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We believe that Ms. Josephs’ qualifications to serve on the Board include her significant knowledge of the specialty finance and real estate industries, her extensive experience in the investment banking industry, including her expertise in public and private real estate finance and equity capital markets, her substantial service on the boards and committees of other public companies, her experience with corporate governance, finance and other related matters.
Craig L. Knutson, 59,62, has served as a director of MFA and as our Chief Executive Officer and President since August 2017. Mr. Knutson was appointed Co-CEO in July 2017 and President and Chief Operating Officer in January 2014 and served in those capacities prior to his appointment as CEO and President in August 2017. Mr. Knutson served as our Executive Vice President from 2008 to 2013. From 2004 to 2007, Mr. Knutson served as Senior Executive Vice President of CBA Commercial, LLC, an acquirer and securitizer of small balance commercial mortgages. From 2001 to 2004, Mr. Knutson served as President and Chief Operating Officer of ARIASYS Inc., a software development company specializing in custom solutions for small to midsize businesses. From 1986 to 1999, Mr. Knutson held various progressive positions in the mortgage trading and mortgage finance departments of First
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Boston Corporation (later Credit Suisse), Smith Barney and Morgan Stanley. From 1981 to 1984, Mr. Knutson served as an Analyst and then Associate in the Investment Banking Department of E.F. Hutton & Company Inc. Mr. Knutson holds an M.B.A. from Harvard University and an A.B. (magna cum laude) from Hamilton College.
We believe that Mr. Knutson’s qualifications to serve on the Board include his position as our Chief Executive Officer as well as his prior senior-level positions with MFA, his extensive knowledge of mortgage-backed securities, residential mortgage loans and capital markets, his substantial knowledge of our business operations and investment strategies and his overall experience in the investment banking industry, including his expertise in corporate finance.
Continuing Class II Directors
The following information is furnished regarding our Class II directors (who will continue to serve on the Board until our 2021 Annual Meeting of Stockholders and until their respective successors are duly elected and qualify).
Robin Josephs
Sheila A. Stamps, 59,64, has served as a director of MFA since 2010. From 2005 to 2007,December 2021. Ms. Josephs was a managing directorStamps currently serves on the Board of Starwood Capital Group L.P.Directors of Atlas Air Worldwide Holdings, Inc., a private equity firm specializing in real estate investments. From 1986 to 1996, Ms. Josephs was a senior executive with Goldman, Sachs & Co. serving in the real estate groupleading global provider of outsourced aircraft and aviation operating services, where she also serves as Chair of the investment banking divisionAudit and later, inFinance Committee, Pitney Bowes Inc., a global shipping and mailing company that provides services to businesses and governments, where she also serves on the equity capital markets division.Audit and Executive Compensation Committees, and IQVIA Holdings Inc., a leading global provider of advanced analytics, technology solutions, and clinical research services to the life sciences industry, where she serves on the Audit Committee. Ms. Josephs currently servesStamps also served on the Board of CIT Group, Inc., a financial holding company, from February 2014 to January 2022, where she served as a member of the board of directors of iStar Inc., where she is lead director, Chair of the nominatingAudit and governance committee and a member of the compensation committee, QuinStreet Inc., a provider of performance marketing products and technologies, where she servesNominating & Governance Committees, as Chair of the compensation committees and a member of the audit committee, Safehold Inc., an investor in commercial real estate ground leases, and Starwood Real Estate Income Trust, where she serves as a member of the audit committee. Ms. Josephs also servedwell as a member of the Board of DirectorsCIT’s subsidiary, CIT Bank, N.A. From 2014 to 2018 Ms. Stamps served as a Commissioner and Audit Committee Chair on the Board of Plum Creek Timber Company, Inc.the New York State Insurance Fund, the state’s largest workers’ compensation insurance provider. From 2011 to 2012 she served as Executive Vice President at DBI, LLC, a private mortgage investment company. From 2008 to 2011 Ms. Stamps served as Director of Pension Investments and Cash Management at the New York State Common Retirement Fund, and from 2004 to 2005 she was a Fellow at the Weatherhead Center for International Affairs at Harvard University. From 2003 until its sale to Weyerhaeuser Company2004, Ms. Stamps served as a Managing Director and Head of Relationship Management, Financial Institutions, at Bank of America Corp. (formerly FleetBoston). From 1982 to 2003, she held a number of executive positions with Bank One Corporation (now JPMorgan), including Managing Director and Head of European Asset-Backed Securitization and Managing Director and Senior Originator of Asset-Backed Securitization. Ms. Stamps has a B.S. in February 2016. Ms. Josephs is a trustee ofManagement Sciences from Duke University and an MBA in Finance from the University of Chicago Cancer Research Foundation. Ms. Josephs received her undergraduate degree from The Wharton School of the University of Pennsylvania and an M.B.A. from Columbia University.Chicago.
We believe that Ms.
Josephs’sStamps’ qualifications to serve on the Board include her
significant knowledge of the specialty finance and real estate industries, her extensive experience in the
investment banking
and financial services industry,
including her
expertise in public and private real estatesignificant knowledge of finance and
equitythe U.S. capital markets,
her experience as a senior executive with strategy, risk and business development expertise, her substantial service on the boards and
board committees of other public companies
and her experience with corporate governance
finance and other related matters.
George H. Krauss, 77, has served as a director of MFA since 1997. Mr. Krauss was named a Managing Director of The Burlington Capital Group LLC (“Burlington”) in 2010 and, prior thereto, had been a consultant to Burlington since 1997. From 1972 to 1997, Mr. Krauss practiced law with Kutak Rock LLP, serving as such firm’s managing partner from 1983 to 1993 and, from 1997 to 2006, was Of Counsel to such firm. Mr. Krauss currently serves as a member of the Board of Managers of Burlington, which is the general partner of America First Tax Exempt Investors, LP. Mr. Krauss was a member of the boards of directors of Gateway, Inc., from 1991 to October 2007, West Corporation, from January 2001 to October 2006, America First Apartment Investors, Inc., from January 2003 to September 2007, andinfoGROUP, Inc., from December 2007 to July 2010. Mr. Krauss received a J.D. and an M.B.A. from the University of Nebraska.
We believe that Mr. Krauss’s qualifications to serve on the Board include his significant experience as a managing partner of a major law firm, his substantial service on the boards and committees of other public and private companies, his considerable legal and business experience in corporate, mergers and acquisitions and regulatory matters and his significant exposure to our business and industry through his years of service on the Board.
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In accordance with our Charter and Bylaws, vacancies occurring on the Board as a result of death, resignation, retirement, disqualification, removal from office or other cause may be filled only by a majority of the remaining directors in office.
office, and any director elected to fill a vacancy holds office for the remainder of the full term of the class of directors in which the vacancy occurred.
There is no familial relationship among any of the members of our Board or executive officers.
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2. RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
On March
6, 2019,9, 2022, the Audit Committee of the Board appointed KPMG LLP as our independent registered public accounting firm for the year ending December 31,
2019.2022.
The Board is asking stockholders to ratify the Audit Committee’s appointment of KPMG LLP for
2019.2022. In the event that stockholders fail to ratify the appointment, the Audit Committee will consider it a direction to consider other accounting firms for the subsequent year. Even if the selection is ratified, the Audit Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company.
KPMG LLP first audited our financial statements beginning with the year ended December 31, 2011.
One or more representatives of KPMG LLP are expected to be present at the Annual Meeting and will be provided with an opportunity to make a statement if so desired and to respond to appropriate inquiries from stockholders.
Independent Registered Public Accounting Firm Fees
The following table summarizes the aggregate fees (including related expenses) billed to us for professional services provided by KPMG LLP in respect of the fiscal years ended December 31,
20182021 and
2017.2020.Audit Fees(1) | | | $1,570,000 | | | $1,905,150 |
Audit-Related Fees(2) | | | — | | | — |
Tax Fees(3) | | | — | | | — |
All Other Fees(4) | | | 1,938 | | | 1,938 |
Total | | | $1,571,938 | | | $1,907,088 |
![](https://files.docoh.com/DEF 14A/0001174947-19-000543/spacer.gif) | | ![](https://files.docoh.com/DEF 14A/0001174947-19-000543/spacer.gif) | | ![](https://files.docoh.com/DEF 14A/0001174947-19-000543/spacer.gif) |
| | Fiscal Year Ended December 31, |
| | 2018 | | 2017 |
Audit Fees(1) | | $ | 1,574,300 | | | $ | 1,462,000 | |
Audit-Related Fees(2) | | | — | | | | — | |
Tax Fees(3) | | | — | | | | — | |
All Other Fees(4) | | | 271,769 | | | | 1,938 | |
Total | | $ | 1,846,069 | | | $ | 1,463,938 | |
![](https://files.docoh.com/DEF 14A/0001174947-19-000543/line.gif)
(1)
| (1) | 20182021 and 20172020 Audit Fees include, as applicable: (i) the audit of the consolidated financial statements included in our Annual Report on Form 10-K and services attendant to, or required by, statute or regulation; (ii) reviews of the interim consolidated financial statements included in our quarterly reports on Form 10-Q; (iii) the audits of the financial statements of certain subsidiaries of the Company; and (iv) comfort letters, consents and other services related to the SEC and other regulatory filings and communications. Audit Fees for 20182021 and 20172020 also include the audit of the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002. |
| (2)
| There were no Audit-Related Fees incurred in 20182021 and 2017.2020. |
| (3)
| No Tax Fees were paid to or earned by KPMG LLP during 20182021 or 2017.2020. The Company paid Ernst & Young LLP $219,250and $410,025 in 20182021 and $179,885$237,800 in 20172020 for tax compliance, tax planning, tax advisory and related tax services. |
| (4)
| During each of 20182021 and 2017,2020, the Company paid KPMG LLP $1,938 for a subscription to certain GAAP technical reference materials. In addition, during 2018, the Company paid KPMG LLP $269,831 for services in connection with the Company’s evaluation and assessment relating to the adoption, beginning in 2020, of a new accounting standard regarding the measurement of credit losses on certain of our investments, particularly whole loans (also commonly referred to as CECL). Except as described in the previous sentence and in the table and notes above, there were no other professional services rendered by KPMG LLP in 20182021 and 2017.2020. |
All audit and other services provided to us were reviewed and pre-approved by the Audit Committee, which concluded that the provision of such services by KPMG LLP was compatible with the maintenance of that firm’s independence in the conduct of its auditing functions.
THE BOARD RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2019.2022.
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MANAGEMENTINFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following table sets forth certain information with respect to each of our executive officers. The Board appoints or annually reaffirms the appointment of all of our executive officers:
Officer | | Age | | Position Held |
Craig L. Knutson | | 59 | 62 | | | Chief Executive Officer and President |
Gudmundur Kristjansson | | 39 | 42 | | | Co-Chief Investment Officer |
Bryan Wulfsohn | | 35 | 39 | | | Co-Chief Investment Officer |
Ronald A. Freydberg | | 58 | | Executive Vice President |
Stephen D. Yarad | | 49 | 52 | | | Chief Financial Officer |
Kathleen A. HanrahanMei Lin | | 53 | 43 | | | Senior Vice President and Co-Controller |
Terence B. Meyers | | | 67 | | | Senior Vice President — Tax |
Michael C. Roper | | | 34 | | | Senior Vice President and Chief Accounting Officer |
Terence B. Meyers | | 64 | | Senior Vice President — Tax |
Harold E. Schwartz | | 54 | 57 | | | Senior Vice President, General Counsel and Secretary |
Sunil YadavNatasha Seemungal | | 49 | 37 | | | Senior Vice President and Co-Controller |
Biographical information on Mr. Knutson is provided in “Election of Directors” of this Proxy Statement.
Gudmundur Kristjansson
serves as Co-Chief Investment Officer. Mr. Kristjansson joined MFA in 2007 and has served as a Senior Vice President since 2014 and Co-Chief Investment Officer since January 2019. From 2005 to 2007, Mr. Kristjansson served as an Associate in Trading and Analytics at Performance Trust Capital Partners where he focused on fixed income strategy and research as well as developing fixed income analytics. Mr. Kristjansson holds a Master of Engineering degree in Operations Research from Cornell University and a B.S. in Mechanical and Industrial Engineering from the University of Iceland (Reykjavik).
