfe served as a Partner at Ernst & Young LLP (“EY”) since 2011 and as its Central Region Real Estate Hospitality & Construction (“RHC”) leader from 2017 to November 2019, managing the go-to-market efforts and client relationships across the sector. Ms. Wolfe was previously also EY’s Global RHC Assurance Leader. Ms. Wolfe practiced with EY for over 20 years, including six years with EY Australia and 16 years with the U.S. practice. Ms. Wolfe currently serves on the boards of Berkshire Grey, Inc. and Doma Holdings, Inc. Ms. Wolfe graduated from the University of Queensland with a Bachelor of Commerce in Accounting. She is a Certified Public Accountant in the states of New York, California, Illinois and Pennsylvania.

Steven F. Campbell has served as Chief Operating Officer of the Company since June 2020. Prior to this position, Mr. Campbell served in a number of other senior roles at the Company, including as Head of Business Operations from September 2019 to June 2020, Head of Credit Operations and Enterprise Risk from February 2018 to September 2019, Chief Operating Officer of Annaly Commercial Real Estate Group from December 2016 to February 2018 and Head of Credit Strategy from April 2015 to February 2018. Mr. Campbell has over 20 years of experience in financial services. Prior to joining the Company in 2015, Mr. Campbell held various roles over six years at Fortress Investment Group LLC, including serving as a Managing Director in the Credit Funds business. Prior to that, Mr. Campbell held positions at General Electric Capital Corporation and D.B. Zwirn & Co, L.P. with a focus on credit and debt restructuring. Mr. Campbell received a B.B.A. from the University of Notre Dame and a M.B.A. from the University of Chicago, Booth School of Business.

Ilker Ertas has served as Chief Investment Officer of the Company since December 2021. Prior to this position, Mr. Ertas served in a number of other senior roles at the Company, including as Head of Securitized Products from February 2019 to December 2021, Head of RMBS Portfolios from February 2018 to February 2019, Head of Trading from February 2017 to February 2018, Head of Asset Trading from October 2016 to February 2017 and Managing Director, Agency & Residential Credit from June 2015 to October 2016. Mr. Ertas has 20 years of experience in U.S. fixed income markets. Prior to joining the Company in 2015, Mr. Ertas was at Citigroup Inc., where he was most recently a Managing Director and Head of Mortgage Derivatives Trading. Mr. Ertas has also held mortgage trading positions at Barclays PLC and Lehman Brothers Holdings Inc. Mr. Ertas received a B.S. in Industrial Engineering from Bogazici University in Istanbul, Turkey and a M.B.A. from the Yale School of Management.

Anthony C. Green has served as Chief Corporate Officer of the Company since January 2019 and as Chief Legal Officer and Secretary of the Company since March 2017. Mr. Green previously served as the Company’s Deputy General Counsel from 2009 until February 2017. Prior to joining the Company, Mr. Green was a partner in the Corporate, Securities, Mergers & Acquisitions Group at the law firm K&L Gates LLP. Mr. Green has over 20 years of experience in corporate and securities law. Mr. Green holds a B.A. in Economics and Political Science from the University of Pennsylvania and a J.D. and LL.M. in International and Comparative Law from Cornell Law School.

 

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Compensation Discussion and Analysis

This Compensation Discussion and Analysis describes the key features of the Company’s executive compensation program and the Management Development and Compensation Committee’s approach in deciding compensation for the Company’s NEOs for performance in 2021:

 

NEO Name

 

  

Title

 

David L. Finkelstein

  

Chief Executive Officer and President

      

Serena Wolfe

  

Chief Financial Officer

      

Anthony C. Green

  

Chief Corporate Officer, Chief Legal Officer and Secretary

      

Ilker Ertas

  

Chief Investment Officer (since December 2021)

Head of Securitized Products (until December 2021)

      

Timothy P. Coffey(1)

  

Former Chief Credit Officer (until February 2022)

      

 

1)

Effective February 14, 2022, Mr. Coffey separated from employment with the Company.

This discussion is divided into four topics: (1) Executive Summary, (2)  How Executive Compensation Decisions are Made, (3)  Executive Compensation Design and Award Decisions for 2021, and (4) Executive Compensation Policies.

EXECUTIVE SUMMARY

Introduction

2021 marked the first full year that the Company was internally-managed. Prior to July 2020, the Company had been externally-managed by Annaly Management Company LLC (the “Former Manager”) since July 2013. As an externally-managed REIT, the Company had paid the Former Manager a monthly cash management fee and the Former Manager (rather than the Company) had employed and compensated the Company’s management team (including the NEOs). During this time, the Compensation Committee of the Board had oversight of the management fees paid by the Company to the Former Manager, but the Compensation Committee did not have oversight, direction or guidance in respect of the compensation paid by the Former Manager to the NEOs.

Effective July 1, 2020, the Company transitioned from an externally-managed REIT to an internally-managed REIT (the “Internalization”) and the MDC Committee assumed responsibility of the Company’s executive compensation program and broad oversight of its human capital management. As described further below, the MDC Committee is committed to institutionalizing a market competitive executive compensation program that incentivizes strong performance, drives alignment with stockholders and reflects best practices, market insights and robust governance. This commitment is reflected by the significant changes to the executive compensation program upon the closing of the Internalization, as well as the additional compensation enhancements adopted by the MDC Committee for 2021.

Executive Compensation Following the Internalization

Following peer benchmarking, stockholder outreach and a review of best practices, the MDC Committee introduced a number of changes to the Company’s executive compensation program in connection with the Internalization, including:

 

 

Introduced equity incentives (including performance-based awards), which represented a significant shift from the Former Manager’s all-cash compensation structure

 

 

Introduced a quantitative corporate performance scorecard, that included both financial and non-financial goals

 

 

Adopted robust NEO stock ownership requirements and holding restrictions

 

 

Adopted an enhanced clawback policy that includes triggers for accounting restatements and executive misconduct

 

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Executive Compensation Enhancements for 2021

To further the alignment of our executive compensation program with the interests of our stockholders and support the firm’s ownership culture, the MDC Committee made a number of enhancements to our executive compensation program for 2021, including:

 

 

Reduced discretion and provided for a more formulaic approach to determining NEO annual incentive opportunities with 75% based on corporate/organizational metrics and 25% based on individual metrics

 

–  Increased the proportion of objective financial metrics as a percentage of corporate/organizational metrics from 50% to 60%

 

  Introduced pre-established target amounts for all NEO annual incentive opportunities with payout ranging from 80% to a maximum of 120% of  target

 

 

For the CEO, increased the relative weighting of equity as a percentage of total incentive compensation opportunity to greater than 50% (with a majority of the NEOs at 50% or greater for 2021 and all NEOs at 50% or greater for 2022)

 

 

For all NEOs, increased the proportion of performance stock units (“PSUs”) as a percentage of total equity compensation to 50%

Philosophy and Program Objectives

The MDC Committee’s compensation philosophy seeks to align the interests of the Company’s employees with those of its stockholders and is driven by the following principles:

 

   

Pay for Performance: A significant portion of executive officer compensation should vary with business performance;

 

 

   

Create Long-Term Stockholder Value: Equity incentive awards should have multi-year vesting and performance periods;

 

 

   

Support Risk Management: Compensation policies and practices should reflect the Company’s risk management culture;

 

 

   

Attract, Retain and Incentivize Top Talent: Compensation packages should be market-competitive to facilitate hiring, retaining and motivating high-performing executives; and

 

 

   

Reinforce our Culture and ESG Priorities: Compensation programs should incorporate our ESG goals and align leadership with our firm culture and values.

 

 

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2021 Investment Strategy and Performance

Annaly’s portfolio continued to generate strong earnings with ample dividend coverage as mortgage servicing rights

(“MSR”) the Company increased its capital allocation to credit and continued to build out its platform

Total
Assets(2)

   Capital Allocation(3)    Economic / Tangible Economic Return (FY 2021)         Total Shareholder Return Since
Annaly’s IPO(4)

$89.2bn

  

68%

Agency

  

32%

Credit

   -0.8% / 0.0%      

 

LOGO

 

  Annaly generated earnings available for distribution(5) (“EAD”) of $1.16 per average share of common stock for the year, representing dividend coverage of +125%

 

  Portfolio was well-positioned for market volatility with prudent leverage, conservative hedging and optimal asset allocation

 

–  $82  billion in highly liquid Agency portfolio, representing 91% of total assets(2), remains the foundation of portfolio

 

  Capital allocation(3) to credit increased from 22% to 32% throughout the year

 

–  Driven by credit originations(6) of $6.1 billion for the full year, more than double year-over-year

 

  Annaly’s Residential Credit Group grew assets by nearly 90% throughout 2021, expanding its whole loan sourcing capabilities through the launch of its residential whole loan correspondent channel in April 2021

 

  Efficiently built out MSR platform with assets increasing to $645 million, over 4.5x the size of the portfolio at year-end 2020(7)

 

  Completed the $2.33 billion sale of Annaly’s Commercial Real Estate Business

Note: For footnoted information, please refer to “2021 Investment Strategy and Performance” in Endnotes section.

 

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Financing, Capital and Liquidity

Maintained a conservative leverage profile with significant liquidity while achieving record-low financing costs during the year

 

  Economic leverage(1) reduced to 5.7x from 6.2x in the prior year

 

  $9.3  billion of unencumbered assets, including cash and unencumbered Agency MBS of $5.2 billion

 

  Achieved record low financing costs during the year, with average GAAP cost of interest bearing liabilities declining 72bps to 0.37% and average economic cost of interest bearing liabilities(1) declining 55bps to 0.79% for the year ended 2021 compared to the year ended 2020

 

  Raised $552 million of accretive common equity through the at-the-market sales program during the year(2)

 

  Added over $500 million of credit facility capacity across our credit businesses

 

  Completed sixteen residential whole loan securitizations totaling $6.3 billion since the beginning of 2021, bringing aggregate issuance to nearly $11.4 billion since the beginning of 2018(3)

 

LOGO

 

LOGO

 

LOGO

 

LOGO

Note: For footnoted information, please refer to “Financing, Capital and Liquidity” in Endnotes section.

