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SCHEDULE 14A INFORMATION
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PennyMac Financial Services, Inc. |
(Name of Registrant as Specified In Its Charter) |
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Pennymac financial services 2023 Notice of Annual Meeting and Proxy Statement
| PennyMac Financial Services, Inc. 3043 Townsgate Road Westlake Village, California 91361 |
April 3, 202021, 2023
Dear Stockholder:
You are cordially invited to attend the 20202023 Annual Meeting of Stockholders, or the Annual Meeting, of PennyMac Financial Services, Inc. to be held on Thursday, May 28, 2020,Tuesday, June 13, 2023, at 11:00 a.m. Pacific Time. The 2023 Annual Meeting will be heldconducted online via live webcast at our corporate offices located at 3043 Townsgate Road, Westlake Village, California 91361.*www.virtualshareholdermeeting.com/PFSI2023.
The Notice of 20202023 Annual Meeting of Stockholders and Proxy Statement are attached to this letter and contain information about the matters on which you will be asked to vote at the Annual Meeting. We will transact no other business at the Annual Meeting, except for business properly brought before the Annual Meeting or any postponement or adjournment thereof by our Board of Directors. Only our stockholders of record at the close of business on March 30, 2020,April 19, 2023, the record date, are entitled to vote at the Annual Meeting.
Your vote is very important. Please carefully read the Notice of 20202023 Annual Meeting of Stockholders and Proxy Statement so that you will know the matters on which we plan to vote at the Annual Meeting, and then vote your shares by proxy by mail, by Internet or by telephone as soon as possible to make sure that your shares are represented at the Annual Meeting. You may also cast your
ONLINE ANNUAL MEETING: To participate in the online Annual Meeting, you will need to log-in towww.virtualshareholdermeeting.com/PFSI2023 using the 16-digit control number found on the proxy card, voting instruction form, notice of internet availability of proxy materials or email, as applicable, previously sent or made available to stockholders entitled to vote in person at the Annual Meeting. If your shares are held in an account at a brokerage firm or bank, you must instruct that firm or bank as to how to vote your shares.
ANNUAL MEETING ADMISSION: In order toPlease read “INFORMATION CONCERNING VOTING AND SOLICITATION—Who can attend the Annual Meeting?” in the accompanying Proxy Statement. If it is determined the Annual Meeting will be held at a different time or in person, youa different location or format (i.e., an in-person or hybrid meeting), an announcement of any such updates will need to present your admission ticket, or an account statement showing your ownershipbe provided by means of a press release, which will be posted on our common stock as ofwebsite (pfsi.pennymac.com) and filed with the record date, and valid government-issued photo identification. The indicated portion of your proxy card will serve as your admission ticket.SEC via its EDGAR system.
On behalf of our Board of Directors, we thank you for your participation and look forward to seeing you on May 28th.your participation in our upcoming online Annual Meeting.
Sincerely,
DAVID A. SPECTOR |
Chairman and Chief Executive Officer |
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* We intend to hold our Annual Meeting in person. However, we are monitoring developments regarding coronavirus disease 2019 (COVID-19) and are planning for the possibility that the Annual Meeting may be held solely by means of remote communication. If we take this step, we will issue a press release announcing such change in advance, file the announcement with the Securities and Exchange Commission as additional proxy material, and will provide details on how to access, participate in and vote at the Annual Meeting at www.proxyvote.com or on our Investor Relations website at www.ir.pennymacfinancial.com/2020AnnMtg. As always, we encourage you to vote your shares prior to the Annual Meeting.