Bryan Wulfsohn
serves as Co-Chief Investment Officer. Mr. Wulfsohn joined MFA in 2010 and has served as a Senior Vice President since 2015 and Co-Chief Investment Officer since January 2019. From 2008 to 2010, Mr. Wulfsohn served as a Senior Financial Analyst at Inland Western Real Estate Trust, Inc., where he focused on corporate strategy. From 2005 to 2007, Mr. Wulfsohn served as an associate in the capital markets group at CBA Commercial, LLC, an acquirer and securitizer of small balance commercial mortgages. Mr. Wulfsohn holds a B.A. from Franklin and Marshall College, and he is a CFA charterholder.Ronald A. Freydbergserves as Executive Vice President. Mr. Freydberg joined MFA in 1997. From 1995 to 1997, Mr. Freydberg served as a Vice President of Pentalpha Capital, in Greenwich, Connecticut, where he was a fixed-income quantitative analysis and structuring specialist. From 1988 to 1995, Mr. Freydberg held various positions with J.P. Morgan & Co. From 1994 to 1995, he was in J.P. Morgan’s Global Markets Group, where he was involved in commercial mortgage-backed securitization and sale of distressed commercial real estate, including structuring, due diligence and marketing. From 1985 to 1988, Mr. Freydberg was employed by Citicorp. Mr. Freydberg holds an M.B.A. from George Washington University and a B.A. from Muhlenberg College.
Stephen D. Yarad
serves as our Chief Financial Officer. Mr. Yarad joined MFA in 2010. Prior to joining MFA, Mr. Yarad was a partner in the financial services audit practice of KPMG LLP, having been admitted to the partnership of the firm in 2005. He commenced his career with KPMG LLP in Australia in 1991 and held various progressive positions before relocating to the United States at the end of 2001. In addition to being a Chartered Accountant and Associate Member of the Institute of Chartered Accountants in Australia, he is also a Certified Public Accountant licensed in New York and New Jersey. Mr. Yarad holds a Bachelor of Commerce (Accounting and Finance) with merit from the University of New South Wales (Sydney, Australia) and a Graduate Diploma in Applied Finance and Investment from the Securities Institute of Australia.Kathleen A. Hanrahan
Mei Linserves as Senior Vice President and Chief Accounting Officer.Co-Controller. Ms. HanrahanLin was appointed Co-Controller in December 2021. Ms. Lin joined MFA in 20082018 as Seniora First Vice President — Finance and was appointed Chief Accounting Officer effective October 2011.President. From 20072014 to 2008,2018, Ms. Hanrahan was Vice President — Financial Reporting with
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Arbor Commercial Mortgage LLC. From 1997 to 2006, she held progressive positions, was the FirstLin served as Vice President of Financial Reporting andProduct Control for U.S. Mortgages at Jefferies LLC. From 2009 to 2014, Ms. Lin served on the Disclosure, Corporate Benefits and Sarbanes-Oxley Committeesas Vice President of Finance for Independence Community Bank Corp. From 1992 to 1997,C12 Capital Management, a hedge fund. Ms. Hanrahan held various positions with North Side Savings Bank and was Controller from 1996 to 1997. Ms. HanrahanLin began her career in public accountingthe financial services industry in 1987 with KPMG Peat Marwick (predecessor to KPMG LLP).2006 at Barclays Capital Inc., where she served as Vice President of Product Control for Principal Mortgage Trading Group. Ms. HanrahanLin holds a B.A. in Finance from Remin University of China, and an M.B.A. in Finance from University of Illinois - Urbana Champaign, and she is a Certified Public Accountant and has a B.B.A. from Pace University.
TerenceCFA charterholder.
Terence B. Meyersserves as Senior Vice President and Director of Tax. Mr. Meyers joined MFA in 2013. Prior to joining MFA, Mr. Meyers was most recently a Director in the financial services tax practice of Deloitte Tax, LLP, where he held various positions from 1983 to 2013. While at Deloitte Tax, Mr. Meyers provided advice to clients regarding the tax and accounting treatment of mortgage loans, mortgage-backed securities and other debt instruments, mortgage banking activities and asset securitization, derivative and hedging transactions. Mr. Meyers is a Certified Public Accountant and holds an M.B.A. in Taxation and a B.S. from St. John’s University College of Business Administration. Mr. Meyers also has a J.D. from St. John’s University School of Law.
Michael C. Roper serves as Senior Vice President and Chief Accounting Officer. Mr. Roper joined MFA in 2014 and was appointed Chief Accounting Officer in December 2021. Mr. Roper previously served as our Controller. Prior
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to joining MFA, Mr. Roper was the Assistant Controller for Apollo Residential Mortgage, Inc. Mr. Roper began his career at Ernst & Young LLP primarily focusing on providing client services to publicly-traded mortgage REITs. Mr. Roper is a Certified Public Accountant and holds a B.S. from Bentley University and an M.S. from Pace University
Harold E. Schwartz
serves as Senior Vice President, General Counsel and Secretary. Mr. Schwartz joined MFA in 2011. From 2001 to 2011, Mr. Schwartz served as a Vice President and Senior Counsel for American Express Company, where he specialized in corporate, securities, corporate governance and mergers and acquisitions matters. From 1996 to 2000, Mr. Schwartz served as Senior Vice President, General Counsel and Secretary of Caribiner International, Inc., a business communications services and audio visual equipment rental company. Mr. Schwartz began his career working for the law firm of Schulte Roth & Zabel LLP. Mr. Schwartz has a J.D. from Georgetown University and an A.B. from Duke University.Sunil Yadav
Natasha Seemungalserves as Senior Vice President. Mr. YadavPresident and Co-Controller. Mrs. Seemungal was appointed Co-Controller effective December 2021. Mrs. Seemungal joined MFA in 2008. From 2005 to 2007, Mr. Yadav served as a residential mortgage-backed securities trading strategist at Banc of America Securities. From 1998 to 2003, Mr. Yadav was employed2009 as an engineerAccounting Analyst, and has served in various positions of progressive responsibility, including most recently as MFA’s Assistant Controller. Prior to joining MFA, Mrs. Seemungal began her career at Fermi National Accelerator Laboratory (Fermilab). From 1996 to 1998, Mr. Yadav served as a post-doctoral research scholar at the California Institute of Technology. Mr. Yadav holds an M.B.A. from The Wharton School of the University of Pennsylvania. Mr. Yadav alsoEstee Lauder Companies. Mrs. Seemungal holds a master’sB.S and Ph.D.M.S in mechanical engineeringAccounting from The Johns HopkinsSt. John’s University and an undergraduate degree in mechanical engineering from the Indian InstituteCollege of Technology (Kanpur, India).Business Administration.
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Compensation Discussion and Analysis (“CD&A”)
The following section discusses the key features of our executive compensation program and the approach taken by the Compensation Committee of the Board in setting and determining compensation for 20182021 for:
Craig L. Knutson, our Chief Executive Officer and President;
Gudmundur Kristjansson, one of our Senior Vice Presidents and Co-Chief Investment Officer;
Bryan Wulfsohn, one of our Senior Vice Presidents and Co-Chief Investment Officer;
Sunil Yadav, one of our Senior Vice Presidents; and
Stephen D. Yarad, our Chief Financial OfficerOfficer; and
Harold E. Schwartz, one of our Senior Vice Presidents and our General Counsel and Secretary (collectively, our “Named Executive Officers”).
The Compensation Committee oversees the design and administration of our compensation programs and makes decisions relating to the compensation of our Named Executive Officers. The Compensation Committee intends that the compensation paid to the Named Executive Officers be consistent with our overall compensation philosophy and competitive with market practices.
The sections that follow describe:
The Compensation Committee’s process for reviewing the components of the compensation of the Named Executive Officers.
The reasons for paying each element of compensation to the Named Executives Officers, including the methodology for competitive benchmarking and the use of peer groups.
How compensation levels are determined, including the performance measures used for performance-based compensation and factors taken into account in the Compensation Committee’s determination that those measures are appropriate.
20182021 Compensation
HighlightsSummary
It is the Compensation Committee’s role to review the Company’s executive compensation plans and programs and, after noting the outcome of the most recent stockholder advisory vote on executive compensation, make compensation decisions it believes are appropriate. Among other things, below is a summary of certain of the determinations made by the Compensation Committee with respect to
20182021 compensation matters, and in particular with respect to Mr. Knutson, Mr. Kristjansson and Mr. Wulfsohn, our three most senior and most highly-compensated
employees.employees each of whom has an employment agreement with us. These items are discussed further within this CD&A and in the executive compensation tables and notes to the tables and other narratives regarding compensation matters, all of which follow.
| • | MFA’s 2018 investment performance was strong and consistent throughout the year. |
| º | We acquired over $5.7 billion of investment assets during the year to grow our investment portfolio on a net basis by over $2.1 billion (or 22%) from $9.9 billion at the beginning of the year to $12.1 billion by the end of 2018, which reflected the continued execution on our strategy to grow and expand our investments in residential whole loans. |
| º | We further diversified our asset classes, in particular by expanding the types of residential whole loans in which we invest to include recently originated performing loans, including non-Qualified Mortgage (or Non-QM) loans, fix and flip mortgage loans and single-family rental mortgage loans. |
| º | We maintained a relatively constant yield on interest earning assets (ranging from a low of 5.15% in the first quarter to a high of 5.54% in the third quarter) and net interest rate spread (ranging from a low of 2.17% in the fourth quarter to a high of 2.41% in the third quarter) throughout the year. |
MFA’s 2021 business, financial performance and share price rebounded strongly from 2020 performance that had been adversely impacted by the effects of the COVID-19 pandemic. MFA’s business and financial performance rebounded strongly in 2021 following a difficult 2020 when performance was impacted, particularly in the first half of such year, by the significant volatility and disruption in the U.S. economy and financial markets from the onset of the COVID-19 pandemic. Although the first quarter of 2021 was a period marked by a relative lack of attractive investment opportunities, the actions that we began to take during 2020 to strengthen our liquidity and restructure our funding profile continued into 2021 and placed us in a position to take advantage of increased investment opportunities over the last three quarters of the year. Our strong 2021 performance was highlighted by the following:
We acquired approximately $4.6 billion of new investment assets during the year (including approximately $4.3 billion after the first quarter of the year) to grow our investment portfolio on a net basis by approximately $2.4 billion. This growth included a 49% increase in our residential whole loan portfolio to approximately $7.9 billion at the end of 2021 from approximately $5.3 billion at the end of 2020.
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| º | We achieved our performance using a low level of leverage (with a debt-to-equity ratio ranging from 2.2:1 to 2.6:1 during the course of the year) relative to other residential mortgage REITs. |
| º | We maintained a consistent dividend payout of $0.20 per quarter during 2018, which was the same as the dividend payout during each quarter of each of 2017, 2016, 2015 and 2014. |
| º | We maintained a relatively stable book value (in particular as compared to other REITs in the residential mortgage finance sector) ranging from $7.70 per share at the end of 2017 to $7.15 per share at the end of 2018 despite a changing interest rate environment characterized by the effects of the Federal Reserve’s four increases in the “target” Fed Funds rate during the year, as well as volatile financial markets in the fourth quarter of the year. |
| • | MFA’s stock performance during the performance period was flat. The table below compares MFA’s total stockholder return (“TSR”), which reflects stock price appreciation and dividends paid (and assumes reinvestment thereof), for the 2018 compensation performance period (December 1, 2017 to November 30, 2018) to the 12 other publicly-traded companies in our compensation peer group (see pages 27 to 29 below), each of which is internally-managed and most of which have businesses focusing on the investment in and financing and servicing of residential mortgage assets, including residential mortgage-backed securities, residential whole loans and other residential finance-related assets. |
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| • | 2018 compensation for Mr. Knutson reflected his promotion to Chief Executive Officer and the implementation of modifications to his annual bonus opportunity and long-term incentive awards. We entered into a three-year employment agreement with Mr. Knutson, which became effective January 1, 2017, and under which, at the commencement of the agreement, Mr. Knutson was serving as our President and Chief Operating Officer. In August 2017, Mr. Knutson was appointed as our Chief Executive Officer and President following the death of our prior CEO. Notwithstanding Mr. Knutson’s promotion to CEO, in light of the fact that a significant portion of the 2017 performance period had already elapsed by the time of Mr. Knutson’s appointment as CEO, the Compensation Committee determined to continue to compensate him in his capacity as our President and COO for the performance period ended November 30, 2017. In this regard, the amounts paid to and earned by Mr. Knutson for 2017 were primarily a function of his position as President and COO. |
We completed eight securitization transactions, across multiple mortgage loan types, totaling $2.6 billion, which reflected the continued execution on our strategy to reduce our reliance on shorter-term, mark-to-market funding of our investments portfolio in favor of longer-term, non-mark-to-market funding.
We increased net interest income 47% to $241.9 million from $164.1 million in 2020.
We completed the acquisition of Lima One Capital, LLC (“Lima One Capital”), a leading nationwide business purpose loan (BPL) originator and servicer, in July 2021, which significantly enhanced our ability to purchase and service BPL loans.
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Our GAAP book value increased 5.3% during the year to $19.12 per share (as adjusted for our 1-for-4 reverse stock split effected on April 4, 2022) at year-end.
We achieved our performance using a low level of leverage (with a debt-to-equity ratio ranging from 1.6:1 to 2.5:1 during the course of the year) relative to other residential mortgage REITs.