 

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Operational Efficiency

 

Annaly’s management internalization and disposition of its Commercial Real Estate business allowed for opportunities for

incremental cost control and operating flexibility

 

 

  Demonstrated improved cost efficiency metrics throughout the year

 

  Annaly’s operating expense was 1.35% for the year, a 20 basis point decrease, following the Company’s management internalization and disposition of the Commercial Real Estate business(1)

 

Operating Expense (“OpEx”) as % of Equity

 

 

 

LOGO

Note: For footnoted information, please refer to “ Operational Efficiency ” in Endnotes section.

 

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Components of Executive Compensation

The table below describes the objectives supported by the Company’s primary compensation elements for 2021 – commonly referred to as “total direct compensation,” along with an overview of the key measures and governance principles for each element.

 

2021 Compensation
Element

  

Objectives

  

Key Measures

  

Governance Principles

Base salary

  

 Provide a level of fixed pay appropriate to an NEO’s roles and responsibilities

 

  

 Experience, duties and scope of responsibility

 Internal and external market factors

 

  

 Comprises minority of overall compensation opportunity compared to “at risk” pay

 

Annual Cash Incentives

  

 Provide a market competitive annual cash incentive opportunity

 Incentivize and reward superior Company and individual performance

 

  

 Considers achievement of financial, risk and other operational performance measures

  

 No guaranteed minimum award amounts

Long-Term Equity Incentives

  

 Align NEO’s interests with long-term stockholder interests

 Encourage long-term, sustainable performance results

 Support retention of key talent

  

 Award amounts included as part of annual incentive consider achievement of financial, risk and other operational performance measures for the performance year

 PSUs vest based on achievement of multiple rigorous Company performance metrics over a three-year performance period

 Restricted stock units (“RSUs”) vest based on continued service and provide both retention and stock value accumulation incentives

 

  

 No guaranteed minimum award amounts

 Equally-weighted mix of PSUs and RSUs

 

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2021 Total Direct Compensation Table

The following table which supplements the Summary Compensation Table on page  50, shows the total direct compensation paid or awarded to each NEO for 2021, including compensation for 2021 performance that was paid or awarded by the Company in early 2022. The table below is not a substitute for the required information included in the Summary Compensation Table, however the MDC Committee believes it best aligns with how the Committee views executive compensation for a given performance year. In accordance with SEC rules, the Summary Compensation Table includes the grant date fair value of stock awards in the year granted, even if the grant is based on a review of prior year performance. As discussed in more detail below, the RSU and PSU awards granted in early 2021 for performance in 2020 are included in the Summary Compensation Table but not in the Total Direct Compensation Table; and conversely, the RSU and PSU awards granted in early 2022 for performance in 2021 are included in the Total Direct Compensation Table but not in the Summary Compensation Table.

 

          Awards for 2021 performance

 

    

NEO

   Salary
($)(1)
   Variable cash
awards ($)(1)(2)
   Equity awards
(granted in
2022)
($)(2)(3)
   Total

David L. Finkelstein

               $1,000,000            $6,325,000                $7,325,000    $14,650,000

Serena Wolfe

   $750,000    $3,000,000    $750,000    $4,500,000

Anthony C. Green

   $750,000    $1,875,000    $1,875,000    $4,500,000

Ilker Ertas

   $750,000    $2,325,000    $2,325,000    $5,400,000

Timothy P. Coffey

   $750,000    $2,175,000    $2,175,000    $5,100,000

 

1)

These amounts represent the annual cash incentives paid by the Company to each executive for his or her service in 2021 and equal the amounts reported as 2021 compensation in the “Bonus” column of the Summary Compensation Table.

2)

These amounts approximate the dollar value of the RSUs and target PSUs that were granted to the NEOs in early 2022 as part of their annual incentive awards for performance in 2021 (ignoring rounding to whole units) and are based on the closing price of the Company’s common stock on the date of grant (February 1, 2022). In accordance with SEC rules, these amounts do not appear as 2021 compensation in the Summary Compensation Table. Rather, the grant date fair value for these awards will appear as 2022 compensation in the “Stock Awards” column in next year’s Summary Compensation Table. The breakdown between RSUs and PSUs of equity awards for 2021 performance (granted in 2022) to each executive is set forth in the table below:

 

NEO

  RSUs   PSUs

David L. Finkelstein

  $3,662,500   $3,662,500

Serena Wolfe

  $   375,000   $   375,000

Anthony C. Green

  $   937,500   $   937,500

Ilker Ertas

  $1,162,500   $1,162,500

Timothy P. Coffey

  $1,087,500   $1,087,500

 

3)

Total direct compensation amounts for 2021 do not reflect equity awards granted in January 2021 to each executive for performance in 2020. These awards are reflected in the “Stock Awards” column of the Summary Compensation Table.

Stockholder Outreach and Results of 2021 Say-on-Pay Vote

At the Company’s 2021 Annual Meeting, over 90% of the votes cast were in favor of the advisory resolution on executive compensation (commonly known as a “Say-on-Pay” vote). The MDC Committee carefully reviewed these voting results, along with additional feedback from the Company’s stockholder engagement efforts, when making executive compensation decisions. Since the beginning of 2021, the Company initiated outreach to stockholders representing approximately 90% of outstanding institutional shares. During these meetings, the Company solicited feedback on a number of corporate governance and corporate responsibility topics and requested feedback on stockholders’ preferred practices for executive compensation design and disclosure. As further described under “2021 – 2022 Stockholder Engagement Efforts ” above, the feedback generated through this engagement meaningfully informed the MDC Committee’s executive compensation decisions in 2021 and, as highlighted below, directly contributed to the MDC Committee’s holistic approach to institutionalizing a compensation program that drives performance, supports the Company’s culture and reflects the insights and priorities of the Company’s long-term investors.

 

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WHAT THE COMPANY DOES

 Majority of compensation is “at risk” – for 2021, variable performance-based compensation comprised 93% of the CEO’s total compensation and 85% of the other NEOs’ total compensation(1)

 MDC Committee applied a corporate scorecard reflecting both objective financial and non-financial goals (75% weighting) and individual achievements (25% weighting) in determining total incentive awards for 2021

 Multiple performance metrics – diversified mix of rigorous Company performance metrics, including economic return and EAD return on equity

 Enhanced clawback policy covers all NEO incentive-based awards for financial restatements and misconduct

 All NEOs are subject to robust stock ownership requirements and holding restrictions

 Annual assessment of NEO compensation practices against peer companies and best practices

 Annual compensation risk assessment to ensure compensation program does not encourage excessive risk-taking

 Regular stockholder feedback through robust outreach program

 

WHAT THE COMPANY DOES NOT DO

  No minimum guaranteed bonus amounts

  No guaranteed salary increases

  No enhanced cash severance for terminations in connection with a change in control

  No NEO severance payments and benefits exceeding 2.99 times salary and bonus

  No “single trigger” cash severance or automatic vesting of equity awards based solely upon a change in control of the Company

  No excessive perquisites

  No tax gross-ups for change in control excise taxes or on any executive perquisites, other than for non-cash relocation benefits

  No hedging or pledging of Company stock

  No dividends or dividend equivalents on unvested awards paid unless and until the underlying awards are earned and vested

  No repricing of options or stock appreciation rights (“SARs”) or the exchange of underwater options or SARs for cash or other awards without  stockholder approval

  No supplemental executive retirement plans

The MDC Committee will continue to consider the outcome of future Say-on-Pay votes, as well as stockholder feedback received throughout the year, and invites stockholders to express their views to the MDC Committee as described under “Communications with the Board.”

HOW EXECUTIVE COMPENSATION DECISIONS ARE MADE

Overview

The MDC Committee reviews and discusses the performance of the CEO and make recommendations regarding his compensation for review and approval by the Independent Directors. For the other NEOs, the CEO makes individual compensation recommendations for review and approval by the MDC Committee. In making compensation recommendations and determinations, the MDC Committee utilizes the advice of its independent compensation consultant, reviews compensation-related policies and feedback of long-term investors, considers the terms of any applicable employment agreements, analyzes competitive market information and peer group data, and assesses Company and individual performance.

The Company’s Human Capital Management team supports the MDC Committee in the execution of its responsibilities with assistance from the Company’s Finance and Legal teams. The Company’s Head of Human Capital Management, Chief Financial Officer and Chief Legal Officer and Chief Corporate Officer oversee the development of materials for each MDC Committee meeting, including market data, historical compensation, and individual and Company performance metrics. No NEO, including the CEO, has a role in determining his or her own compensation.

Role of the MDC Committee’s Independent Compensation Consultant

During 2021, the MDC Committee retained an independent compensation consultant, Frederic W. Cook & Co. (“F. W. Cook”), to advise the MDC Committee on the Company’s executive compensation program design and

 

Note: For footnoted information, please refer to “What the Company Does” in Endnotes sections.

 

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structure. In this capacity, F.W. Cook regularly attends meetings and executive sessions of the MDC Committee. As described above, F.W. Cook also assists the MDC Committee in its review of the Company’s compensation program for Non-Employee Directors. During 2021, F.W. Cook served solely as a consultant to the MDC Committee and did not provide any other services to the Company. The MDC Committee considered F. W. Cook’s independence in light of SEC regulations and NYSE listing standards and concluded that no conflict of interest exists that would prevent F. W. Cook from serving as an independent consultant to the MDC Committee.

Company Market Data

The MDC Committee considered compensation data and practices of a group of peer companies recommended by F.W. Cook (the “Compensation Peer Group”), as well as current market trends and practices generally, in developing appropriate compensation packages for the NEOs in 2021, but without any formulaic benchmarking.

 

LOGO

 

  

Compensation Peer Group

  

Affiliated Managers Group, Inc.

AGNC Investment Corp.

Ameriprise Financial, Inc.

Arbor Realty Trust

Chimera Investment Corporation

 

  

Franklin Resources, Inc.

Jefferies Financial Group

Ladder Capital Corp.

Lazard Ltd.

MFA Financial, Inc.

 

  

New York Mortgage Trust

Redwood Trust, Inc.

Raymond James Financial, Inc.

The Carlyle Group L.P.

Voya Financial

 

The MDC Committee uses a separate group of mortgage REIT peers (the “Performance Peer Group”) to evaluate Company performance under the corporate scorecard described above and determine PSU award payouts as described further below. The Performance Peer Group companies have portfolios and investment strategies that most closely resemble the Company’s focus on residential mortgage assets.

 

  

Performance Peer Group(1)

  

AGNC Investment Corp.

ARMOUR Residential REIT, Inc.