Our total stockholder return (“TSR”), which reflects stock price appreciation and dividends paid (and assumes reinvestment thereof), for the 2021 compensation performance period (December 1, 2020 to November 30, 2021) (the “2021 Performance Period”) was strong at 25.6% and 27.6% for calendar year 2021.
In March 2018, MFA entered into an amendmentaccordance with pay-for-performance principles, 2021 annual incentive compensation for Mr. Knutson, Mr. Kristjansson and Mr. Wulfsohn was primarily determined by MFA’s 2021 financial performance. Mr. Knutson was paid overall annual incentive compensation for the 2021 Performance Period of $3,750,000. Mr. Knutson’s annual incentive compensation for 2021 reflected a payment to him of 187.5% of his overall “target” annual incentive award of $2,000,000 for 2021, as compared to his overall annual incentive compensation of $1,100,000 for the 2020 performance period, which reflected a payment to him of 50% of his $2,200,000 overall “target” annual incentive award for that year.
In addition, Mr. Kristjansson and Mr. Wulfsohn were each paid overall annual incentive compensation for the 2021 Performance Period of $1,781,250. Similar to Mr. Knutson’s employment agreement to reflect his appointment to CEO. Pursuantannual incentive award, each of Mr. Kristjansson’s and Mr. Wulfsohn’s annual incentive compensation for 2021 reflected a payment to the termsexecutive of the March 2018 amendment, Mr. Knutson’s187.5% of his overall “target” annual bonus target and long-term incentive award levels were increased beginning withof $950,000 for 2021, as compared to his overall annual incentive compensation for the 20182020 performance period, which reflected a payment to reflecthim of approximately 50% of his promotion as well as the commensurateoverall “target” annual incentive award for that year (which “target” was also $950,000).
The increase in
his responsibilities and duties. As modified by the amendment, Mr. Knutson’s annual
bonus targets and long-term incentive
award levels are consistent with those that had been in effect for our prior CEO under the terms of his employment agreement with the Company at the time of his passing.Accordingly, pursuant to the terms of March 2018 amendment, Mr. Knutson’s overall “target” bonus was increased from $1,575,000 to $2,000,000 for the remainder of his employment agreement, which covered the 2018 compensation performance period (and will also cover the 2019 performance period). In addition, pursuant to the terms of the March 2018 amendment, the number of time-based restricted stock units (“TRSUs”) to which Mr. Knutson was entitled to receive in each of 2018 and 2019 was increased from 70,000 to 82,500 and the “target” number of performance-based restricted stock units (“PRSUs”) to which he was entitled to receive in each such year was increased from an aggregate 105,000 to an aggregate 122,500. Mr. Knutson’s base salary was not modified, and it remains $700,000 per annum.
| • | 2018 compensation for Mr. Kristjansson and Mr. Wulfsohn reflected the implementation of a new employment agreement for each such executive. Also as previously disclosed, in March 2018, the Company entered into a new employment agreement with each of Mr. Kristjansson and Mr. Wulfsohn. The Compensation Committee, with the input of Mr. Knutson, other members of our Board and the Compensation Committee’s independent consultant, determined that in light of Mr. Kristjansson’s and Mr. Wulfsohn’s leadership roles within MFA and their increased responsibilities following the death of our prior CEO and the promotion of Mr. Knutson, it was in the Company’s interest to provide them with additional certainty regarding the terms and conditions of their employment, as well as with additional economic opportunity in exchange for our receiving the benefit of certain covenants restricting their ability to compete with the Company or recruit and hire MFA’s employees in the event either executive left the employ of the Company. The structure and design of Mr. Kristjansson’s and Mr. Wulfsohn’s employment contracts are generally consistent with the structure and design of Mr. Knutson’s employment agreement. However, the compensation targets and award levels for Mr. Kristjansson and Mr. Wulfsohn, as well as the benefits and payments to which they would be entitled in the event of their death, disability or termination of employment, are different from those found in Mr. Knutson’s agreement and reflect their positions within the Company. |
| • | In accordance with pay-for-performance principles, 2018 annual bonus compensation for Mr. Knutson, Mr. Kristjansson and Mr. Wulfsohn was primarily determined by MFA’s 2018 financial performance.Of the aggregate $3.04 million bonus compensation paid to Mr. Knutson and the $1.2 million bonus compensation paid to each of Mr. Kristjansson and Mr. Wulfsohn for the 2018 compensation performance period, approximately 75.3% (or approximately $2.29 million in the case of Mr. Knutson and approximately $915,720 in the case of each of Mr. Kristjansson and Mr. Wulfsohn) of such amount was formulaically determined based directly on MFA’s performance for the 12-month period from December 1, 2017 to November 30, 2018, as described further on page 37 of this Proxy Statement (with the remaining approximately 24.7% of the bonus paid to each executive for such period determined by the Compensation Committee in its discretion after a review of Company and individual performance). |
| • | A portion of 2018 bonus compensation for Mr. Knutson, as well as each of the other Named Executive Officers, was paid in the form of equity awards with a mandatory three-year holding period after grant. For 2018, consistent with Mr. Knutson, Mr. Kristjansson and Mr. Wulfsohn’s respective employment agreement, the Compensation Committee used a methodology for making |
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| | the annual bonus payment to each executive that resulted in a portion of his annual bonus being paid in cash, with the remaining portion being paid in the form of fully-vested shares of our Common Stock with a mandatory three-year holding period after grant. |
| º | Consistent with Mr. Knutson, Mr. Kristjansson and Mr. Wulfsohn’s respective employment agreements, for the 2018 compensation performance period the bonus amount that exceeded his base salary was paid 50% in cash and 50% in the form of fully-vested shares of Common Stock that are subject to a three-year holding period after grant. Under this methodology, as the amount of the annual bonus earned by each executive increases above his base salary, a greater proportion of his total annual bonus is invested in the prospective financial performance of MFA, which the Compensation Committee believes results in an appropriate long-term alignment of executive and stockholder interests. |
The table on page 39 of this Proxy Statement sets forth the portion of Mr. Knutson, Mr. Kristjansson and Mr. Wulfsohn’s total 2018 annualWulfsohn for 2021 as compared to 2020 was a reflection of MFA’s strong financial performance during the year, including a level of adjusted return on equity that resulted in the maximum payout to each executive for the portion of his bonus that was paidformulaically determined (as more particularly described below).
Also, Mr. Yarad’s and Mr. Schwartz’s respective annual incentive awards of $410,000 and $470,000, respectively, for the 2021 Performance Period, which were solely discretionary as determined by the Compensation Committee, reflected an approximately 40% increase from the annual incentive compensation that each such executive received for the 2020 performance period.
Year-end vesting and realized value of long-term incentive awards (“LTIAs”) granted to Named Executive Officers in cash2019 were adversely affected by the substantial decline price of MFA’s Common Stock over the course of the three-year vesting and fully-vested sharesperformance period. Despite the 27.6% TSR of our Common Stock during 2021, the substantial decline in MFA’s Common Stock price suffered during 2020 had a pronounced negative impact on the realized value of the time-based restricted stock units (“TRSUs”) that had been granted to our Named Executive Officers in early 2019 and vested at the end of 2021. The decline in MFA’s stock price also had a significant impact on the vesting and realized value of the performance-based restricted stock units (“PRSUs”) granted in early 2019 with a mandatory three-year holdingperformance period that ended December 31, 2021. More specifically, at their vesting on December 31, 2021, the value of the TRSUs that had been granted to each Named Executive Officer in early 2019 had declined approximately 38.3% from TRSUs’ grant date value. In addition, as a result of the absolute and relative
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performance of MFA’s Common Stock during the three-year period ended December 31, 2021, only 35.7% of the “target” number of PRSUs granted to the Named Executive Officers in early 2019 vested, such that the actual value realized on the PRSUs reflected a decline of 76.6% from the grant date value of grant.the “target” number of PRSUs.
| • | EquityApproximately 60% of 2021 long-term equity awards based on longer-term performance were used in 2018 for each of theto Named Executive Officers.Officers were performance-based. Of the long-term equity-based incentive awards (granted in the form of TRSUs and PRSUs) granted to each of the Named Executive Officers in January 2021, approximately 60% were performance-based awards that will “cliff” vest after three years based on MFA’s absolute TSR in(in the case of one-half of such awardsawards) and MFA’s TSR relative to a group of internally- and externally-managed residential mortgage REITs in(in the case of the other half of such awards,awards), in each case for the three-year period from January 1, 20182021 to December 31, 2020,2023, with the number of awards to ultimately vest ranging from zero to two times a “target” number. The performance-basedremaining approximately 40% of the long-term equity-based incentive awards granted to our Named Executive Officers were time-based awards that “cliff” vest after three years. These long-term awards act to further align the interests of our management team and our stockholders over a multi-year period. The long-term equity awards granted to each of the Named Executive Officers during 2021 are further described on pages 3932 to 4133 and pages 35 to 36 of this Proxy Statement under the heading “2018“2021 Long-Term Equity-Based Incentive Awards.” |
| • | MFA’s performance-based compensation philosophy resulted in Mr. Knutson and our other Named Executive Officers’ receiving a combination of different types of compensation, which are intended to promote the achievement of both short-term and long-term business objectives. The chart below illustrates how total 2018 compensation received by Mr. Knutson in the aggregate (as reported in the Summary Compensation Table on page 46 of this Proxy Statement)Consistent with MFA’s performance-based compensation philosophy, approximately 90% of the CEO’s 2021 compensation was at-risk. As in past years, our Named Executive Officers’ compensation for 2021 was allocated among base salary, annual incentive compensation comprised of a formulaically-determined bonus (ROAE Bonus), discretionary bonus (IRM Bonus), TRSUs and PRSUs: |
![[GRAPHIC MISSING]](https://files.docoh.com/DEF 14A/0001174947-19-000543/tv514704_chrt-pie.jpg)
In summary and as further described below, for 2018a discretionary bonus (IRM Bonus), TRSUs and PRSUs. For 2021, Mr. Knutson received compensation aggregating approximately $7.4 million, which was comprised of a base salary in the amount of $700,000,$800,000, an ROAE Bonus in the amount of $2,289,300,$3,000,000, an IRM Bonus in the amount of $750,000, TRSUs with an aggregate grant date value of $629,475approximately $1,040,000 and PRSUs with an aggregate grant date value of
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$845,862. approximately $1,810,000. Of the total compensation received by Mr. Knutson for 2018,2021, approximately 49.4%61.5% was paid in cash and 50.6%38.5% was paidgranted in the form of TRSUs and PRSUs, and sharesapproximately 90% of our Common Stock (which was used to pay a portion of his ROAE Bonus and IRM Bonus).
2021 compensation at-risk.
Consideration of
20182021 Advisory Vote on Executive Compensation
At our Annual Meeting of Stockholders held in
May 2018, 96%June 2021, 96.1% of the votes cast with respect to the say-on-pay proposal voted to approve our executive compensation for
2017.2020. The Compensation Committee has reviewed the results of the
20182021 say-on-pay vote and believes that the significant support of MFA stockholders in this vote reflects support for MFA’s approach to executive compensation.
The Compensation Committee will continue to consider the outcome of future Say-on-Pay votes and other stockholder input, as well as available market data, in making future decisions regarding executive compensation.
Compensation Philosophy and Objectives
Through our executive compensation programs, we seek to attract, motivate and retain top quality senior executives who are committed to our core values of excellence and integrity. The Compensation Committee’s fundamental philosophy is to closely align these compensation programs with the achievement of annual and long-term performance goals tied to our financial success and the creation of stockholder value.
The Compensation Committee’s principal objectives in developing and administering the executive compensation programs are to:
Align the interests of the senior executive team with the interests of our stockholders by motivating executives to increase long-term stockholder value consistent with appropriate levels of leverage and risk;
Retain, motivate and attract a highly-skilled senior executive team that will contribute to the successful performance of the Company;
Provide compensation opportunities that are competitive within industry standards thereby reflecting the value of the executive’s particular position in the marketplace;
Support a culture committed to paying for performance where compensation is commensurate with the level of risk-adjusted returns that are achieved; and
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Maintain a high degree of flexibility and discretion to allow us to recognize the unique characteristics of our operations and strategy and our prevailing business environment, as well as changing labor market dynamics.
The Compensation Committee periodically reviews and evaluates executive officer compensation levels and our compensation program. It is the Compensation Committee’s view that compensation decisions are complex and best made after a deliberative review of Company and individual performance, as well as industry compensation levels. Consistent with this view, the Compensation Committee assesses our performance within the context of the industry’s overall performance and internal performance standards and evaluates individual executive officer performance relative to the performance expectations for their respective position, role and responsibilities within MFA.
Compensation
Benchmaking/Benchmarking/Use of Peer Groups
The Compensation Committee benchmarks from time to time the compensation levels and practices relating to our Named Executive Officers and other executive officers against industry-based compensation levels and practices. In this regard, for 2018 the Compensation Committee, with the assistance of its independent compensation consultant, FPL Associates L.P. (“FPL Associates”), undertook a benchmarking analysis with respect to the compensation levels and practices of our CEO and certain other Named Executive Officers. While it is the Compensation Committee’s goal to provide compensation opportunities that reflect
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Company and individual performance and that are competitive within industry standards, the Compensation Committee has not established nor does it seek to establish, a specific target market percentile for executive officer pay levels, as pay practices and compensation levels among participants in our industry can vary significantly from one year to the next such that the use of a specific target market position would not necessarily reflect the Compensation Committee’s assessment of performance as the primary driver of pay levels.
For each of the past several years, the
The Compensation Committee has,
with the assistance of FPL Associates,in general, undertaken
aan annual review of MFA’s peer group methodology. The Compensation Committee has engaged in these reviews in part because it
continues to behistorically had been difficult to develop a peer group for executive compensation purposes in the residential mortgage REIT sector due to the
largesignificant number of companies in the sector that
arewere, until the last few years, externally advised.
As a result, theseThese externally-advised companies
havehad few, if any, employees that
arewere compensated directly and/or fully by the REIT. Rather, such persons’ compensation
iswas paid by the external manager of the REIT, and as a result, the REIT itself
iswas required to disclose publicly little to no compensation information regarding its executives. Furthermore, the Compensation Committee
believesbelieved that any peer group for compensation purposes that
iswas comprised solely of internally-advised residential mortgage REITs would not
behave been a large enough group to provide meaningful comparative information.
In light of the “internalization” of several residential mortgage REITs over the past few years, additional compensation information has become more available for the Compensation Committee to consider as it makes decisions regarding the structure, design and pay levels of our executive compensation program. Nonetheless, a significant number of companies in the residential mortgage REIT sector continue to remain externally advised, which limits the amount of compensation information that is available to inform the Compensation Committee.
Because of the limited compensation information available for mortgage REITs, the Compensation Committee has
in consultation with FPL Associates, developed a peer group that extends beyond mortgage REITs. This peer group also includes a number of other real estate-focused finance companies in both the residential and commercial sectors, the executives of which are required to have similar skills and experience as the executives of MFA, including the evaluation of credit risk, interest rate risk and allocation of capital (which are skills required in connection with the evaluation of
Agency and Non-Agencyresidential whole loans, residential mortgage-backed securities
residential whole loans and other residential mortgage-related assets). In addition, the
Compensation Committee has also considered for inclusion in the peer group
includescompanies that identify MFA as a peer, that identify peers as peers in their own peer group, and companies that have, in prior years, been identified by the proxy advisory firms as
being comparable to MFA in their evaluation of MFA in connection with developing their annual Say-on-Pay vote recommendation.
In considering the peer group analysis provided by FPL Associates, the
The Compensation Committee recognizednotes that the peer group diddoes not include externally-managed mortgage REIT’s because comprehensive compensation data for their executives are generally not publicly available. In addition, the Compensation Committee didhas not includeincluded generally higher paying private equity firms and hedge funds with which MFA must compete for executive talent. These organizations werehave not been included in the peer group because they have different business economics and pay models from ours and due to the fact thatbecause comprehensive compensation data regarding compensation of their executivesfor these firms are also generally not publicly available.
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With the above in mind,
the Compensation Committee, in the fall of
2018,2021, the Compensation Committee identified the following companies against which Company performance would be compared and compensation practices would be
reviewed:![](https://files.docoh.com/DEF 14A/0001174947-19-000543/spacer.gif) | | ![](https://files.docoh.com/DEF 14A/0001174947-19-000543/spacer.gif) |
AGNC Investment Corp. (AGNC) | | Mr. Cooper Group, Inc. (COOP) |
Arbor Realty Trust, Inc. (ABR) | | New York Mortgage Trust, Inc. (NYMT) |
Capstead Mortgage Corporation (CMO) | | PennyMac Financial Services, Inc. (PFSI) |
Chimera Investment Corporation (CIM) | | Radian Group, Inc. (RDN) |
Essent Group, Ltd. (ESNT) | | Redwood Trust, Inc. (RWT) |
iStar Financial, Inc (STAR) | | |
MGIC Investment Corporation (MTG) | | |
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As compared toreviewed (the majority of which are the group ofsame companies usedidentified by the Compensation Committee to inform 2017its 2020 compensation decisions, the group of companies identified above, which the Compensation Committee used in 2018, reflects the addition of Arbor Realty Trust, Inc., Essent Group Ltd. and New York Mortgage Trust, Inc., which the Compensation Committee determined to include in light of their reasonably comparable business focus and size. In addition, the group of companies used by Compensation Committee in informing its 2018 compensation decisions reflects the removal from the group of CYS Investments, Inc., which was acquired during 2018, and TFS Financial Corporation, which is a bank holding company with a business that is not particularly comparable to that of MFA’s.
decisions):
AGNC Investment Corp. (AGNC) | | | Mr. Cooper Group, Inc. (COOP) |
Arbor Realty Trust, Inc. (ABR) | | | New York Mortgage Trust, Inc. (NYMT) |
Capstead Mortgage Corporation (now known as Franklin BSP Realty Trust, Inc.) (FBRT) | | | PennyMac Financial Services, Inc. (PFSI) |
| Radian Group, Inc. (RDN) |
Chimera Investment Corporation (CIM) | | | Redwood Trust, Inc. (RWT) |
Essent Group, Ltd. (ESNT) | | | Two Harbors Investment Corp. (TWO)* |
Granite Point Mortgage Trust (GPMT)* | | | Virtus Investment Partners Inc. (VRTS)* |
iStar Financial, Inc (STAR) | | | Walker & Dunlop, Inc. (WD)* |
Ladder Capital Corp. (LADR)* | |
MGIC Investment Corporation (MTG) | | | |
*
| New peer company for 2021. |
Components of Compensation
The Compensation Committee believes that it is important to create compensation programs that appropriately balance short-term, cash-based compensation with long-term, equity-based compensation. Our executive officer compensation program includes the following primary components:
| • | Base salariespaid in cash, which are based on the scope of the executive’s role, the responsibilities associated with the position and the individual’s performance in that role, as well as competitive market practices; |
| • | Annual bonus awards, which are generally paid as a combination of cash and shares of our Common Stock that either vest over a multi-year period or are fully-vested but subject to a multi-year prohibition on transfer and are intended to motivate and reward the Company’s short-term financial and operational performance, as well as short-term individual performance; and |
| • | Long-term incentive awards (“LTIA”), which are designed to support our objectives of aligning the interests of executive officers with those of our stockholders, promote value creation and long-term performance and retain executive officers. |
Base salaries paid in cash, which are based on the scope of the executive’s role, the responsibilities associated with the position and the individual’s performance in that role, as well as competitive market practices;
Annual bonus awards, which are paid in cash, are intended to motivate and reward the Company’s short-term financial and operational performance, as well as short-term individual performance; and
Long-term incentive awards (“LTIAs”), which are designed to support our objectives of aligning the interests of executive officers with those of our stockholders, promote value creation and long-term performance and retain executive officers.
In addition to the primary components of the executive officer compensation program, we maintain our Senior Officers Deferred Bonus Plan (the “Senior Officers Plan”). The Senior Officers Plan (a description of which can be found on pages
4137 and
5145 of this Proxy Statement) permits our executive officers to defer, at their election, up to 100% of their annual bonus compensation in the form of
deferred stock units.hypothetical “stock units”. The performance of the deferred stock units is tied to the performance of our Common Stock. At present, none of our executive officers has any amounts deferred under the Senior Officers Plan.
Other than the opportunity to participate in the Senior Officers Plan, we
We do not provide perquisites or other benefits to our Named Executive Officers,
beyond those providedas the Compensation Committee believes in prioritizing variable, at risk compensation. Our Named Executive Officers receive the same benefits available to
all of our other salaried
employees.employees (a summary of which can be found on pages 8 to 9 of this proxy statement).
The discussion below regarding our primary elements of compensation and the Compensation Committee’s decisions for 20182021 reflects the terms and conditions of Mr. Knutson’s,Knutson, Mr. Kristjansson’sKristjansson and Mr. Wulfsohn’s employment agreements.agreements that were in effect during 2021. Likewise, the discussion regarding Mr. YadavYarad and Mr. YaradSchwartz reflects their compensation arrangements with the Company for 2018.2021.
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Key Elements of Compensation
As indicated above, the compensation of our Named Executive Officers is comprised of three principal elements, summarized in the following chart:
Element | | Key Features | | Purpose |
Base Salary | | | - Levels set periodically based on scope
of the executive’s role, responsibilities
of the position, individual performance
and competitive market practices
- Changes may be considered based on
performance and other factors | | | - Provides a base level of guaranteed
compensation |
| | -
Discretionary increases may be considered based on performance and other factors | | | | |
Annual Incentives | | | - For 2018,2021, for Messrs. Knutson,
Kristjansson and Wulfsohn, per terms of
their respective employment agreement,
(a) portion of annual bonus based on
the achievement of specified adjusted
return on common equity targets and
(b) portion based on the Compensation
Committee’s discretionary assessment of
Company and individual performance
- For 2021, for Messrs. Yarad and
Schwartz based on a discretionary
determination of performance
- Annual incentive award paid in cash | | | - Provides an incentive to achieve annual
financial and individual performance
goals
|
| | -
Portion delivered in shares of Common Stock (with mandatory holding periods) to ensure that annual performance is sustained over time and further aligns executive’s interests with stockholders | | | | |
| | -
For 2018, for Messrs. Yadav and Yarad, based on a discretionary determination of performance
|
| | º
For Mr. Yadav, the Compensation Committee was guided by similar methodology as used for Messrs. Knutson, Kristjansson and Wulfsohn
|
| | -
For 2018, delivered in a mix of cash and Common Stock that is restricted from transfer for three-year period
| | |
Long-Term Incentive Awards | | | - Grants of stock-based awards with
multi-year vesting requirements
- Vesting may be time-based or
performance-based
- For 2021, LTIAs granted in the form of
time-based and performance-based
RSUs
| | | - Performance-based awards provide
long-term incentives tied to TSR on
both an absolute basis and relative to a
group of internally- and
externally-managed mortgage REITs
selected by the Compensation
Committee at the time of grant |
| |
- Available types of awards include restricted stock units, stock options, shares of Common Stock and other stock-based awards
|
| | -
Vesting may be time-based or
performance-based
| | -
Further aligns executive’s interests with
stockholders and encourages retention
of key executives |
The following discussion provides additional explanation about each of the elements of compensation described above.
Base Salary.
We provide the Named Executive Officers with annual base salaries to provide them with a base level of guaranteed compensation for their services provided during the term of their employment. From time to time, the Compensation Committee reviews market analyses and considers the advice of its independent compensation consultant in setting base salaries.Consistent with the Compensation Committee’s overall philosophy, the compensation program for the Named Executive Officers is expected to continue to emphasize incentive compensation over base salary
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(other than in the case of Mr. Yarad, who does not have management responsibility for investment strategy, asset selection or other “top line” functions).salary. However, the Compensation Committee does not have a pre-set mix or target of base salary to incentive compensation awards for the Named Executive Officers.
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Annual Incentives. For 2018,2021, we had the following types of annual incentive programs for our Named Executive Officers:
Pursuant to the terms of his employment agreement, a portion of each of Mr. Knutson’s,Knutson, Mr. Kristjansson’sKristjansson and Mr. Wulfsohn’s annual incentive award was formulaically-determinedformulaically determined based on the level of Adjusted ROAE (as described below) and a lesser portion of his annual incentive award was determined based on the discretion of the Compensation Committee. As described below, each component of Messrs. Knutson, Kristjansson and Wulfsohn’s respective annual incentive award has a “target” level and the amount of the award that is ultimately paid could be higher or lower than the target.
Messrs. YadavYarad and YaradSchwartz were eligible for a discretionary annual incentive award based on a subjective assessment by the Compensation Committee, in consultation with Mr. Knutson, of MFA’s annual performance and the annual performance of each individual executive.
For Mr. YadavYarad and Mr. Yarad,Schwartz, no pre-set “target” level for their respective annual incentive award was established. For 2018,2021, the Compensation Committee believed that a discretionary incentive opportunity for these Named Executive Officers provided itthe committee with flexibility in assessing and rewarding individual performance and individual contributions. Nonetheless, in determining the annual incentive award
Annual Incentive Award for Mr.