Chimera Investment Corporation

 

  

Dynex Capital, Inc.

Invesco Mortgage Capital, Inc.

MFA Financial, Inc.

 

  

New York Mortgage Trust

Two Harbors Investment Corp.

 

The MDC Committee reviews the compensation of executives in the Compensation Peer Group at least once per year. A broad range of data is considered by the MDC Committee to ascertain whether the CEO and other NEOs are appropriately positioned above, at or below the median to properly reflect various factors, such as the Company’s performance within the Performance Peer Group, the unique characteristics of the individual’s position, and applicable succession and retention considerations.

 

Note: For footnoted information, please refer to “Performance Peer Group” in Endnotes section.

 

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EXECUTIVE COMPENSATION DESIGN AND AWARD DECISIONS FOR 2021

Overview

The MDC Committee is committed to maintaining an executive compensation program that attracts, retains and incentivizes top executive talent and generates long-term value for stockholders by directly linking compensation payout to Company performance without encouraging unnecessary risk taking. The Company’s executive compensation program primarily consists of base salaries and annual incentive awards delivered part in cash and part in equity awards, which include both RSUs and PSUs. The RSUs and PSUs include time-based and performance-based vesting requirements over multiple years following grant to further encourage sustainable Company performance aligned to long-term stockholder interests. The introduction of equity incentive awards to the Company’s executive compensation program in 2020 represented a significant shift from the Former Manager’s all-cash compensation structure. While the MDC Committee viewed 2020 as a transitional year in terms of the evolution of the Company’s executive compensation framework, the MDC Committee committed to increasing the relative weighting of long-term equity incentives, including PSUs, as a percentage of total executive compensation over time as reflected by the 2021 pay mixes for the CEO and the other NEOs.

 

 

2020 CEO PAY MIX(1)

 

      

 

2021 CEO PAY MIX(1)

 

 

LOGO

 

 

LOGO

 

 

LOGO

 

 

 

 

2020 OTHER NEO PAY MIX(2)

 

      

 

2021 OTHER NEO PAY MIX(2)

 

 

LOGO

 

 

LOGO

 

 

LOGO

 

Gray shading indicates at-risk performance-based compensation. Percentages may not sum to 100% due to rounding.

 

Note: For footnoted information, please refer to “Executive Compensation Design and Award Decisions for 2021” in Endnotes section.

 

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Base Salary

Base salaries for NEOs are established after considering a variety of factors, including market data, historic pay, internal pay equity, the scope of each NEO’s responsibilities and individual and Company performance. Ms. Wolfe’s base salary for 2021 was paid in accordance with her now-expired employment agreement. No NEO is entitled (under an employment agreement or otherwise) to any guaranteed salary increase. Base salaries were not increased for the NEOs during 2021.

 

  NEOs   

Salary           

($)           

     

 

David L. Finkelstein

     1,000,000            
              

Serena Wolfe

     750,000            
              

Anthony C. Green

     750,000            
              

Ilker Ertas

     750,000            
              

Timothy P. Coffey

     750,000            
              

2021 Annual Incentives – Cash and Equity Awards

For each of Messrs. Finkelstein, Green, Ertas and Coffey, the MDC Committee established target amounts for their 2021 incentive awards at the beginning of the performance period. Target amounts for the NEOs other than Ms. Wolfe were established based on advice from the MDC Committee’s independent compensation consultant following a review of relevant Compensation Peer Group compensation data, an assessment of Company and individual performance in 2020 and other individual factors such as role, responsibility, tenure and retention needs. The target amount for Ms. Wolfe’s 2021 annual incentive was set forth in her now-expired employment agreement with the Company, which had been entered into in 2020 following the Internalization. The target amount set forth in Ms. Wolfe’s employment agreement with the Company was consistent with the terms of the employment agreement she had previously entered into with the Former Manager prior to the Internalization, which had been necessary to recruit her to the Company. Ms. Wolfe’s employment agreement with the Company specified an annual incentive target of $3,600,000 for 2021, with $3,000,000 targeted as a cash bonus and $600,000 targeted as an award of RSUs and/or PSUs. Ms. Wolfe’s target amount did not represent a guarantee and was subject to a performance review and final determination by the MDC Committee, as with Messrs. Finkelstein, Green, Ertas and Coffey (who did not have employment agreements with the Company).

For 2021, the MDC Committee established the following targets for annual incentive awards with a payout range of 80% to a maximum of 120% of target:

 

  NEOs

 

  

Target Value   

($) (1)   

 

     

 

David L. Finkelstein

     13,000,000    
              

Serena Wolfe

     3,600,000 (2)   
              

Anthony C. Green

     3,600,000    
              

Ilker Ertas

     4,350,000    
              

Timothy P. Coffey

     4,250,000    
              

 

1)

Includes cash and equity incentives.

2)

Specified in Ms. Wolfe’s now-expired employment agreement. For additional information on this employment agreement, please see “Employment Agreements” and “Potential Payments upon Termination or Change in Control” below.

 

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In January 2022, the MDC Committee determined final 2021 incentive award amounts after assessing Company performance for 2021 against a scorecard of corporate/organizational metrics (75% weighting) and a qualitative assessment of individual performance (25% weighting). The MDC Committee believes that determining the total incentive award based on a combined review of corporate/organizational goals and individual achievements ensures that compensation outcomes are aligned to sustainable performance results consistent with the Company’s risk management policies. The MDC Committee also believes that delivering part of the annualincentive through equity awards that vest over time based on continued employment and (for PSUs) continued Company performance

 

 

Determining 2021 Annual Incentives

 

 

 

 

LOGO

 

encourage a longer-term focus on the Company’s performance aligned to stockholder interests, and encourage the retention of the NEOs.

2021 Annual Incentives – Corporate/Organizational Performance

The Company’s corporate/organizational achievement determined 75% of each executive’s individual incentive award payout. Of the corporate/organizational factors, objective financial metrics comprised 80% of the 2021 corporate scorecard (and determined 60% of overall incentive award payout). 2021 financial metrics consisted of two equally-weighted metrics: (1) Relative Economic Return with an Absolute Total Stockholder Return (“TSR”) Governor; and (2) Operating Efficiency. Scorecard results for these metrics are determined based on actual performance for the first three quarters of the year. The MDC Committee believes that Relative Economic Return is a key measure of the Company’s financial performance and supports sustained value creation for stockholders. The MDC Committee added a TSR governor to the portion of the annual incentive award tied to Relative Economic Return, which provides that the corresponding payout will be capped at 100% of target if TSR for the performance year is negative. The MDC Committee believes that the TSR governor further enhances the alignment of interests between the NEOs and stockholders. In the second quarter of 2021, our original Operating Efficiency goal of 1.60% to 1.75% operating expense as a percentage of equity was tightened to 1.45% to 1.60% following announcement of the Company’s planned disposition of its commercial real estate business to reflect additional expected cost savings. For purposes of the 2021 corporate scorecard, the MDC Committee determined to further tighten this Operating Efficiency goal to 1.40% to 1.55%.

Of the corporate/organizational factors, risk metrics comprised 20% of the total 2021 corporate scorecard (and determined 15% of overall incentive award payout). 2021 risk metrics included two equally-weighted metrics: (1) market risk (as represented by the Company’s average daily liquid box); and (2) operational risk (as represented by the Company’s control environment, crisis pandemic management and cyber defense). Additional detail on the Company’s corporate scorecard components and related performance is set forth below.

 

Category

  Scorecard
Weighting
    Measure   Criteria   Illustrative Performance
Highlights(1)
  Result(2)   Value(3)    

Weighted

Score(4)

 

Financial

Performance

    80   Operating Efficiency(5) (Absolute)  

Exceed < 1.40%

Target 1.40 – 1.55%

Threshold > 1.55%

 

  Absolute OpEx to Equity: 1.398%

  Exceed     2.507       4.012  
  Economic Return(6) (Relative with an Absolute TSR(7) Governor)  

Exceed > 75%

Target 50 – 75%

Threshold < 50%

 

  Economic Return: 2.265%

  TSR: 7.406%

  Threshold     1.974       3.159  

 

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Category

  Scorecard
Weighting
    Measure   Criteria   Illustrative Performance
Highlights(1)
  Result(2)   Value(3)    

Weighted

Score(4)

 

Risk

    20   Market Risk (Absolute Liquid Box)  

Exceed > limit

Target = limit

Threshold < limit

 

 

 Daily liquidity consistently exceeded limit

 Maintained strong liquidity position to mitigate risk across the portfolio

  Exceed     3.00       1.200  
  Operational Risk   Control environment, pandemic management and cyber defense  

 Remote work arrangement did not impair control environment

 Effective pandemic management and uninterrupted business operations

 No cyber breaches throughout the year

 

  Exceed     3.00       1.200  

Total

    100    

 

   

 

   

 

                9.571  

 

1)

Illustrative performance highlights for financial performance metrics reflect actual performance for the first three quarters of 2021.

2)

Scorecard results for financial performance metrics are determined based on actual performance for the first three quarters of 2021.

3)

Performance value is measured on a 3-point scale: (1) “Threshold,” (2) “Target,” and (3) “Exceed,” with financial performance results interpolated on a linear basis.

4)

The highest possible aggregate weighted score is 12.000. The weighted score for each measure is calculated by multiplying (x) the scorecard weighting for each measure times (y) the value of each measure times (z) a scaling factor of 4.

5)

“Operating Efficiency” represents operating expenses as a percentage of average equity and excludes transaction expenses and nonrecurring items for the fiscal year.

6)

“Economic Return” means the Company’s change in book value plus dividends declared divided by the prior period’s book value. “Relative Economic Return” is defined as the Company’s quartile ranking for the fiscal year against the Performance Peer Group ranked by Economic Return results. For purposes of determining relative performance, “Threshold” reflects Economic Return below 2.673%; “Target” reflects Economic Return between 2.673% and 7.006%, and “Exceed” reflects Economic Return above 7.006%.

7)

“TSR” or “Total Stockholder Return” means the Company’s change in its common stock price plus dividends declared divided by the prior period’s common stock price.

The MDC Committee used the weighted score as calculated above to determine the corporate scorecard multiplier based on the scale below, which resulted in corporate/organizational achievement of 105%, which was reflective of financial performance achievement through the third quarter of 2021.

 

  Range

 

  

Multiplier

 

Score > 11.20

   120% (Maximum)    
      

Score 10.40—11.19

   115%
      

Score 9.60—10.39

   110%
      
   

Score 8.80—9.59

   105%
      

Score 7.20—8.79

   100%
      

Score 6.40—7.19

     90%
      

Score < 6.40

     80%
      

Recalculating the weighted score using financial performance achievement through the fourth quarter of the year would have resulted in corporate/organizational achievement of 110% of target; however, no upward adjustment was made to any executive officer’s annual incentive award as a result thereof.

 

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2021 Annual Incentives – Individual Performance

While the Company’s corporate/organizational achievement determined 75% of each executive’s individual incentive award payout, the MDC Committee considered each NEO’s significant individual contributions to determine the remaining 25%. The individual achievements considered by the MDC Committee described below reflect not only each executive’s direct contribution to the Company’s financial performance, but also their contributions to the Company’s progress against its ESG, human capital management, and organizational resilience goals.

 

 

 

LOGO

 

David L. Finkelstein

Chief Executive Officer and

President

  

 

As Chief Executive Officer and President, Mr. Finkelstein is responsible for leading the Company, leading development and implementation of corporate policy and strategy and serving as primary liaison between the Board and management as well as being the primary public face of the firm.

 

In 2021, Mr. Finkelstein:

 

  Demonstrated exceptional leadership amidst a largely remote work environment and delivered strong performance across the businesses

  Significantly advanced the Company’s strategic plan focused on its core expertise in Agency and residential credit markets, including  through the disposition of the commercial real estate business and the buildout of the MSR business

  Delivered strong risk adjusted returns and maintained ample liquidity amidst a challenging market backdrop

  Managed portfolio and leverage profile with an eye towards long-term stockholder value

  Ensured sustained focus on advancing diversity, equity and inclusion initiatives through the firm and fostered a culture where diverse  perspectives, backgrounds and voices are respected

  Enhanced partnerships with banks, originators and other strategic relationships to help achieve optimal asset acquisition and financing  needs

 

 

 

LOGO

 

Serena Wolfe

Chief Financial Officer

  

 

As Chief Financial Officer, Ms. Wolfe manages the firm’s overall financial condition, as well as financial analysis and reporting. Further to these responsibilities, she also oversees various control functions and shares responsibility for aspects of the Company’s operations and technology groups.

 

In 2021, Ms. Wolfe:

 

  Maintained a robust control environment and nimble finance organization amidst the disposition of the Company’s commercial real estate  business and the buildout of the Company’s MSR business

  Ensured diligent focus on costs and capital efficiencies across the Company

  Identified appropriate technology systems and bridge resources for the MSR buildout

  Partnered with the human capital management team to spearhead the firm’s talent development, corporate culture and diversity, equity and  inclusion initiatives

  Represented the Company in meetings with members of the media, investor community, industry organizations, competitors, and outside  parties

 

 

 

 

LOGO

 

Anthony C. Green

Chief Corporate Officer, Chief

Legal Officer and Secretary

  

 

As Chief Corporate Officer and Chief Legal Officer, Mr. Green is responsible for overseeing the Company’s legal and compliance groups, corporate responsibility efforts, government relations, human capital management and various control functions. He also serves as Secretary to the Board.

 

In 2021, Mr. Green:

 

  In partnership with the NCG Committee, managed the Board search process to identify a new director with skills and experiences to  complement and strengthen the overall composition of the Board

  Assumed responsibility for the firm’s human capital management function

  Provided the Company with legal advice on strategic initiatives, including the disposition of the commercial real estate business and  buildout of the Company’s MSR business

  Managed enhancements to the Company’s compensation and ESG frameworks, with a continued emphasis on transparency and best  practices

  Assisted the Chief Executive Officer in ensuring in-depth and constructive engagement with the Board on governance and stakeholder  engagement matters

 

 

 

 

LOGO

 

Ilker Ertas

Chief Investment Officer

  

 

As Head of Securitized Products until December 2021 and Chief Investment Officer since that time, Mr. Ertas is responsible for overseeing all of the Company’s investment strategies, including capital allocation, growth initiatives and overall portfolio operations.

 

In 2021, Mr. Ertas:

 

  Oversaw the buildout of the Company’s MSR business and launch of the whole loan correspondent channel

  Managed the Company’s portfolios and counterparties on both the asset and hedging side of the balance sheet to maintain liquidity and  protect the firm’s capital base

  Maintained a rigorous focus on costs and capital expenditures

  Performed an increasingly prominent role in the firm’s investor meetings, government relations and industry events, enhancing the firm’s  reputation for mortgage expertise with various stakeholders

 

 

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Timothy P. Coffey served as the Company’s Chief Credit Officer until he stepped down effective February 14, 2022. As Chief Credit Officer, Mr. Coffey was responsible for overseeing the Company’s middle market lending group. In 2021, Mr. Coffey:

 

  Directed the Company’s middle market lending group, including strategic direction of the group, financing of its assets and development of key sponsor relationships

  Closed inaugural private closed-end Middle Market Lending fund, raising $371 million of third-party capital that has been fully deployed at nearly $450 million in assets

  Led the development and marketing efforts of the Company’s registered investment adviser Annaly Credit Opportunities Management LLC

  Oversaw the sustained performance of the firm’s corporate lending portfolio

In light of the corporate and individual achievements highlighted above, the MDC Committee determined that the corporate/organizational and individual portions of the annual incentive awards were achieved in the amounts set forth below.

 

NEO   Target
Value
 

Total Annual Incentive

 

  Total Annual
Incentive
Value
 

Corporate/Organizational Achievement

 

 

Individual Achievement

 

  75% of
Target
  Multiplier   Subtotal   25% of
Target
  Multiplier(1)   Subtotal

David L. Finkelstein

      $13,000,000       $9,750,000       105 %       $10,237,500       $3,250,000       105 %       $3,412,500       $13,650,000
   

Serena Wolfe

      $3,600,000       $2,700,000       105 %       $2,835,000       $900,000       102 %       $915,000       $3,750,000
   

Anthony C. Green

      $3,600,000       $2,700,000       105 %       $2,835,000       $900,000       102 %       $915,000       $3,750,000
   

Ilker Ertas

      $4,350,000       $3,262,500       105 %       $3,425,625       $1,087,500       113 %       $1,224,375       $4,650,000
   

Timothy P. Coffey

      $4,250,000       $3,187,500       105 %       $3,346,875       $1,062,500       94 %       $1,003,125       $4,350,000
   

 

 

1)

Multiplier percentages are rounded to the nearest whole number.

The MDC Committee applied individual pay mix ratios to each NEO’s total annual incentive amount to determine the appropriate allocation between cash and equity as set forth below. For all NEOs other than the CEO and the CFO, the MDC Committee determined to award 50% of total annual incentive value in the form of cash and 50% in the form of equity. For the CEO, the MDC Committee determined to increase the relative weighting of equity as a percentage of total incentive compensation to greater than 50% so that 50% of the CEO’s total compensation for 2021 (inclusive of his base salary) would be paid in the form of equity. As described above, Ms. Wolfe’s now-expired employment agreement specified a target annual incentive award amount for 2021 of $3,600,000, with $3,000,000 targeted as a cash bonus and $600,000 targeted as an award of RSUs and/or PSUs. The MDC Committee determined to award the entirety of Ms. Wolfe’s above-target annual incentive award payout in the form of equity. Ms. Wolfe’s employment agreement expired following payment of her 2021 incentive awards in early 2022, and the MDC Committee expects to award 50% of her total annual incentive in the form of cash and 50% in the form of equity going forward. For all NEOs, the MDC Committee determined to allocate equity incentive awards evenly between RSUs and PSUs.

 

   

Pay Mix Ratios

NEO  

Total Annual Incentive Pay Mix

(Cash / Equity)

 

Equity Component Pay Mix

(RSUs / PSUs)

David L. Finkelstein

  46% cash / 54% equity   50% RSUs / 50% PSUs    
 

Serena Wolfe

  83% cash / 17% equity   50% RSUs / 50% PSUs    
 

Anthony C. Green

  50% cash / 50% equity   50% RSUs / 50% PSUs    
 

Ilker Ertas

  50% cash / 50% equity   50% RSUs / 50% PSUs    
 

Timothy P. Coffey

  50% cash / 50% equity   50% RSUs / 50% PSUs    
 

 

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Following application of the individual pay mix ratios to each NEO’s annual incentive amount, the MDC Committee approved (and in the case of the CEO, the MDC Committee recommended and the Independent Directors approved) the following cash and equity incentive awards for each NEO for 2021. Additional detail about the RSUs and PSUs granted as part of the 2021 annual incentive award follow the table:

 

NEO    Cash
($)(1)
    

RSUs

($)(2)

     PSUs
($)(2)
     Total($)  

 

 

David L. Finkelstein

     6,325,000        3,662,500        3,662,500        13,650,000  

 

 

Serena Wolfe

     3,000,000        375,000        375,000        3,750,000  

 

 

Anthony C. Green

     1,875,000        937,500        937,500        3,750,000  

 

 

Ilker Ertas

     2,325,000        1,162,500        1,162,500        4,650,000  

 

 

Timothy P. Coffey

     2,175,000        1,087,500        1,087,500        4,350,000  

 

 

 

1)

These amounts represent the annual cash incentives paid by the Company to each executive for his or her service in 2021 and equal the amounts reported as 2021 compensation in the “Bonus” column of the Summary Compensation Table.

2)

These amounts approximate the dollar value of the RSUs and target PSUs that were granted to the NEOs in early 2022 as part of their annual incentive awards for performance in 2021 (ignoring rounding to whole units) and are based on the closing price of the Company’s common stock on the date of grant (February 1, 2022). In accordance with SEC rules, these amounts do not appear as 2021 compensation in the Summary Compensation Table. Rather, the grant date fair value for these awards will appear as 2022 compensation in the “Stock Awards” column in next year’s Summary Compensation Table.