Yadav for 2018, the Compensation Committee used as a guide an approach and methodology similar to that used to determine the annual incentive awards for Messrs. Knutson,
Mr. Kristjansson and
Mr. Wulfsohn.
| | Annual Incentive Award for Mr. Knutson, Mr. Kristjansson and Mr. Wulfsohn. |
Pursuant to the terms of the employment
agreementagreements that we
entered intohave in place with
each of Mr. Knutson,
in November 2016 (as amended in March 2018 to reflect his promotion to Chief Executive Officer), he isMr. Kristjansson and Mr. Wulfsohn, each executive was eligible to receive an annual performance-based bonus based on the Company’s and his individual performance during the 12-month
periodsperiod beginning on
each of December 1,
2016, 2017 and 20182020, and ending on November 30,
of the next succeeding year (each 12-month period being a “Performance Period”).2021. Under the terms of
the employment agreement that we entered into with each of Mr. Kristjansson and Mr. Wulfsohn in March 2018, each executive is eligible to receive an annual performance bonus based on Company and individual performance for the Performance Periods beginning on each of December 1, 2017 and 2018. As indicated above, under the terms of his
respective employment agreement Mr. Knutson’s “target” annual bonus (the “Overall Target Bonus”) for the
20182021 Performance Period was $2,000,000
(a decrease of $200,000 as compared to the Overall Target Bonus of $2,200,000 for the 2020 Performance Period), and each of Mr. Kristjansson and Mr. Wulfsohn’s Overall Target Bonus for the
20182021 Performance Period was
$800,000.$950,000 (which was unchanged from the Overall Target Bonus of $950,000 for the 2020 Performance Period).
Each of Mr. Knutson, Mr. Kristjansson and Mr. Wulfsohn’s respective employment agreement provides that his annual bonus is comprised of two components:
the major portion of the bonus is payable based on MFA’s return on average total common stockholders’ equity (as adjusted as described below) during the applicable Performance Periodperformance period (hereinafter referred to as the “ROAE Bonus”); and
a lesser portion of the bonus is payable based on the executive’s individual performance, Company performance and the Company’s risk management (hereinafter referred to as the “IRM Bonus”).
With respect to the ROAE Bonus, for each Performance Period,executive under his employment agreement, for each 12-month performance period, the target amount of the ROAE Bonus (the “Target ROAE Bonus”) for Messrs. Knutson, Kristjansson and Wulfsohn is equal to 75% of
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his Overall Target Bonus. Based on his Overall Target Bonus, for the 20182021 Performance Period, Mr. Knutson’s Target ROAE Bonus was $1,500,000, (as compared to his Target ROAE Bonus of $1,181,250 for the 2017 Performance Period, which reflected his being compensated as President and Chief Operating Officer), and each of Mr. Kristjansson and Mr. Wulfsohn’s Target ROAE Bonus was $600,000.$712,500. Mr. Knutson, Mr. Kristjansson and Mr. Wulfsohn’s employment agreement provides that he is eligible to receive from zero to 200% of his Target ROAE Bonus.
Calculation of Adjusted ROAE. The For the 2021 Performance Period, the determination of the ROAE Bonus
iswas based on a methodology that is set forth in
each of Mr. Knutson, Mr. Kristjansson and Mr. Wulfsohn’s employment agreement and reflects certain adjustments to GAAP net income and GAAP stockholders’ equity. For purposes of determining the
2021 ROAE Bonus, return on average stockholders’ equity
iswas calculated by dividing (i) our net income for the applicable
Performance Periodperformance period as determined in accordance with GAAP
(but(but excluding non-cash, non-operating expense items such as depreciation and amortization expense) by (ii) our average total stockholders’ equity (based on stockholders’ equity as of the last day of each month during the
Performance Period)performance period) as determined in accordance with GAAP
(but(but excluding accumulated other comprehensive income or loss, stockholders’ equity attributable to preferred stock and such other items as may be determined by the Compensation Committee of the Board). We refer to such calculation in this Proxy Statement as our “Adjusted ROAE.”
The actual amount of ROAE Bonus to be paid to Messrs. Knutson, Kristjansson and Wulfsohn is based on our Adjusted ROAE for the applicable Performance Period relative to a target (the “ROAE Target”) that is the greater of (A) the sum of (i) the average weekly interest rate on the 2-year U.S. Treasury note (the “2-Year Treasury Rate”) and (ii) 400 basis points or (B) 8%;provided that the ROAE Target shall not exceed 10%.
| º | The incremental premium of 4% above the 2-Year Treasury Rate was determined by the Compensation Committee after a review of various factors, including market rates for real estate-related debt obligations and MFA’s business model. |
| º | The use of a 4% incremental premium was intended to provide executives with an incentive to achieve attractive investment returns for MFA (and align the interests of executives and stockholders in seeking this level of return), without exposing MFA to inappropriate risk. |
To the extent that our Adjusted ROAE for a Performance Period is (x) less than the ROAE Target for such Performance Period and (y) less than or equal to the 2-Year Treasury Rate during such Performance Period, then no ROAE Bonus will be paid to the executive (the “Zero Bonus Factor”). To the extent that MFA’s ROAE for a Performance Period is 16% or greater, then the executive will be paid two (2) times his Target ROAE Bonus. To the extent that MFA’s Adjusted ROAE for a Performance Period is greater than the Zero Bonus Factor but less than 16%, then the executive will, based on a formula more particularly described in his respective employment agreement, be paid a multiple of between zero and two (2) times his Target ROAE Bonus, with the executive being paid the Target ROAE Bonus to the extent that MFA’s Adjusted ROAE for a Performance Period equals the ROAE Target for such Performance Period.
Determination of ROAE Target Hurdles under ROAE Bonus. As set forth under the terms of each executive’s employment agreement, for the 2021 Performance Period the actual amount of ROAE Bonus that could have been
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paid to Messrs. Knutson, Kristjansson and Wulfsohn was structured to be based on our Adjusted ROAE for the 2021 Performance Period relative to a “target” ROAE (the “ROAE Target”) established by the Compensation Committee in early 2021.
Use of Adjusted ROAE. The Compensation Committee has, from time to time, reviewed the continued appropriateness of the use of return on common equity as a principal financial metric uponon which to evaluate Company performance and, in turn, on which to determine the size of the annual bonuses for our CEO and certain other senior executives. The Compensation Committee believes that return on common equity continues to beis an appropriate measure to evaluate annual Company performance and to serve as the basis for determining Mr. Knutson’s annual bonus, as well as the annual bonus of each of Mr. Kristjansson and Mr. Wulfsohn and as a guide for determining the annual bonus of Mr. Yadav (but with the adjustments to the calculation of such measure as described above). As a company whose primary source of earnings is income from real estate-related debt investments, the Compensation Committee believes that return on common equity generally provides an appropriate measurement of our financial performance. Because the calculation of ROAE for purposes of determining the ROAE Bonus excludes the effect of unrealized market valuation adjustments of those of investment assets (where such adjustments are
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reflected in stockholders’ equity through changes in accumulated other comprehensive income (loss)), it reflects the return on the amount of equity capital we have invested in our real estate-related debt investments.
The Compensation Committee, with the assistance of FPL Associates, most recentlyits former independent consultant, reviewed the overall structure of the annual incentive component of our most senior executives’ compensation in the fall of 2016 in connection with the negotiation of a new employment agreementagreements for our former CEOMr. Knutson, Mr. Kristjansson and Mr. Knutson, who was serving as our PresidentWulfsohn, which were entered into in the fall of 2019 and Chief Operating Officer at the time. Using publicly available information, as well as other information provided by FPL Associates, the Compensation Committee reviewed the structure and design of MFA’s and other companies’ executive compensation programs and the compensation levels and forms of compensation then being paid to Mr. Knutson and our former CEO, as well as to other executivesbecame effective in comparable positions at comparable companies.
January 2020. As a result of its review, the Compensation Committee determined that it continued to be appropriate to use, in large part, a formulaic approach for the determination of our most senior executives’ bonusbonuses with a methodology continuing to be based on the greater of (i) an absolute minimumour return and (ii) a risk-free interest rate plus an appropriate incremental premium.on common equity. This decision was premised in large part on the nature of MFA’s business model, which has continued to focus on investing in residential mortgages and mortgage-related debt instruments. Returns that MFA can earn on new real estate-related debt investments are, to a certain extent, correlated with the market-driven interest rates for these and other types of debt instruments (which rates depend, among other factors, on the perceived risk of these investments). These market-driven interest rates are typically analyzed as the risk-free interest rate for investment in U.S. Treasury obligations (or other debt backed by the full faith and credit of the United States) with a comparable duration (which is a measure of the price sensitivity of an asset to changes in interest rates) plus an incremental risk premium above the risk-free rate.
Changes in Determination of ROAE Target Hurdles for 2021. In the fall of 2020, the Compensation Committee, with the assistance of its current independent consultant, Frederic W. Cook & Co., Inc. (“FW Cook”), undertook a further review of our executive compensation program. The
decisionCompensation Committee determined to
useundertake the review notwithstanding that new multi-year employment agreements for each of Mr. Knutson, Mr. Kristjansson and Mr. Wulfsohn had, as indicated above, gone into effect in January 2020. The Compensation Committee recognized that the significant changes to the Company resulting from the Covid-19 pandemic, including the significant decrease in the size of the Company’s balance sheet and the composition of its investment portfolio, as well as the significant decrease in its stock price in the first half of 2020, created a
disconnect and misalignment of the interests of the Company’s management and its stockholders because, among other things, the performance levels to achieve threshold,
based ontarget and maximum payouts under the annual incentive award program, which were embedded in the executives’ respective employment agreements then in effect, were no longer relevant going forward in light of the Company’s smaller balance sheet, change in investment mix and changes in the Company’s operating and funding environment. Using publicly available information, as well as other information provided by FW Cook, the Compensation Committee reviewed the compensation opportunity and level of compensation for Messrs. Knutson, Kristjansson and Wulfsohn and the structure and design of our executive compensation programs with a
risk-free interest rate plus an incremental premium is premisedfocus on the
fact thatretention and motivation aspects of our
Board and management believe that investors focused on investingexecutive compensation program, particularly in
companies like MFA also often compare return on equity to risk-free rates of return in evaluating MFA’s financial performance. In the caselight of the
Company, the Board continues to believe that usingdynamics discussed above. As a
two-year risk-free interest rate (i.e.result of this review (as previously reported), the
2-Year Treasury Rate) remains appropriate because it generally correspondsCompensation Committee made modifications to
certain of the
weighted average duration (which is a measureterms of
interest rate sensitivity)each of
investments historically made by MFA.Mr. Knutson’s, Mr. Kristjansson’s and Mr. Wulfsohn’s employment agreements, which became effective January 1, 2021.
The Compensation Committee continues to believe that setting a targetthe portion of Mr. Knutson’s, Mr. Kristjansson’s and Mr. Wulfsohn’s annual incentive award tied to Adjusted ROAE remains appropriate. However, in light of year-to-year changes in the Company’s operating environment and changes in the mix of its investment assets, and in an effort to retain flexibility to refine Adjusted ROAE goals to respond to changes in financial conditions and the Company’s operating environment, the Compensation Committee determined that it was no longer appropriate to embed directly into each executive’s employment agreement the Adjusted ROAE performance goals for the payment of threshold, at an appropriate level as the greatertarget and maximum payouts in respect of (i) an absolute minimum return (i.e., 8%) or (ii) above the risk-free interest rate (by adding the incremental premium of 4% to the risk-free interest rate (i.e., the 2-Year Treasury Rate)) establishes an incentive for executives to achieve attractive financial performance for MFA (and aligns the interests of executives and stockholders in seeking this level of financial performance), without exposing MFA to inappropriate risk. The Compensation Committee structured the ROAE Target so that it would be flexibleBonus for a particular performance period. With the foregoing in mind, Mr. Knutson’s, Mr. Kristjansson’s and could vary from yearMr. Wulfsohn’s employment agreements were amended to year depending on the prevailing interest rate environment. At the same time, the Compensation Committee continues to believe that it was appropriate to establish a minimum ROAE Target (8%) that management could reasonably strive to achieve even in an environment characterized by a prolonged period of low interest rates (such as that which has been experienced during the last decade) without taking on inappropriate leverage or interest rate risk to receive a “target” payout. The Compensation Committee also continues to believe it was appropriate to establish a maximum ROAE Target (10%), which the Compensation Committee believed was an acceptable level of Adjusted ROAE even in an environment with higher yielding investments and higher interest rates than those of the past several years. In addition, the Compensation Committee continues to recognize that if interest rates rise, then, in general, the target level of Adjusted ROAE for which management should strive should increase to reflect higher overall yields that could be achieved on investments at the same level of risk. Overall, the Compensation Committee continues to believe that the use of a performance target that will likely vary from year to year under the methodology described above provides a self-adjusting mechanism that acts to modify compensation incentives annually in a manner consistent with MFA’s business model.provide
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Applying
that, beginning with the methodology described above used to determine2021 Performance Period, the Overall Target Bonus (including the allocation of the ROAE Target Bonus and the IRM Target Bonus) for each executive would be determined by the Compensation Committee on an annual basis and the actual amount of the ROAE Bonus to be earned by each executive would be based on the following data points were used in determiningCompany’s Adjusted ROAE for the applicable performance period relative to threshold, target, and maximum Adjusted ROAE performance goals established by the Compensation Committee on an annual basis.