2021 Annual Incentives – Grant of RSUs

RSUs granted to the NEOs in early 2022 as part of their total incentive awards for 2021 will vest in three equal installments beginning in February 2023 subject to the NEO’s continued employment. The number of RSUs granted is based on the closing price of the Company’s common stock on the date of grant (February 1, 2022). The following chart summarizes the RSUs granted to the NEOs as part of their total incentive awards for 2021:

 

                 RSUs            
NEO    ($)     (#)

David L. Finkelstein

         3,662,500     464,195
 

Serena Wolfe

     375,000     47,528
 

Anthony C. Green

     937,500     118,821
 

Ilker Ertas

     1,162,500     147,338
 

Timothy P. Coffey

     1,087,500     137,832
 

2021 Annual Incentives – Grant of PSUs

Payouts of the PSUs granted to the NEOs in early 2022 as part of their total incentive awards for 2021 will be determined at the end of the performance period (January 1, 2022 – December 31, 2024) based on the achievement of performance targets established by the MDC Committee at the beginning of the performance period. The PSUs utilize two equally-weighted performance measures – Relative Economic Return and Average EAD Return on Equity – that the MDC Committee believes represent key measures of the Company’s financial performance and support sustained value creation for stockholders. The MDC Committee added a TSR governor to the portion of the PSU awards tied to Relative Economic Return, which provides that the percentage of applicable target PSUs earned will be capped at 100% if TSR for the three-year performance period is negative. The MDC Committee believes that the TSR governor further enhances the alignment of interests between the NEOs and stockholders.

 

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The number of target PSUs granted is based on the closing price of the Company’s common stock on the date of grant (February 1, 2022). The following chart summarizes the target value and number of PSUs granted to the NEOs as part of their total incentive awards for 2021:

 

     Target PSUs
NEO    ($)      (#)

 

David L. Finkelstein

  

 

3,662,500

 

  

464,195

 

Serena Wolfe

  

 

375,000

 

  

47,528

 

Anthony C. Green

  

 

937,500

 

  

118,821

 

Ilker Ertas

  

 

1,162,500

 

  

147,338

 

Timothy P. Coffey

  

 

1,087,500

 

  

137,832

 

At the end of the performance period, the MDC Committee will evaluate the Company’s actual performance against the targets it set at the start of the period and determine payouts using the formula set forth below:

 

Performance Metric (1)    Metric Weight    Performance    Percent of Target PSUs Earned

 

Relative Economic Return(2)

   50%   

<25th Percentile

  

    0%

         
  

25th Percentile (threshold)

  

  50%

         
  

50th Percentile (target)(3)

  

100%

         
  

75th Percentile (above target)(3)

  

125%

         
  

>90th Percentile (maximum)(3)

  

150%

 

Average EAD Return on Equity(4)

   50%   

9.0% (threshold)

  

    0%

         
  

9.5% (below target)

  

  75%

         
  

10.0% (target)

  

100%

         
  

10.65% (above target)

  

125%

         
  

11.25% (maximum)

  

150%

 

 

1)

For performance results between the achievement levels specified for each performance goal above threshold levels, the number of PSUs for that portion of the award shall be determined by interpolating results on a straight line basis.

2)

“Economic Return” means the Company’s change in book value plus dividends declared divided by the prior period’s book value. “Relative Economic Return” is defined as the Company’s quartile ranking for the three-year performance period against the Performance Peer Group ranked by Economic Return results.

3)

The percentage of applicable target PSUs earned is capped at 100% if Total Stockholder Return for the three-year performance period is negative. “Total Stockholder Return” means the Company’s change in its common stock price plus dividends declared divided by the prior period’s common stock price. Share price for the beginning of the performance period is calculated as the average of the NYSE closing prices of the Company’s common stock on the last 15 trading days ending on the first day of the performance period. Share price for the end of the performance period is calculated as the average of the NYSE closing prices of the Company’s common stock on the last 15 trading days ending on the last day of the performance period.

4)

“Average EAD Return on Equity” means the average of the EAD Return on Equity for the twelve (12) fiscal quarters during the three-year performance period expressed as an annualized average. “EAD Return on Equity” means, for a fiscal quarter, the Company’s “EAD return on average equity (excluding PAA)” (defined as EAD (excluding PAA) over average stockholders’ equity for the quarter), as reported in the Company’s Form 10-Q or Form 10-K for the quarter or the respective earnings release. The Company’s EAD measures are non-GAAP measures; see Appendix for a reconciliation of non-GAAP financial measures to most directly comparable GAAP measures.

Dividend Equivalents on RSUs and PSUs

Awards of RSUs and PSUs will accrue dividend equivalents (as additional stock units) as if the awards were outstanding shares of the Company’s common stock, but the dividend equivalents will be paid only if and to the extent the underlying award becomes earned and vested. As a mortgage REIT, dividends are a key component of the Company’s TSR. The MDC Committee believes that allowing dividend equivalents to accrue on outstanding awards will further focus the NEOs on achieving the Company’s financial performance goals and returning earnings to stockholders through dividends.

 

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Table of Contents

Other Compensation

The Company maintains a group excess liability coverage policy on behalf of members of the Company’s Operating Committee. Each of the Company’s executive officers are members of the Company’s Operating Committee and receive liability coverage under the policy. The premiums for the policy, which in 2021 was $2,363 for each NEO, was paid by the Company.

Employment Agreements

Prior to the closing of the Internalization, the Company entered into employment agreements with Messrs. Finkelstein, Coffey and Green and Ms. Wolfe, which were amended and restated in November 2020. The Company entered into these employment agreements to encourage retention of key management through the critical period of implementing the Internalization. Messrs. Finkelstein’s, Coffey’s and Green’s employment agreements expired following payment of their 2020 incentive awards in early 2021 and did not impact their compensation determinations for performance in 2021. Ms. Wolfe’s employment agreement expired following payment of her 2021 incentive award in early 2022. The extended term of Ms. Wolfe’s employment agreement was necessary to recruit her to the Company and is consistent with the term of the employment agreement Ms. Wolfe had entered into with the Former Manager prior to joining the Company in December 2019. For additional information on Ms. Wolfe’s employment agreement, please see “Potential Payments upon Termination or Change in Control” below. Going forward, the Company does not intend for NEOs to be covered by employment agreements except when needed for recruitment or retention purposes.

Severance Arrangements

Ms. Wolfe and Messrs. Finkelstein, Green and Ertas are currently eligible to participate in an Executive Severance Plan, which was adopted by the Company effective July 1, 2020. The Executive Severance Plan provides benefits upon a participant’s involuntary termination of employment by the Company without “cause” (as defined in the plan) based on the participant’s title, base salary and average or target cash bonus (depending on the year of termination). The MDC Committee believes that providing appropriate, market-competitive severance benefits helps the Company attract and retain highly qualified executives by mitigating the risks associated with leaving a prior employer to join the Company and by providing income continuity following an unexpected termination. The Executive Severance Plan does not provide any benefits that are triggered in whole or in part solely by a change in control of the Company, nor does it provide for any tax gross-ups on change in control-related excise taxes (or otherwise). In connection with Mr. Coffey’s departure from the Company in February 2022, Mr. Coffey received the severance payments and benefits provided under the Executive Severance Plan, as well as the continued vesting of his outstanding equity awards pursuant to the terms of the applicable equity award agreement (including, as applicable, the satisfaction of any time and/or performance conditions therein). In connection with his separation, Mr. Coffey entered into a separation and release agreement pursuant to the terms of the Executive Severance Plan. The Executive Severance Plan is more fully described under “Potential Payments upon Termination or Change in Control” below.

EXECUTIVE COMPENSATION POLICIES

Stock Ownership Guidelines

 

Position   

     Annaly Stock
     Ownership

     Guideline

 

Chief Executive Officer

   6x base salary
 

Other Executive Officers

   3x base salary
 

The Company believes that stock ownership guidelines further align the interests of the Company’s executive officers with those of its stockholders by promoting a long-term focus and long-term share ownership. All executive officers are subject to robust stock ownership guidelines expressed as a multiple of base salary. Shares counting toward the guideline include shares that are owned outright and any shares of stock received from vested equity awards.

 

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Table of Contents

Stock Retention

Executive officers are required to hold shares received under awards (after taxes) until the later of (i) one year after the shares were acquired upon exercise or vesting, or (ii) the date their applicable stock ownership guidelines are met.

Clawback Policy

The MDC Committee has adopted an enhanced clawback policy requiring the recoupment of certain annual cash incentive compensation and equity compensation paid or granted to executive officers within three years preceding: (i) certain accounting restatements, if the executive officer engaged in fraud or misconduct, or recklessly or negligently failed to prevent the fraud or misconduct, that caused or significantly contributed to the need for the accounting restatement, or (ii) the MDC Committee’s determination that an executive officer has engaged in certain “detrimental conduct,” including breach of a fiduciary duty, willful misconduct or gross negligence in connection with employment, illegal activity, intentional violation of Company policies, and conduct otherwise injurious to the Company, its reputation, character or standing.

Prohibition on Hedging Company Securities

Employees, officers and Directors are prohibited from engaging in any hedging transactions with respect to Company securities held by them, including shares acquired in open market transactions or through the Company’s equity compensation program. Such prohibited transactions include the purchase of any financial instrument (including forward contracts and zero cost collars) designed to hedge or offset any decrease in the market value of Company securities.

Prohibition on Pledging Company Securities

The Company has a policy prohibiting employees, officers and Directors from holding Company securities in a margin account or pledging Company securities as collateral for a loan.

Risks Related to Compensation Policies and Practices

The MDC Committee is responsible for reviewing the Company’s compensation policies and practice to assess whether they could lead to excessive risk taking, the manner in which any compensation-related risks are monitored and mitigated and adjustments necessary to address changes in the Company’s risk profile. The MDC Committee conducted a compensation risk assessment for 2021 with the assistance of its independent compensation consultant and determined that the Company’s compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company.

REPORT OF THE COMPENSATION COMMITTEE

The MDC Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on such review and discussions, the MDC Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

Vicki Williams (Chair)   Thomas Hamilton   Kathy Hopinkah Hannan   John H. Schaefer

 

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Table of Contents

Executive Compensation Tables

Summary Compensation Table

The following Summary Compensation Table provides information concerning the compensation of the Company’s NEOs paid or awarded during the fiscal year ended December 31, 2021 and the prior two fiscal years. As previously noted, we were externally managed before July 1, 2020, and prior that time we did not directly pay compensation to the NEOs. As explained in the Compensation Discussion and Analysis, the NEOs were also awarded RSUs and PSUs as part of their total annual incentive award for 2021 performance, but because those equity awards were granted in early 2022, in accordance with SEC rules they do not appear in this year’s Summary Compensation Table; however, in order to provide a complete picture of compensation paid or awarded to NEOs for service in 2021, these awards are included in the 2021 Total Direct Compensation table on page 37, which is intended to supplement the Summary Compensation Table. Please see the Compensation Discussion and Analysis for a full discussion as to how the MDC Committee determined cash and equity awards for the NEOs linked to Company and individual performance for 2021.

 

Name and principal position    Year      Salary
($)
     Bonus
($)
     Stock
awards
($)(1)
    

All other

compensation

($)

    Total(2)  

 

 

 

David L. Finkelstein

Chief Executive Officer,
President and Director

  

 

 

 

2021

 

 

  

 

$

 

1,000,000

 

 

  

 

$

 

6,325,000

 

 

  

 

$

 

1,800,001

 

 

  

 

 

 

$13,763

 

(3) 

 

 

$

 

9,138,764

 

 

  

 

 

 

2020

 

 

  

 

$

 

500,000

 

 

  

 

$

 

7,200,000

 

 

  

 

$

 

5,000,006

 

 

  

 

 

 

$  3,772

 

 

 

 

$

 

12,703,778

 

 

  

 

 

 

2019

 

 

  

 

 

 

—  

 

 

  

 

 

 

—  

 

 

  

 

 

 

—  

 

 

  

 

 

 

—  

 

 

 

 

 

 

—  

 

 

 

Serena Wolfe

Chief Financial Officer

  

 

 

 

2021

 

 

  

 

$

 

750,000

 

 

  

 

$

 

3,000,000

 

 

  

 

 

 

399,999

 

 

  

 

 

 

$12,363

 

(4) 

 

 

$

 

4,162,362

 

 

  

 

 

 

2020

 

 

  

 

$

 

375,000

 

 

  

 

$

 

2,600,000

 

 

  

 

 

 

—  

 

 

  

 

 

 

$29,831

 

 

 

 

$

 

3,004,831

 

 

  

 

 

 

2019

 

 

  

 

 

 

—  

 

 

  

 

 

 

—  

 

 

  

 

 

 

—  

 

 

  

 

 

 

—  

 

 

 

 

 

 

—  

 

 

 

Anthony C. Green

Chief Corporate
Officer, Chief Legal
Officer and Secretary

  

 

 

 

2021

 

 

  

 

$

 

750,000

 

 

  

 

$

 

1,875,000

 

 

  

 

$

 

1,100,000

 

 

  

 

 

 

$13,763

 

(3) 

 

 

$

 

3,738,763

 

 

  

 

 

 

2020

 

 

  

 

$

 

375,000

 

 

  

 

$

 

2,800,000

 

 

  

 

$

 

500,003

 

 

  

 

 

 

$  3,772

 

 

 

 

$

 

3,678,775

 

 

  

 

 

 

2019

 

 

  

 

 

 

—  

 

 

  

 

 

 

—  

 

 

  

 

 

 

—  

 

 

  

 

 

 

—  

 

 

 

 

 

 

—  

 

 

 

Ilker Ertas

Chief Investment Officer

  

 

 

 

2021

 

 

  

 

$

 

750,000

 

 

  

 

$

 

2,325,000

 

 

  

 

$

 

1,000,002

 

 

  

 

 

 

$13,763

 

(3) 

 

 

$

 

4,088,765

 

 

  

 

 

 

2020

 

 

  

 

$

 

375,000

 

 

  

 

$

 

3,350,000

 

 

  

 

$

 

100,058

 

 

  

 

 

 

$  2,328

 

 

 

 

$

 

3,827,386

 

 

 

Timothy P. Coffey(5)

Chief Credit Officer

  

 

 

 

2021

 

 

  

 

$

 

750,000

 

 

  

 

$

 

2,175,000

 

 

  

 

$

 

599,995

 

 

  

 

 

 

$13,763

 

(3) 

 

 

$

 

3,538,758

 

 

  

 

 

 

2020

 

 

  

 

$

 

375,000

 

 

  

 

$

 

3,200,000

 

 

  

 

$

 

1,250,001

 

 

  

 

 

 

$  4,278

 

 

 

 

$

 

4,829,279

 

 

  

 

 

 

2019

 

 

  

 

 

 

—  

 

 

  

 

 

 

—  

 

 

  

 

 

 

—  

 

 

  

 

 

 

—  

 

 

 

 

 

 

—  

 

 

 

  (1)

These amounts equal the aggregate grant date fair value of stock awards, inclusive of RSUs and/or PSUs, granted during the applicable fiscal year. The grant date fair value of RSUs were determined based on the closing price of the Company’s common stock on the grant date. The grant date fair value of PSUs with performance conditions were determined based on the closing price of the Company’s common stock on the grant date assuming a probable outcome that the PSUs would become earned at target. Assuming the maximum level of performance, the grant date fair value of the stock awards granted during 2021 would be: $440,548 for Ms. Wolfe, $802,739 for Mr. Coffey, $1,282,463 for Mr. Green, and $1,101,372 for Mr. Ertas. No PSUs were granted to Mr. Finkelstein in 2021. For more information about the assumptions used for determining the grant date fair value of the NEOs’ equity awards, see Note 15, “Long-Term Stock Incentive Plan,” of Notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

  (2)

Excludes compensation paid by the Former Manager during the year 2019 and for the period from January 1, 2020 through June 30, 2020.

  (3)

Includes Company-paid group excess liability insurance premiums ($2,363) and 401(k) match ($11,400).

  (4)

Includes Company-paid group excess liability insurance premiums ($2,363) and 401(k) match ($10,000).

  (5)

Effective February 14, 2022, Mr. Coffey separated from employment with the Company.

 

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Grants of Plan-Based Awards

The following table summarizes certain information regarding all plan-based awards granted to the NEOs during the year ended December 31, 2021. See “2021 Annual Incentives – Cash and Equity Awards” in Compensation Discussion and Analysis above for a description of the plan-based awards.

 

               Estimated future payouts under
equity incentive plan awards
(# of shares of common stock)(1)
           
  Name    Grant Date    Type of Award    Threshold    Target    Maximum    All other stock
awards:
Number of
shares of
stock(2)
  

Grant date fair
value

of stock
awards ($)(3)

 

 

David L. Finkelstein

  

 

1/29/2021

  

 

RSU

  

 

  

 

  

 

  

 

221,675

  

 

 

 

$1,800,001

 

 

 

Serena Wolfe

  

 

1/29/2021

  

 

RSU

  

 

  

 

  

 

  

 

36,946

  

 

 

 

$   300,002

 

 

    

 

1/29/2021

  

 

PSU

  

 

3,079

  

 

12,315

  

 

18,473

  

 

  

 

 

 

$     99,998

 

 

 

Anthony C. Green

  

 

1/29/2021

  

 

RSU

  

 

  

 

  

 

  

 

80,049

  

 

 

 

$   649,998

 

 

    

 

1/29/2021

  

 

PSU

  

 

13,855

  

 

55,419

  

 

83,128

  

 

  

 

 

 

$   450,002

 

 

 

Ilker Ertas

  

 

1/29/2021

  

 

RSU

  

 

  

 

  

 

  

 

92,365

  

 

 

 

$   750,004

 

 

    

 

1/29/2021

  

 

PSU

  

 

7,697

  

 

30,788

  

 

46,182

  

 

  

 

 

 

$   249,999

 

 

 

Timothy P. Coffey

  

 

1/29/2021

  

 

RSU

  

 

  

 

  

 

  

 

12,315

  

 

 

 

$     99,998

 

 

    

 

1/29/2021

  

 

PSU

  

 

15,394

  

 

61,576

  

 

92,365

  

 

  

 

 

 

$   499,997

 

 

 

  1)

Amounts represent the number of shares to be earned at threshold, target, and maximum performance (before dividend equivalents) for the PSUs granted in early 2021 based on 2020 performance. For additional details about these PSUs, see “2020 Annual Incentives — Grant of PSUs” in the Compensation Discussion and Analysis included in the Company’s proxy statement filed in April 2021.

  2)

Amounts represent the number of RSUs granted in early 2021 based on 2020 performance. For additional details about these PSUs, see “2020 Annual Incentives — Grant of RSUs” in the Compensation Discussion and Analysis included in the Company’s proxy statement filed in April 2021.

  3)

See Footnote 1 to the Summary Compensation Table for additional information on how the grant date fair value for these awards was determined.

 

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Outstanding Equity Awards at Fiscal Year-End

The following table summarizes certain information regarding outstanding equity awards of the NEOs during the year ended December 31, 2021. All market or payout values in the table shown for stock awards are based on the closing price of common stock on December 31, 2021 of $7.82 per share.

 

        Stock awards
  Name   Grant date   Number of shares or
units of stock that have
not vested (#)(1)
  Market value of shares
or units of stock that
have not vested ($)
  Equity incentive plan
awards: Number of
unearned shares, units
or other rights that
have not vested (#)(2)
  Equity incentive plan
awards: market or
payout value of
unearned shares, units
or other rights that
have not vested ($)

 

David L. Finkelstein

 

 

6/30/2020

 

 

298,668

 

 

$2,335,584

 

 

 

 

 

 

6/30/2020

 

 

 

 

 

 

672,004

 

 

$5,255,072

   

 

1/29/2021

 

 

238,987

 

 

$1,868,878

 

 

 

 

 

Serena Wolfe

 

 

1/29/2021

 

 

39,831

 

 

$311,481

 

 

 

 

   

 

1/29/2021

 

 

 

 

 

 

16,596

 

 

$129,781

 

Anthony C. Green

 

 

6/30/2020

 

 

59,734

 

 

$467,117

 

 

 

 

 

 

1/29/2021

 

 

86,300

 

 

$674,869

 

 

 

 

   

 

1/29/2021

 

 

 

 

 

 

74,683

 

 

$584,021

 

Ilker Ertas

 

 

1/31/2020

 

 

8,322

 

 

$65,079

 

 

 

 

 

 

1/29/2021

 

 

99,578

 

 

$778,702

 

 

 

 

   

 

1/29/2021

 

 

 

 

 

 

41,490

 

 

$324,452

 

Timothy P. Coffey

 

 

6/30/2020

 

 

149,335

 

 

$1,167,798

 

 

 

 

 

 

1/29/2021

 

 

13,277

 

 

$103,824

 

 

 

 

   

 

1/29/2021

 

 

 

 

 

 

82,981

 

 

$648,911

 

  1)

Represents the aggregate number of RSUs (including additional RSUs accrued as dividend equivalents), which vest in equal installments over three years starting on the first anniversary of the grant date, subject to continued employment.