Consistent with the terms of Messrs. Knutson, Kristjansson and Wulfsohn’s respective employment agreements, as amended, in early 2021 the Compensation Committee established the following levels of Adjusted ROAE for the purpose of determining the amount of the ROAE Bonus that could be earned by each executive for 2018:the 2021 Performance Period:
The ROAE Target (i.e., the level of Company financial performance at which the “target” ROAE Bonus would be earned) for 2018the 2021 Performance Period would be 8%, which5.5%.
No ROAE Bonus would be earned if Adjusted ROAE (as calculated under the terms of Mr. Knutson, Mr. Kristjansson and Mr. Wulfsohn’s employment agreements) was determined based onless than 3.0% (the “threshold” Adjusted ROAE level) for the greater of (i) the 2-Year Treasury Rate of 2.45% plus an incremental premium of 4%2021 Performance Period.
The maximum ROAE Bonus (i.e., 6.45%) or (ii) 8%200% of the ROAE Target Bonus) for each executive would be earned to the extent that Adjusted ROAE was in excess of 10.0% for the 2021 Performance Period.
To the extent that MFA’s Adjusted ROAE for the 2021 Performance Period were to be greater than the threshold Adjusted ROAE level of 3.0% but less than 10%, then the executive would be paid a multiple of between zero and two (2) times his Target ROAE Bonus, with a maximumthe executive being paid the Target ROAE Bonus to the extent that MFA’s Adjusted ROAE equaled the 5.5% ROAE Target for the 2021 Performance Period.
The Compensation Committee considered several factors in establishing the ROAE Target of 10%.
| º | The risk-free rate represented the average weekly interest rate during the performance period from December 1, 2017 through November 30, 2018, on two-year U.S. Treasury obligations, which was 2.45%. |
| • | No ROAE Bonus would be earned if ROAE (as calculated under the terms of Mr. Knutson’s employment agreement) was less than the two-year Treasury Rateand less than the ROAE Target for the year (i.e., the Zero Bonus Factor). |
| º | The use of the Zero Bonus Factor for 2018 represents a determination that 2018 financial performance, as measured by Adjusted ROAE, needed to exceed 2.45% in order to make the payment of any level of Adjusted ROAE Bonus for 2018. |
An5.5% for the 2021 Performance Period. In particular, it considered the investing and interest rate environment in the first quarter of 2021 when it adopted the Adjusted ROAE levels for threshold, target and maximum ROAE Bonus payouts, which were marked by intense competition for 2018 in excess of Mr. Knutson’s respective “target” level ROAE Bonus would not be earned unless ROAE was above the 2018 ROAE Target of 8%.
| º | As described above, Mr. Knutson is subject to a maximum ROAE Bonus for Adjusted ROAE that is 16% or greater. |
Asresidential mortgage finance assets as a result of the disruption in the residential mortgage market arising from the COVID-19 pandemic and the consequent slowdown in the activity of mortgage originators (which slowdown did not abate in a meaningful way until the second half of 2021). The intense competition for such assets (which resulted in spread tightening in relation to yields on risk-free assets of similar duration and lower yields on residential mortgage assets), together with the funding environment for the financing of such assets, acted to suppress the net interest margin on residential mortgage assets and the returns that could be achieved on investments in such assets. As a result, the Compensation Committee’s decisions, including those described above,Committee believed that the prior year’s ROAE Bonus formula usedTarget of 8.0% was no longer appropriate and that a lower ROAE Target was merited in 2018 for Mr. Knutson was as follows:
For Adjusted ROAE of less than or equalorder to properly incent management, while at the same time not encouraging it to undertake undue risks to achieve “target” performance. Accordingly, based on the information available to the Zero Bonus Factor (i.e., 2.45%), no ROAE Bonus would be earned.
For Adjusted ROAE betweenCompensation Committee at the Zero Bonus Factor and 8%, the ROAE Bonus would be pro-rated between 0% and 100% of the target ROAE Bonus.
For Adjusted ROAE in excess of 8.0%, subjecttime, it determined to the maximum ROAE Bonus for Mr. Knutson of two times his Target ROAE Bonus:
| º | If Adjusted ROAE was less than or equal to 16%, the ROAE Bonus would be increased by a pro-rated amount above the Target ROAE Bonus (based on a straight-line, mathematical interpolation) such that the total ROAE Bonus for Mr. Knutson would be two times the Target ROAE Bonus when ROAE is 16%. |
Using a formula for 2018 that would result in a pro-rated portion of the ROAE Bonus being earned for Adjusted ROAE betweenestablish the ROAE Target andat 5.5% for the Zero Bonus Factor was determined as appropriate to reward some levels of financial performance below the target level; and continuing to maintain a formula that resulted in an ROAE Bonus in excess of target for Adjusted ROAE above 8% was determined as appropriate to reward financial performance that exceeded the target range.
2021 Performance Period.
The Compensation Committee continues to believe that it is also important for itthe committee to retain a discretionary component of the annual incentive award process in order to be able to factor non-objective and non-quantifiable measures into the bonus decision-making process. Accordingly, in the process of reviewing the structure and design of Mr. Knutson’s incentive compensation in the fall of 2016, the Compensation Committee determined to retain in his new agreement the IRM Bonus, which had been a feature in Mr. Knutson’s then-existing employment agreement. With this in mind under the terms of Mr. Knutson’s, newMr. Kristjansson’s and Mr. Wulfsohn’s employment agreement,agreements, for each Performance Period,performance period, the target amount of hiseach executive’s IRM
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Bonus (the “Target IRM Bonus”) remainedis equal to 25% of his Overall Target Bonus. For the 20182021 Performance Period, Mr. Knutson’sthe Target IRM Bonus for Mr. Knutson was $500,000 (as(reflecting a decrease of $50,000 as compared to ahis Target IRM Bonus of $393,750$550,000 for the 20172020 Performance Period, which reflected his being compensated as PresidentPeriod), and Chief Operating Officer)the Target IRM Bonus for each of Mr. Kristjansson and Mr. Wulfsohn was $237,500 (which was unchanged from each executive’s Target IRM Bonus of $237,500 for the 2020 Performance Period). Mr. Knutson’sEach executive’s employment agreement providesprovided that he will beis eligible to receive from zero to 200% of his respective Target IRM Bonus.
The actual amount of the IRM Bonus to be paid to Mr.each of Messrs. Knutson, Kristjansson and Wulfsohn is determined by the Compensation Committee in its discretion based upon factors it deems relevant and appropriate, including, without limitation, MFA’s leverage strategy relative to other similarly situated companies as well as relative to its own business plan, MFA’s total stockholder return (both on an absolute basis, as well as relative to relevant indices and other similarly situated companies), overall management of risk and asset selection in generating our returns and the hisexecutive’s individual performance.
TABLE OF CONTENTSForm of Payment of Annual Incentive Awards to Mr. Knutson. Under the terms of Mr. Knutson’s employment agreement, payment of his annual bonus is made in cash up to an amount of his then-current base salary. For the 2018 Performance Period, to the extent that the amount of his annual bonus is greater than his then-current annual base salary, 50% of such excess amount was paid in cash and 50% was paid in the form of fully-vested shares of Common Stock that are generally restricted from sale or transfer for the three-year period following their grant.
Long-Term Incentive
Awards (LTIAs).Awards. Under our Equity Compensation Plan the Compensation Committee has available to it a portfolio of equity compensation vehicles, including shares of Common Stock, restricted stock units (RSUs),RSUs, dividend equivalent rights, stock options and other stock-based awards. The Compensation Committee uses this incentive compensation program to award Named Executive Officers with long-term incentives, including in connection with entering into or extending the term of employment agreements or other employment arrangements. The Compensation Committee makes these awards in its discretion without any pre-set target levels; however, in determining LTIAs, the Compensation Committee may consider the advice of its compensation consultant.LTIAs to Mr. Knutson, Mr. Kristjansson and Mr. Wulfsohn
Under the terms of
hisMr. Knutson, Mr. Kristjansson and Mr. Wulfsohn’s employment agreement
Mr. Knutson isas in effect during the 2021 Performance Period, each executive was entitled to a grant of RSUs, consisting of
time-based RSUs (“TRSUs”)TRSUs and a “target” amount of
performance-based RSUs (“PRSUs”). As indicated above, for 2018 the number of TRSUs granted to Mr. Knutson and the target amount of PRSUs granted to him were increased to reflect his promotion to Chief Executive Officer.PRSUs. More specifically, for
2018,2021, Mr. Knutson was granted
82,500 TRSUs
(as compared to 70,000 for 2017)with a grant date value of $1,040,000 and a “target”
number of
122,500 PRSUs
(as comparedwith a grant date value of $1,810,000, and each of Mr. Kristjansson and Mr. Wulfsohn was granted TRSUs with a grant date value of $320,000 and a “target” number of PRSUs with a grant date value of $480,000. The grant date value of TRSUs and PRSUs granted to
105,000 for 2017).each of Mr. Knutson, Mr. Kristjansson and Mr. Wulfsohn in 2021 was commensurate with the grant date value of the TRSUs and PRSUs granted to each executive in 2020.
TRSUs.
Subject to exceptions in certain circumstances described below in “Potential Payments upon Termination of Employment or Change in Control,”Control” found on pages 5650 to 5953 of this Proxy Statement, each grant of TRSUs to Mr. Knutsoneach executive will vest on the third December 31st31st to occur following the date of grant, subject to his continued employment with the Company. In addition, subject to exceptions in certain circumstances, unvested TRSUs will be forfeited as of the date of his termination of employment with the Company. Upon vesting, Mr. Knutsoneach executive will receive one share of our Common Stock for each TRSU that vests. To the extent that dividends are paid on our Common Stock during the period in which the TRSUs are outstanding, he will receive a dividend equivalent in the form of a cash payment in respect of the outstanding TRSUs. Beginning with grants of TRSUs made in 2021, the executives no longer receive dividend equivalent payments in respect of the TRSUs as and when dividends are paid on our Common Stock during the period in which TRSUs are outstanding. Rather, to further the retention value of such awards, each executive is credited with an amount, per TRSU, equal to the amount of dividends declared, which will be paid in cash following the vesting of the TRSU at the end of the three-year vesting period.
PRSUs.
Subject to exceptions in certain circumstances described below in “Potential Payments upon Termination of Employment or Change in Control,” each grant of PRSUs to Mr. Knutsoneach executive will vest on the last day of the applicable three-year performance period, subject to the achievement of the TSR-based objectives described below and his continued employment with the Company.Of the target amount of PRSUSPRSUs granted to be granted annually to Mr. Knutsoneach executive under his employment agreement, one-half of such target amount will vest based on the Company’s level of absolute TSR during the applicable three-year performance period (such PRSUs referred to as the “Absolute TSR PRSUs”) and one-half of such target amount will vest based on the Company’s level of TSR during the applicable three-year performance
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period relative to the TSR of a peer group of companies designated by the Compensation Committee at the time of each grant (such PRSUs referred to as the “Relative TSR PRSUs”).
With respect to the Absolute TSR PRSUs, the actual number of PRSUs that will be earned and that will vest will be based on the level of our cumulative total stockholder return (
i.e., share price appreciation or depreciation, as the case may be, plus dividends divided by initial share price) relative to an 8% per annum simple TSR (assuming no reinvestment of dividends) for the three-year performance period beginning on January
1st1st of the year of grant (
e.g., the performance period for the PRSUs granted in
20182021 is January 1,
20182021 through December 31,
2020)2023). To determine the actual number of PRSUs that will be earned and will vest, the “target” amount of each grant of PRSUs will be adjusted up or down at the end of the applicable three-year performance period based on the Company’s cumulative TSR relative to an 8% per annum simple TSR objective from 0% of the target amount (reflecting 0% per annum TSR during the performance period) to 200% of the target amount (reflecting 16% per annum (or higher) TSR during the performance period), with 100% of the target amount being earned and vesting if TSR of 8% per annum is achieved during the performance period.