  2)

Based on the performance through the end of 2021, the number of PSUs shown in the table assumes maximum (150%) and above target (125%) payouts for 2020 and 2021 PSU grants, respectively, and includes additional PSUs accrued as dividend equivalents. The PSUs are subject to cliff vesting following the end of the three-year performance period.

Stock Vested in 2021

The following table sets forth certain information with respect to our NEOs regarding stock vested during the year ended December 31, 2021.

 

     Stock awards
     Name    Number of shares
acquired on vesting (#)(1)
  

Value realized

on vesting ($)(2)

    

  David Finkelstein

  

141,873

  

$1,259,832

   

  Serena Wolfe

  

  

   

  Anthony C. Green

  

28,375

  

$251,970

   

  Ilker Ertas

  

3,859

  

$31,335

   

  Timothy P. Coffey

  

70,936

  

$629,911

   

 

  1)

Reflects previously granted RSU awards vesting during the fiscal year and related earned dividends (before any taxes were withheld).

  2)

Reflects fair value of vested shares using closing price of our common stock on date of vesting.

 

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Pension Benefits and Nonqualified Deferred Compensation

The Company did not provide the NEOs with any benefits pursuant to defined benefit plans and nonqualified deferred compensation plans during 2021. The Company’s only retirement plan in which the NEOs were eligible to participate is the 401(k) Plan, which is a tax-qualified defined contribution retirement plan that is generally available to all employees on a non-discriminatory basis, and includes an opportunity to receive employer matching contributions.

Potential Payments upon Termination or Change in Control

Ms. Wolfe and Messrs. Finkelstein, Green and Ertas are currently eligible to participate in an Executive Severance Plan, which was adopted by the Company effective July 1, 2020. The Executive Severance Plan provides benefits upon a participant’s involuntary termination of employment by the Company without “cause” (as defined in the plan) based on the participant’s title, base salary and average or target cash bonus (depending on the year of termination). As a newly hired employee in December 2019, Ms. Wolfe was party to an employment agreement with the Company, which expired following payment of her 2021 incentive award in early 2022. These severance arrangements are more fully described below.

Ms. Wolfe’s Employment Agreement

Ms. Wolfe was party to an amended and restated employment agreement with the Company, dated as of November 9, 2020, which expired upon payment of her 2021 incentive award in early 2022. Ms. Wolfe’s employment agreement provided that, in case of her termination of employment due to her death or “disability” before December 31, 2021 (as such term is defined in her employment agreement), she would have been entitled to a lump sum payment of $6,750,000 (in addition to certain accrued benefits such as earned but unpaid salary and vested employee benefits). Pursuant to her employment agreement, following payment of her 2020 incentive award in early 2021, Ms. Wolfe became subject to the Executive Severance Plan in all other termination scenarios included in the termination payment table below.

Executive Severance Plan

The Executive Severance Plan provides benefits upon a participant’s involuntary termination of employment by the Company without “cause” (as such term is defined therein). Severance benefits are payable in a lump sum and are calculated based on the participant’s title, base salary and average or target cash bonus (depending on the year of termination), as described below.

If the CEO had an involuntary termination of employment without cause, the CEO would be eligible to receive severance benefits in an amount equal to the sum of (i) 1.5 times the CEO’s annual base salary and (ii) 1.5 times the CEO’s target cash bonus for the plan year in which the involuntary termination of employment occurs.

If any other NEO participating in the Executive Severance Plan had an involuntary termination of employment without cause, the other NEO would be eligible to receive severance benefits in an amount equal to the sum of (i) 1.25 times the executive’s annual base salary and (ii) 1.25 times the executive’s target cash bonus for the plan year in which the involuntary termination of employment occurs.

In addition, a participant who experiences an involuntary termination of employment without cause after March 31st of a calendar year will be eligible to receive a prorated cash bonus payment based on the amount of the participant’s cash bonus earned for the prior year (subject to the Company’s discretion to adjust the cash bonus amount for performance in the current year).

The Executive Severance Plan provides that severance may be recovered if the Company determines within three years after a participant’s separation date that he or she engaged in conduct that constitutes “Detrimental Conduct” under the Company’s clawback policy. For additional information, see “Clawback Policy” in the Compensation Discussion and Analysis above.

Separation of Former Chief Credit Officer

In connection with Mr. Coffey’s departure from the Company in February 2022, Mr. Coffey received a cash severance benefit in the amount of $3,593,750 under the terms of the Executive Severance Plan, as well as the continued vesting of his outstanding equity awards pursuant to the terms of the applicable equity award

 

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agreement (including, as applicable, the satisfaction of any time and/or performance conditions therein). In connection with his separation, Mr. Coffey entered into a separation and release agreement pursuant to the terms of the Executive Severance Plan. Under the separation and release agreement, the Company agreed to pay Mr. Coffey an amount of $22,317 for his legal fees related to the separation and release agreement.

Quantification of Termination Payments

The tables below show certain potential payments that would have been made to Messrs. Finkelstein, Green and Ertas under the Executive Severance Plan, and to Ms. Wolfe under the Executive Severance Plan or, if applicable, her now-expired employment agreement, each as in effect on December 31, 2021, assuming such person’s employment had terminated at the close of business on December 31, 2021, under various scenarios, including a change in control.

The tables include only the value of the incremental amounts payable to each NEO arising from the applicable scenario and do not include the value of vested or earned, but unpaid, amounts owed to the applicable NEO as of December 31, 2021 (including, for example, dividend equivalents relating to dividends declared but not paid as of such date, vested but not settled RSUs or PSUs, or the employer 401(k) matches for the NEOs).

The footnotes to the table describe the assumptions used in estimating the amounts shown in the tables. As used below, the terms “Cause,” “Change in Control,” “Disability,” and “Good Reason,” shall have the respective meanings set forth in the Executive Severance Plan or the executive’s respective employment and/or severance rights agreement as applicable.

Because the payments to be made to a NEO depend on several factors, the actual amounts to be paid out upon an NEO’s termination of employment can only be determined at the time of the NEO’s separation from the Company.

 

Name(1)

 

  

Termination by
Company
Without Cause
(other than
within two years
of a Change in
Control)

 

  

Termination by
Company
Without Cause
(within two years
of a Change in
Control)

 

  

Death

 

  

Disability

 

    

Termination by
Company for
Cause or
Voluntary
Termination by
Executive (with or
without Good
Reason)

 

 

David L. Finkelstein

                 

Severance

   $10,500,000    $10,500,000    $0      $0        $0  

Bonus

   $7,200,000    $7,200,000    $0      $0        $0  

Accelerated Equity

Awards(2)

   $0    $9,459,534    $7,707,854      $4,204,462        $0  

Benefits

   $0    $0    $0      $0        $0  

Total

   $17,700,000    $27,159,534    $7,707,854      $4,204,462        $0  

Serena Wolfe

                 

Severance

   $4,687,500    $4,687,500    $6,750,000      $6,750,000        $0  

Bonus

   $2,600,000    $2,600,000    $0      $0        $0  

Accelerated Equity

Awards(2)

   $0    $441,258    $346,084      $311,478        $0  

Benefits

   $0    $0    $0      $0        $0  

Total

   $7,287,500    $7,728,758    $7,096,084      $7,061,478        $0  

 

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Table of Contents

Name(1)

 

  

Termination by
Company
Without Cause
(other than
within two years
of a Change in
Control)

 

  

Termination by
Company
Without Cause
(within two years
of a Change in
Control)

 

  

Death

 

  

Disability

 

  

Termination by
Company for
Cause or
Voluntary
Termination by
Executive (with or
without Good
Reason)

 

Anthony C. Green

         

Severance

   $3,187,500    $3,187,500    $0    $0    $0

Bonus

   $2,800,000    $2,800,000    $0    $0    $0

Accelerated Equity

Awards(2)

   $0    $1,726,007    $1,297,724    $1,141,986    $0

Benefits

   $0    $0    $0    $0    $0

Total

   $5,987,500    $7,713,507    $1,297,724    $1,141,986    $0

Ilker Ertas

         

Severance

   $3,656,250    $3,656,250    $0    $0    $0

Bonus

   $3,350,000    $3,350,000    $0    $0    $0

Accelerated Equity

Awards(2)

   $0    $1,168,230    $930,299    $843,778    $0

Benefits

   $0    $0    $0    $0    $0

Total

   $7,006,250    $8,174,480    $930,299    $843,778    $0

 

1)

Mr. Coffey is excluded from the above table due to his separation from employment with the Company effective February 14, 2022. Actual severance benefits paid to Mr. Coffey are outlined in “Separation of Former Chief Credit Officer” above.

2)

The value of accelerated equity awards is based on the closing price of the common stock on December 31, 2021 ($7.82 per share) and includes accrued dividend equivalents. Any PSUs that accelerate for a termination that is within two years after a Change in Control will be based on the greater of: (A) an assumed achievement of all relevant performance goals at the “target” level, or (B) the actual level of achievement of all relevant performance goals against target as of the Company’s fiscal quarter-end preceding the Change in Control. Per the Company’s 2020 Equity Incentive Plan, if awards are not assumed or replaced in connection with a Change in Control, the awards will vest upon the closing of the transaction. Based on the performance through the end of 2021, the number of PSUs shown in the table under this scenario assumes maximum (150%) and above target (125%) payouts for 2020 and 2021 PSU grants, respectively. In the event of termination by the Company without cause (other than within two years of a Change in Control) or in the event of disability, unvested PSUs will continue to vest in accordance with their terms (time and performance requirements) as though such termination of service had not occurred provided that the executive complies with any applicable post-employment covenants.

Compensation Committee Interlocks and Insider Participation

During 2021, the MDC Committee was comprised solely of the following Independent Directors: Ms. Williams (Chair), Dr. Hannan and Messrs. Hamilton and Schaefer. None of them has at any time served as an officer or employee of the Company or any affiliate or has any other business relationship or affiliation with the Company, except service as a Director. No member of the MDC Committee has had any relationship with the Company requiring disclosure under Item 404 of Regulation S-K. During 2021, none of the Company’s executive officers served on the compensation committee (or other committee serving an equivalent function) of another entity whose executive officers served on the MDC Committee or Board.