With respect to the Relative TSR PRSUs, the actual number of PRSUs that will be earned and that will vest will be based on the Company’s cumulative TSR during the applicable three-year performance period beginning on
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January 1
st of the year of grant as compared to the cumulative TSR of designated peer group companies for such performance period. To the extent that the Company’s TSR rank is less than or equal to the 25
th percentile when compared to the TSR of the members of the peer group,
each of Mr. Knutson,
Mr. Kristjansson and Mr. Wulfsohn will vest in 0% of the target number of Relative TSR PRSUs awarded to him in respect of the applicable performance period. To the extent that the Company’s TSR rank is in the 50
th percentile,
Mr. Knutsoneach executive will vest in 100% of the target number of Relative TSR PRSUs awarded to him in respect of the applicable performance period. To the extent that the Company’s TSR rank is greater than or equal to the 80
th percentile,
Mr. Knutsoneach executive will vest in 200% of the target number of Relative TSR PRSUs awarded to him in respect of the applicable performance period. To the extent that the Company’s TSR ranking falls in between the percentiles identified above, the number of Relative TSR PRSUs that vest will be interpolated.
Regardless of the Company’s TSR rank, in no event will an executive vest in more than 100% of the target number of Reative TSR PRSUs to the extent the Company’s absolute TSR for the applicable performance period shall be less then zero.
PRSUs that do not vest at the end of an applicable performance period will be forfeited. Upon vesting,
Mr. Knutsoneach executive will receive one share of the Company’s common stock for each PRSU that
vests.vests, provided that the fair market value of the shares of Common Stock delivered upon settlement may not exceed 400% of the grant date value of the PRSUs granted in respect of the completed performance period. Any PRSUs that vest are subject to an additional one year deferral prior to settlement, subject to accelerated payout under certain circumstances.
Dividend equivalents are not paid in respect of the PRSUs during the performance period. Rather, dividend equivalents accrue with respect to the PRSUs during the performance period, and to the extent that the underlying PRSUs vest, an amount equal to the accrued dividend equivalents related to the vested PRSUs will be paid to
Mr. Knutsoneach executive in the form of additional shares of our Common Stock based on the closing price of the Common Stock on the vesting date.
2021 Compensation Decisions
The following discussion addresses the actions taken by the Compensation Committee during 20182021 regarding the base salaries, annual incentives and long-term equity awards for the Named Executive Officers.
The Compensation Committee believes that the annual base salary paid in 20182021 to each of the Named Executive Officers appropriately reflected the scope of the role and responsibilities of the applicable position, individual performance and experience and competitive market practices. The annual base salary for each of the Named Executive Officers during 20182021 was as follows:
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Executive | | 2018 Base Salary |
Craig L. Knutson | | $ | 700,000 | |
Gudmundur Kristjansson | | $ | 350,000 | |
Bryan Wulfsohn | | $ | 350,000 | |
Sunil Yadav | | $ | 300,000 | |
Stephen D. Yarad | | $ | 475,000 | |
Basefollows (which reflected no adjustments to the base salaries forpaid to each of the Named Executive Officers remained unchanged from the prior year with the exceptions of Messrs. Kristjansson and Wulfsohn, whose base salaries were increased from $300,000 to $350,000 per year to reflect their increased responsibilities and leadership role within the Company following Mr. Knutson’s promotion to CEO.during 2020):
Craig L. Knutson | | | $800,000 |
Gudmundur Kristjansson | | | $400,000 |
Bryan Wulfsohn | | | $400,000 |
Stephen D. Yarad | | | $475,000 |
Harold E. Schwartz | | | $455,000 |
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Messrs. Knutson, Kristjansson and Wulfsohn
. AnnualThe annual incentive awards earned byaward opportunity for each of Mr. Knutson, Mr. Kristjansson and Mr. Wulfsohn consisted of both the formulaic ROAE Bonus and the discretionary IRM Bonus. A discussion of the Compensation Committee’s determination of each of these components is set forth below.
ROAE Bonus. Under the ROAE Bonus methodology set forth in Mr. Knutson, Mr. Kristjansson and Mr. Wulfsohn’s respective employment agreement, which is described on pages
3129 to
3431 of this Proxy Statement, Adjusted ROAE for the
2018 performance period2021 Performance Period (December 1,
20172020 to November 30,
2018)2021) was approximately
12.209%15.33%*, which was
abovegreater than the Adjusted ROAE level of 10.0% that was established by the Compensation Committee for purposes of determining the maximum payout under the ROAE
Target of 8%Bonus for
2018.the 2021 Performance Period.
The ROAE Bonus component of each of Mr. Knutson, Mr. Kristjansson and Mr. Wulfsohn’s annual bonus for
20182021 was determined by applying the Adjusted ROAE of
12.209%15.33% to the previously established bonus formula, with the result that
heeach executive earned an ROAE Bonus that was above his
target“target” amount for the ROAE Bonus. The
“target”target amount of this component of annual bonus, the percentage of that target amount earned and the total amount of the
20182021 ROAE Bonuses earned by Messrs. Knutson, Kristjansson and Wulfsohn are set forth in the table below:
Mr. Knutson | | | $1,500,00 | | | 200% | | | $3,000,000 |
Mr. Kristjansson | | | $712,500 | | | 200% | | | $1,425,000 |
Mr. Wulfsohn | | | $712,500 | | | 200% | | | $1,425,000 |
*
| (1) | A portionAdjusted ROAE is a non-GAAP financial measure. On a GAAP basis, for the 2021 Performance Period net income available to common stockholders was approximately $303.1 million and average total common stockholders’ equity was approximately $2.09 billion (which reflects the exclusion of Messrs. Knutson, Kristjansson and Wulfsohn’s respective 2018 annual bonus was paid inapproximately $459.4 million of equity attributable to preferred stock). Return on average total common stockholders’ equity on a GAAP basis for the form of fully-vested shares of our Common Stock with a mandatory three-year holding period from December 1, 2020 to November 30, 2021, was approximately 14.49%. The calculation of return on average total common stockholders’ equity for purposes of determining Adjusted ROAE reflects (i) the dateexclusion of their grant. See pages 38approximately $66.1 million of accumulated other comprehensive income (unrealized mark-to-market gains and/or losses) from the calculation of average total common stockholders’ equity on a GAAP basis and 39(ii) the add-back of this Proxy Statement.approximately $7.4 million of depreciation expense to GAAP net income for the 2021 Performance Period. |
IRM Bonus. The actual amount of the IRM Bonus paid to each of Mr. Knutson, Mr. Kristjansson and Mr. Wulfsohn was determined by the Compensation Committee in its discretion based upon its review of each executive’s individual performance
as well as MFA’s leverage strategy relative to other similarly situated companies as well as relative to its own business plan,and overall
management of risk and asset selection in generating our returns, MFA’s total stockholder return (both on an absolute basis, as well as relative to relevant indices of other similarly situated companies) and each executive’s individual![](https://files.docoh.com/DEF 14A/0001174947-19-000543/line.gif)
| * | Adjusted ROAE is a non-GAAP financial measure. On a GAAP basis, for the 2018 performance period net income available to common stockholders was approximately $314.8 million and average total common stockholders’ equity was approximately $3.14 billion (which reflects the exclusion of approximately $193.3 million of equity attributable to preferred stock). Return on average total common stockholders’ equity on a GAAP basis for the period from December 1, 2017 to November 30, 2018, was approximately 10.0%. The calculation of return on average total common stockholders’ equity for purposes of determining Adjusted ROAE reflects (i) the exclusion of approximately $554.4 million of accumulated other comprehensive income (unrealized mark-to-market gains and/or losses) from the calculation of average total common stockholders’ equity on a GAAP basis and (ii) the add-back of approximately $878,000 of depreciation expense to GAAP net income for the 2018 performance period. |
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company performance. In considering these factors, the Compensation Committee did not assign specific weightings to each, but instead considered them together as part of a comprehensive review.
Based on the above-described review, the Compensation Committee determined that an IRM Bonus for each executive that was in excess of the Target IRM Bonus was merited. The target amount of this component of annual bonus, the percentage of that target amount earned and the total amount of the
20182021 IRM Bonus earned by Messrs. Knutson, Kristjansson and Wulfsohn is set forth in the following table:
Mr. Knutson | | | $500,000 | | | 150% | | | $750,000 |
Mr. Kristjansson | | | $237,500 | | | 150% | | | $356,250 |
Mr. Wulfsohn | | | $237,500 | | | 150% | | | $356,250 |
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| | Target IRM Bonus ($) | | % of IRM Bonus Earned | | 2018 IRM Bonus Earned ($)(1) |
Mr. Knutson | | $ | 500,000 | | | | 150 | % | | $ | 750,000 | |
Mr. Kristjansson | | $ | 200,000 | | | | 150 | % | | $ | 300,000 | |
Mr. Wulfsohn | | $ | 200,000 | | | | 150 | % | | $ | 300,000 | |
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| (1) | A portion of Messrs. Knutson, Kristjansson and Wulfsohn’s respective 2018 annual bonus was paid in the form of a grant of fully-vested shares of our Common Stock with a mandatory three-year holding period from the date of their grant. See below. |
In determining the amount of Mr. Knutson’s, Mr. Kristjansson’s and Mr. Wulfsohn’s respective IRM Bonuses and its decision to pay out such bonuses at a level that was 150% of each such executive’s Target IRM Bonus for the 2021 Performance Period, the Compensation Committee recognized the leadership of each executive in continuing to steer the Company and its employees through the unprecedented operating and financial environment triggered by the COVID-19 pandemic, which resulted in the most disruptive and dislocating period in MFA’s history. In particular, the Compensation Committee recognized Mr. Knutson’s, Mr. Kristjansson’s and Mr. Wulfsohn’s efforts to successfully identify and source new investment assets, to continue executing on a funding structure for the Company that was less reliant on shorter-term, mark-to-market repurchase arrangements and more reliant on
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longer-term, generally lower cost, non-mark-to-market securitization financing. The Compensation Committee also recognized management’s success in maintaining the Company’s relationships with its most important lending counterparties during the year and establishing relationships with new counterparties to finance the Company’s growth in BPL assets.
Further, the Compensation Committee noted
Mr. Knutson’s strong leadershipmanagement’s success in
a year marked by a challenging investmentnegotiating and
interest rate environment. In addition,completing the Company’s acquisition of Lima One Capital. And finally, the Compensation Committee
considered the achievement during the course of the yearrecognized Mr. Knutson’s, Mr. Kristjansson’s and Mr. Wulfsohn’s successful efforts in
delivering consistent and attractive returns onleading MFA’s
portfolio of assets while effectively managing the risks relating to our portfolio of mortgage-related assets, including maintaining a low level of leverage relative to other residential mortgage REITsemployees and maintaining
the unity and focus of its workforce during a
low level of duration (which isyear that continued to be defined largely by a
measure of interest rate sensitivity) for our overall portfolio. The Compensation Committee also noted Mr. Knutson’s continuing leadership in evaluating and continuing to grow MFA’s investments in residential whole loans, as well as leading MFA in its sourcing of new investment opportunities in the residential mortgage credit sector.On an individual basis, the Compensation Committee took into account Mr. Knutson’s oversight of our business and investment activities to ensure achievement of our strategic objectives for the year. In addition, the Compensation Committee also considered his achievements in maintaining and building on the Company’s relationships with counterparties, industry groups and other constituencies important to our business success, as well as continuing to foster an inclusive corporate culture throughout the organization. In addition, the Compensation Committee took into account his leadership in overseeing the staff functions within the Company, including finance, legal, human resources, information technology systems and operations.
In determining the amount of Mr. Kristjansson’s IRM Bonus, the Compensation Committee noted his leadership role in evaluating, negotiating and structuring several new investment initiatives during the year (including with respectremote work environment due to the establishment and deepening of our relationships with originators of “fix and flip” and single family rental mortgage loans and our investments in assets related to mortgage servicing rights), as well as his leadership role in evaluating the impact of the macroeconomic environment and macroeconomic trends on our business, including his management of our interest rate risk, and his leadership in overseeing our financial modeling and forecasting functions. With respect to ongoing COVID-19 pandemic.
Mr.
Wulfsohn, the Compensation Committee noted his key role in: evaluating and negotiating new investment initiatives and establishing relationships to execute on such initiatives (particularly with respect to recently-originated whole loans); evaluating, acquiring and growing our portfolio of mortgage-backed securities backed by re-performing and non-performing loans; maintaining and strengthening relationships with our financing counterparties; lowering the cost of and diversifying our sources of financing by leading the execution of two securitization transactions during the year; and his continuing leadership in managing our re-performing and non-performing residential whole loan portfolios.Determination of Form of Payment of 2018 Annual Bonus for Messrs. Knutson, Kristjansson and Wulfsohn. As indicated on page 35 of this Proxy Statement, each of Mr. Knutson, Mr. Kristjansson and
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Mr. Wulfsohn’s employment agreement provided that for the 2018 Performance Period any annual performance bonus in an amount up to his current base salary would be paid in cash, and the bonus amount in excess of his base salary would be paid 50% in cash and 50% in the form of fully vested shares of Common Stock with a mandatory three-year holding period. The table below sets forth the application of this formula to the 2018 annual bonus amount for each of Mr. Knutson, Mr. KristjanssonYarad and Mr. Wulfsohn and shows the portion of his total 2018 annual bonus that was paid in cash and in the form of Common Stock.