 

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Table of Contents

CEO Pay Ratio

As required by applicable SEC rules, the Company is providing the following information about the relationship of the annual total compensation of the Company’s median employee to the annual total compensation of Mr. Finkelstein, the Company’s Chief Executive Officer and President. For 2021, the Company’s last completed fiscal year:

 

 

the annual total compensation of the Company’s median employee was $365,000; and

 

 

the annual total compensation of the CEO as reported in the Summary Compensation Table included elsewhere in this proxy statement, was $9,138,764.

Based on this information, for 2021 the CEO’s annual total compensation was 25 times that of the annual total compensation of the Company’s median employee.

The Company took the following steps to identify its median employee, as well as to determine the annual total compensation of the Company’s median employee and its CEO.

 

  1.

The Company determined that, as of December 31, 2021 its employee population consisted of approximately 171 individuals, all of whom were full-time employees as of the determination date.

 

  2.

To identify the “median employee” from its employee population, the Company used the amount of “gross wages” for the identified employees as reflected in the Company’s payroll records for the period in the fiscal year through the determination date together with any equity awards paid or awarded during the year. For gross wages, the Company generally used the total amount of compensation the employees were paid before any taxes, deductions, insurance premiums, and other payroll withholding. The Company did not use any statistical sampling techniques.

 

  3.

For the annual total compensation of the Company’s median employee, the Company’s identified and calculated the elements of that employee’s compensation for 2021 in accordance with the requirements of Item 402(c)(2)(x), resulting in annual total compensation of $365,000.

 

  4.

For the annual total compensation of the CEO (inclusive solely of compensation paid or awarded by the Company), the Company used the amount reported in the “Total” column of the Summary Compensation Table included in this proxy statement.

The required CEO pay ratio information reported above is a reasonable estimate calculated in a manner consistent with SEC rules based on the methodologies and assumptions described above. SEC rules for identifying the median employee and determining the CEO pay ratio permit companies to employ a wide range of methodologies, estimates and assumptions. As a result, the CEO pay ratios reported by other companies, which may have employed other permitted methodologies or assumptions and which may have a significantly different work force structure from the Company’s, is likely not comparable to the Company’s SEC-required or supplemental CEO pay ratios.

 

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Table of Contents

 

 

 

PROPOSAL

02

 

Advisory Approval of Executive Compensation

 

The Board is committed to corporate governance best practices and recognizes the significant interest of stockholders in executive compensation matters. The Company is providing this non-binding advisory vote pursuant to Section 14A of the Exchange Act.

 

In considering this vote, the Company invites its stockholders to review the “Compensation Discussion and Analysis ” and “Executive Compensation Tables” above. As described in the Compensation Discussion and Analysis, the MDC Committee is focused on continually enhancing the Company’s compensation framework to reflect strong compensation governance and reward sustained value creation. The MDC Committee is committed to institutionalizing an executive compensation program that attracts, retains and incentivizes top executive talent and generates long-term value for stockholders by directly linking compensation payout to Company performance without encouraging unnecessary risk taking.

 

The Board unanimously recommends that the stockholders vote in favor of the following resolution:

 

“RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and related narrative discussion, is hereby APPROVED.”

 

While this vote is advisory and non-binding, the Board and the MDC Committee value the views of the Company’s stockholders and will consider the voting results when making compensation decisions in the future.

 

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Audit Committee Matters

 

 

 

PROPOSAL

03

 

Ratification of Appointment of Independent Registered Public Accounting Firm

 

The Audit Committee is responsible for the appointment, compensation, retention, and oversight of the Company’s independent registered public accounting firm.

 

The Audit Committee has appointed Ernst & Young LLP (“EY”) to serve as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022, and stockholders are being asked to ratify this appointment at the Annual Meeting as a matter of good corporate governance. EY has served as Annaly’s independent registered public accounting firm since 2012. In appointing EY, the Audit Committee considered a number of factors, including EY’s independence, objectivity, level of service, industry knowledge, technical expertise, and tenure as the independent auditor. The Company expects that representatives of EY will be present at the Annual Meeting, will have the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions. If the appointment of EY is not ratified, the Audit Committee will reconsider the appointment. Even if the appointment is ratified, the Audit Committee may, in its discretion, appoint a different independent auditor at any time during the year if the Audit Committee determines that such a change would be in the best interest of the Company.

   
   

 

LOGO

 

The Board unanimously recommends a vote FOR the ratification of the appointment of Ernst & Young LLP as the Company’s Independent Registered Public Accounting Firm for the year ending December 31, 2022.

REPORT OF THE AUDIT COMMITTEE

The Audit Committee operates pursuant to a charter which it reviews annually, and a brief description of the Audit Committee’s primary responsibilities is included under the heading “Board Committees – Audit Committee ” in this Proxy Statement. Under the Audit Committee’s charter, management is responsible for the preparation of the Company’s financial statements and the independent registered public accounting firm is responsible for auditing those financial statements and expressing an opinion as to their conformity with U.S. generally accepted accounting principles. In addition, the independent registered public accounting firm is responsible for auditing and expressing an opinion on the Company’s internal controls over financial reporting.

The Audit Committee has reviewed and discussed Annaly’s audited financial statements with management and with EY, the Company’s independent auditor for 2021.

The Audit Committee has discussed with EY the matters required to be discussed by applicable standards adopted by the Public Company Accounting Oversight Board (“PCAOB”), including the critical audit matters set forth in EY’s audit report and matters concerning EY’s independence. EY has also provided to the Audit Committee the written disclosures and letter required by the applicable requirements of the PCAOB regarding EY’s communications with the Audit Committee concerning independence. The Audit Committee also discussed with EY their independence from the Company and management, and considered whether non-audit services provided by EY to the Company are compatible with maintaining EY’s independence. In determining whether to appoint EY as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022, the Audit Committee took into consideration a number of factors, including historical and recent performance on the Company’s audit, including service level and quality of staff and overall work; EY’s tenure, independence and objectivity; EY’s capability and expertise, including its understanding of the Company’s business and operations and overall industry knowledge; legal and regulatory considerations; data related to audit quality and performance, including recent PCAOB inspection reports on the firm; the appropriateness of EY’s fees; and the results of a management survey of EY’s overall performance.

In reliance on these reviews and discussions, and the report of the independent registered public accounting firm, the Audit Committee has recommended to the Board, and the Board has approved, that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC.

 

Kathy Hopinkah Hannan (Chair)    Thomas Hamilton    Michael Haylon    John H. Schaefer    Vicki Williams

 

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Table of Contents

RELATIONSHIP WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The aggregate fees billed for 2021 and 2020 by EY for each of the following categories of services are set forth below:

 

Service Category    2021      2020

 

Audit Fees (1)

  

 

$

 

3,015,800

 

 

  

 

2,976,625

 

 

Audit-Related Fees (2)

  

 

 

 

64,000

 

 

  

 

62,000

 

 

Tax Fees (3)

  

 

 

 

354,580

 

 

  

 

324,300

 

 

All Other Fees (4)

  

 

 

 

313,675

 

 

  

 

180,000

 

 

Total(5)

  

 

$

 

3,748,055

 

 

  

 

$3,542,925

 

 

1.

Audit fees primarily relate to integrated audits of the Company’s annual consolidated financial statements and internal control over financial reporting under Sarbanes-Oxley Section 404, reviews of the Company’s quarterly consolidated financial statements, audits of the Company’s subsidiaries’ financial statements, accounting consultations and comfort letters and consents related to SEC registration statements.

2.

Audit-Related fees are primarily for assurance and related services that are traditionally performed by the independent registered public accounting firm.

3.

Tax fees are primarily for preparation of tax returns and compliance services and tax consultations.

4.

All Other fees are for those services not described in one of the other categories.

5.

EY also provides audit and tax consulting and compliance services to funds that we do not consolidate. The fees for these services are provided to and paid by the funds and therefore are not included in the above table.

The Audit Committee has also adopted policies and procedures for pre-approving all non-audit work performed by the independent registered public accounting firm. The Audit Committee retained EY to provide certain non-audit services in 2021, consisting of tax compliance and consultations, all of which were pre-approved by the Audit Committee.

The Audit Committee determined that the provision by EY of these non-audit services is compatible with EY maintaining its independence.

In addition to the non-audit services described above, the Audit Committee also pre-approved certain audit services, including comfort letters and consents related to SEC registration statements and review of SEC comment letters.

 

 
The Audit Committee has adopted policies and procedures for pre-approving all non-audit work performed by the independent auditor

The Company understands the need for EY to maintain objectivity and independence as the auditor of its financial statements and internal control over financial reporting. In accordance with SEC rules, the Audit Committee requires the lead EY partner assigned to Annaly’s audit to be rotated at least every five years, and the Audit Committee and its Chair is involved in selecting each new lead audit partner. The Audit Committee approved the hiring of EY to provide all of the services detailed above prior to such independent registered public accounting firm’s engagement. None of the services related to the Audit-Related Fees described above was approved by the Audit Committee pursuant to a waiver of pre-approval provisions set forth in applicable rules of the SEC.

 

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Stock Ownership Information

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of March 21, 2022 relating to the beneficial ownership, as defined in SEC rules, of the Company’s common stock by (i) each NEO, (ii) each Director and nominee for Director, (iii) all executive officers and Directors as a group, and (iv) all persons that the Company knows beneficially own more than 5% of its outstanding common stock. Under SEC rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares voting power or investment power, which includes the power to dispose of or to direct the disposition of such security.

Knowledge of the beneficial ownership of the Company’s common stock as shown below is drawn from statements filed with the SEC pursuant to Section 13(d) or 13(g) of the Exchange Act.

 

Beneficial Owner(1)

 

   Amount and
Nature of
Beneficial
Ownership(2)

 

     Percent
of
Class(3)

 

 

David L. Finkelstein

     602,970        *     

 

 

Serena Wolfe

     26,681        *     

 

 

Anthony C. Green

     192,454        *     

 

 

Ilker Ertas

     120,765        *     

 

 

Timothy P. Coffey(4)

     126,426        *     

 

 

Francine J. Bovich

     197,492        *     

 

 

Wellington J. Denahan

     1,866,304        *     

 

 

Katie Beirne Fallon

     69,390        *     

 

 

Thomas Hamilton(5)

     513,752        *     

 

 

Kathy Hopinkah Hannan

     53,752        *     

 

 

Michael Haylon

     209,040        *