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| | Total 2018 Bonus Earned ($) | | Portion of 2018 Bonus Paid in Cash ($/%) | | Portion of 2018 Bonus Paid in Common Stock ($/%)(1) |
Mr. Knutson | | $ | 3,039,300 | | | $ | 1,869,650/61.5 | % | | $ | 1,169,650/38.5 | % |
Mr. Kristjansson | | $ | 1,215,720 | | | $ | 782,860/64.4 | % | | $ | 432,860/35.6 | % |
Mr. Wulfsohn | | $ | 1,215,720 | | | $ | 782,860/64.4 | % | | $ | 432,860/35.6 | % |
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| (1) | As noted above, these shares of Common Stock were fully vested upon grant, but are subject to a mandatory three-year holding period. |
Mr. Yadav. Mr. Yadav is eligible to receive an annual performance bonus in such amount as approved by the Compensation Committee in its discretion. For 2018, the Compensation Committee, with the input of Mr. Knutson, approved an annual incentive bonus for Mr. Yadav of $759,109, of which $531,376 was paid in cash and $227,733 was paid in the form of fully-vested shares of our Common Stock that are subject to a mandatory three-year holding period.
Although the amounts of Mr. Yadav’s annual bonus was determined in the discretion of the Compensation Committee, in determining the level of his bonus, the Compensation Committee used a framework for its decisions that was similar to the methodology that it used to determine the annual bonus amount for Mr. Knutson, Kristjansson and Wulfsohn. In order to guide its decision making, the Compensation Committee, with the input of Mr. Knutson, assumed a hypothetical “target” overall bonus for Mr. Yadav of $600,000. The Compensation Committee then employed an illustrative scenario in which 50% of Mr. Yadav’s target would be tied to Adjusted ROAE for the performance period from December 1, 2017 to November 30, 2018 (using the same methodology as used to calculate Mr. Knutson, Kristjansson and Wulfsohn’s ROAE Bonus, which is described above) with the balance of Mr. Yadav’s target tied to an assessment of the executive’s individual performance and overall company performance. As this approach was a framework for its decision making, the Compensation Committee then used its judgment and discretion to adjust the outcome to arrive at the actual amount of Mr. Yadav’s bonus.
The Compensation Committee believed that using this approach as a guide for its 2018 bonus decisions for Mr. Yadav was appropriate in light of his key role in the asset selection and management of our Non-Agency RMBS and credit risk transfer (CRT) securities portfolios, which are two of the principal portfolios that drive our earnings and returns.
Mr. YaradSchwartz. Mr. Yarad isand Mr. Schwartz are eligible to receive an annual performance bonus in such amount as approved by the Compensation Committee after receiving the input of our CEO. Annual incentive compensation for Mr. Yarad and Mr. Schwartz is based upon subjective assessments and evaluation of MFA’s annual performance and hiseach executive’s individual performance. After receiving the input of Mr. Knutson, the Compensation Committee approved an annual incentive bonus to Mr. Yarad of $315,000$410,000 for 2018,2021 and an annual incentive bonus to Mr. Schwartz of $470,000 for 2021, all of which $252,000 was paid in cash and $63,000 was paid in the form of fully-vested shares of our Common Stock that are subject to a mandatory three-year holding period.cash. Mr. Yarad’s bonus wasand Mr. Schwartz’s bonuses were based on, among other things, histheir integral roles in the various financing and other transactions undertaken by the Company during 2021 and their leadership in directing the activities performed by our legal, finance and accounting staffstaffs in support of our business activities.
20182021 Long-Term Equity-Based Incentive Awards
Under the terms of his employment agreement, Mr. Knutson was granted RSUs, consisting of 82,50069,149 TRSUs (with a grant date value of approximately $1,040,000) and a target amount of 122,500155,083 PRSUs (with a grant date value of approximately $1,810,000), respectively, in March 2018.January 2021. In addition, in order to further align the interests of the other Named Executive Officers and foster their retention (and, in the case of Messrs. Kristjansson and Wulfsohn, in accordance with their employment agreements), the Compensation
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Committee also made awards of TRSUs and PRSUs to Messrs. Kristjansson, Wulfsohn, YadavYarad and YaradSchwartz in March 2018.January 2021. For each Named Executive Officer, with respect to the target number of PRSUs, one-half of such target amount is comprised of Absolute TSR PRSUs and one-half is comprised of Relative TSR PRSUs.
The TRSUs will “cliff” vest on December 31, 2020,2023, subject solely to continued employment through the vesting date. Upon vesting, the executive will receive one share of our Common Stock for each TRSU that vests. ToBeginning with grants of TRSUs made in 2021, the extent thatexecutives no longer receive dividend equivalent payments in respect of the TRSUs as and when dividends are paid on our Common Stock during the period in which the TRSUs are outstanding,outstanding. Rather, to further the retention value of such awards, each executive is credited with an amount, per TRSU, equal to the amount of dividends declared, which will receive a dividend equivalentbe paid in respectcash following the vesting of the outstanding TRSUs inTRSU at the formend of a cash payment.the three-year vesting period.
The Absolute TSR PRSUs will “cliff” vest on December 31, 2023, subject to the achievement of the average TSR objective described below and the executive’s continued employment with the Company. The actual number of PRSUs that will be earned and will vest will be based on the level of the Company’s cumulative total stockholder return (i.e., share price appreciation or depreciation, as the case may be, plus dividends divided by initial share price) relative to an 8% per annum simple TSR (assuming no reinvestment of dividends) for the three-year performance period beginning on January 1, 2021 and ending on December 31, 2023. To determine the actual number of Absolute TSR PRSUs that will be earned and will vest, the target amount of each grant of Absolute TSR PRSUs will be adjusted up or down at the end of the applicable three-year performance period based on the Company’s cumulative TSR relative to an 8% per annum simple TSR objective from 0% of the target amount (reflecting 0% per annum TSR during the performance period) to 200% of the target amount (reflecting 16% per annum (or higher) TSR during the performance period), with 100% of the target amount being earned and vesting if TSR of 8% per annum is achieved during the performance period.
| • | The Absolute TSR PRSUs will “cliff” vest on December 31, 2020, subject to the achievement of the average TSR objective described below and the executive’s continued employment with the Company. The actual number of PRSUs that will be earned and will vest will be based on the level of the Company’s cumulative total stockholder return (i.e., share price appreciation or depreciation, as the case may be, plus dividends divided by initial share price) relative to an 8% per annum simple TSR (assuming no reinvestment of dividends) for the three-year performance period beginning on January 1, 2018 and ending on December 31, 2020. To determine the actual number of Absolute TSR PRSUs that will be earned and will vest, the target amount of each grant of Absolute TSR PRSUs will be adjusted up or down at the end of the applicable three-year performance period based on the Company’s cumulative TSR relative to an 8% per annum simple TSR objective from 0% of the target amount (reflecting 0% per annum TSR during the performance period) to 200% of the target amount (reflecting 16% per annum (or higher) TSR during the performance period), with 100% of the target amount being earned and vesting if TSR of 8% per annum is achieved during the performance period. |
| • | The actual number of Relative TSR PRSUs that will be earned and that will vest will be based on the Company’s cumulative TSR during the applicable performance period beginning on January 1, 20182021 and ending on December 31, 20202023, as compared to the cumulative TSR of designated peer group companies (listed below) for such performance period. To the extent that the Company’s TSR rank is less than or equal to the 25th percentile when compared to the TSR of the members of the peer group, the executive will vest in 0% of the target number of Relative TSR PRSUs awarded to him in respect of the applicable performance period. To the extent that the Company’s TSR rank is in the 50th percentile, the executive will vest in 100% of the target number of Relative TSR PRSUs awarded to him in respect of the applicable performance period. To the extent that the Company’s TSR rank is greater than or equal to the 80 th percentile, the executive will vest in 200% of the target number of Relative TSR PRSUs awarded to him in respect of the applicable performance period. To the extent that the Company’s TSR ranking falls in between the percentiles identified above, the number of Relative TSR PRSUs that vest will be interpolated. |
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in 0% of the target number of Relative TSR PRSUs awarded to him in respect of the applicable performance period. To the extent that the Company’s TSR rank is in the 50th percentile, the executive will vest in 100% of the target number of Relative TSR PRSUs awarded to him in respect of the applicable performance period. To the extent that the Company’s TSR rank is greater than or equal to the 80th percentile, the executive will vest in 200% of the target number of Relative TSR PRSUs awarded to him in respect of the applicable performance period. To the extent that the Company’s TSR ranking falls in between the percentiles identified above, the number of Relative TSR PRSUs that vest will be interpolated. Regardless of the Company’s TSR rank, in no event will an executive vest in more than 100% of the target number of Relative TSR PRSUs to the extent the Company’s absolute TSR for the applicable performance period shall be less then zero. In choosing the companies for the Relative TSR PRSUs against whose TSR the Company’s TSR will be measured over the course of the three-year performance period, the Compensation Committee selected the internally- and externally-managed residential mortgage REITs listed below. (We note that the companies selected by the Compensation Committee for the purposes of the Relative TSR PRSUs are not the same as the companies identified on page
2827 of this proxy statement because TSR can be determined without regard to the availability of compensation information, which the Company’s externally-managed peers do not report.)
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AG Mortgage Investment Trust, Inc. (MITT) | | | Dynex Capital, Inc. (DX) |
AGNC Investment Corp. (AGNC) | | | Invesco Mortgage Capital Inc. (IVR) |
Annaly Capital Management, Inc. (NLY) | | | New York Mortgage Trust Inc. (NYMT) |
Anworth MortgageArlington Asset Corporation (ANH)Investment Corp. (AAIC) | | | PennyMac Mortgage Investment Trust (PMT) |
Arlington Asset Investment Corp. (AI) | | Redwood Trust, Inc. (RWT) |
Armour Residential REIT, Inc. (ARR) | | | Redwood Trust, Inc. (RWT) |
Capstead Mortgage Corporation (CMO) | | | Two Harbors Investment Corp. (TWO) |
Capstead MortgageChimera Investment Corporation (CMO)(CIM) | | | Western Asset Mortgage Capital Corp. (WMC) |
Chimera Investment Corporation (CIM) | | |
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PRSUs that do not vest at the end of the performance period will be forfeited. Upon vesting, the executive will receive one share of the Company’s Common Stock for each PRSU that vests.
vests, provided that the fair market value of the shares of Common Stock delivered upon settlement may not exceed 400% of the grant date value of the PRSUs granted in respect of the completed performance period. Any PRSUs that vest are subject an additional one year deferral prior to settlement, subject to accelerated payout under certain circumstances.
Dividend equivalents will not be paid
on a current basis in respect of the PRSUs during the performance period. Rather, dividend equivalents will accrue with respect to the PRSUs during the performance period, and to the extent that the underlying PRSUs vest, an amount equal to the accrued dividend equivalents related to the vested PRSUs will be paid to the executive in the form of additional shares of Common Stock based on the closing price of the Common Stock on the vesting date.
The number and grant date fair value of TRSUs and PRSUs comprising the
20182021 long-term equity-based awards granted to each of the Named Executive Officers are set forth in the table below:
Mr. Knutson | | | 69,149 | | | $1,040,001 | | | 155,083 | | | $1,810,003 |
Mr. Kristjansson | | | 21,277 | | | $320,002 | | | 41,127 | | | $480,000 |
Mr. Wulfsohn | | | 21,277 | | | $320,002 | | | 41,127 | | | $480,000 |
Mr. Schwartz | | | 9,974 | | | $150,001 | | | 19,279 | | | $225,001 |
Mr. Yarad | | | 9,974 | | | $150,001 | | | 19,279 | | | $225,001 |
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| | TRSUs | | PRSUs |
Executive | | # | | Aggregate Grant Date Fair Value(1) $ | | # | | Aggregate Grant Date Fair Value(1) $ |
Mr. Knutson | | | 82,500 | | | $ | 629,475 | | | | 122,500 | | | $ | 845,862 | |
Mr. Kristjansson | | | 30,000 | | | $ | 228,900 | | | | 45,000 | | | $ | 310,725 | |
Mr. Wulfsohn | | | 30,000 | | | $ | 228,900 | | | | 45,000 | | | $ | 310,725 | |
Mr. Yadav | | | 16,000 | | | $ | 122,080 | | | | 24,000 | | | $ | 165,720 | |
Mr. Yarad | | | 12,000 | | | $ | 91,560 | | | | 18,000 | | | $ | 124,290 | |
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(1)
| (1) | Determined at the time the grant was made (January 4, 2021) in accordance with FASB Accounting Standards Codification Topic 718. |
Other Elements of Compensation. The following briefly summarizes the other elements of compensation that we provide to our Named Executive Officers beyond salary, annual incentives and long-term equity awards.