PennyMac Financial Services, Inc. 3043 Townsgate Road Westlake Village, California 91361 |
Notice of 20202023 Annual Meeting of Stockholders
Date and Time: |
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Location: | Online via live webcast at www.virtualshareholdermeeting.com/PFSI2023 | |||
Record Date: |
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Mailing Date: | We intend to mail the Notice Regarding the Availability of Proxy Materials, or the Proxy Statement and proxy card, as applicable, on or about April | |||
Items of Business: | • To elect the | |||
• To ratify the appointment of our independent registered public accounting firm for the fiscal year ending December 31, | ||||
• To approve, bynon-binding advisory vote, the compensation of our named executive officers; | ||||
• To recommend, by non-binding advisory vote, the frequency of our executive | ||||
• To transact such other business as may properly come before the Annual Meeting and any postponement or adjournment thereof. | ||||
Attendance: |
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Voting: | Whether or not you plan to attend the Annual Meeting, we encourage you to vote your shares by proxy by mail, by Internet or by telephone as soon as possible to make sure that your shares are represented at the Annual Meeting. |
By Order of the Board of Directors,
DEREK W. STARK
Secretary
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 28, 2020:JUNE 13, 2023:
This Notice of 20202023 Annual Meeting of Stockholders, Proxy Statement and 20192022 Annual Report to Stockholders, which includes our Annual Report on Form10-K for the fiscal year ended December 31, 2019,2022, are available at www.proxyvote.com.www.proxyvote.com.
TABLE OF CONTENTS |
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Relationship with Independent Registered Public Accounting Firm | ||||
Fees to Registered Public Accounting Firm for | ||||
PROPOSAL II — RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | ||||
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Executive Summary of 2022 Compensation | ||||
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Trading Controls and Anti-Pledging and Anti-Hedging Policies | 50 | |||
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PROXY STATEMENT SUMMARY |
This summary contains highlights about our Board of Directors, or our Board, and the upcoming 20202023 Annual Meeting of Stockholders, or the Annual Meeting. References in this Proxy Statement to “we,” “us,” “our,” the “Company,” and “PNMAC” refer to PennyMac Financial Services, Inc. and its affiliates, unless the context otherwise requires. This summary does not contain all of the information that you should consider in advance of the Annual Meeting and we encourage you to read the entire Proxy Statement before voting. This Proxy Statement has been made available to our stockholders on the Internet on or about April 21, 2023.
20202023 Annual Meeting of Stockholders
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Mail Date:
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April
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Voting Matters and Board Recommendations
Matter
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Proposal I:
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Election of
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FOR each Director Nominee
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Proposal II:
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Ratification of the appointment of our independent registered public accounting firm for the fiscal year ending December 31, 2023
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FOR
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Proposal III:
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Approval, bynon-binding advisory vote,
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FOR
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Proposal IV: | Recommend, by non-binding advisory vote, the frequency of our executive compensation vote | ONE YEAR |
Director Nominees
Director Nominees | Age | Director Since | Principal Occupation / Key Experience | Committee Membership | ||||
Stanford L. Kurland
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2012
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Chairman of PennyMac Financial Services, Inc.
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None
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David A. Spector
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57
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2012
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President and Chief Executive Officer of PennyMac Financial Services, Inc.
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None
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Anne D. McCallion
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65
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Former Senior Managing Director and Chief Enterprise Operations Officer of PennyMac Financial Services, Inc.
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Finance
Risk
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Matthew Botein
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47
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2012
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Managing Partner, Gallatin Point LLC
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Compensation
Finance | ||||
James K. Hunt*
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68
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2013
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Former Managing Partner and CEO, Middle Market Credit at Kayne Anderson Capital Advisors LLC
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Nominating and Corporate
Compensation
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Patrick Kinsella †
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66
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2014
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Adjunct Professor at USC Marshall School of Business and Retired Senior Audit Partner with KPMG, LLP
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Audit
Related Party Matters
Risk
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Director Nominees | Age |
Director Since |
Principal Occupation / Key Experience |
Committee Membership | ||||||||||
David A. Spector
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60
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2012
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Chairman and Chief Executive Officer of PennyMac Financial Services, Inc.
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None
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Anne D. McCallion
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68
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2018
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Former Senior Managing Director and Chief Enterprise Operations Officer of PennyMac Financial Services, Inc.
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Finance
Risk | ||||||
James K. Hunt
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71
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2013
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Former Managing Partner and CEO, Middle Market Credit at Kayne Anderson Capital Advisors LLC
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Nominating & Corp. Gov.
Compensation
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Jonathon S. Jacobson
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61
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2021
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Founder and non-executive Chairman of HighSage Ventures and Former Co-Founder, CEO and CIO of Highfields Capital Management
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Nominating & Corp. Gov.
Finance
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| 2023 Proxy Statement | 1 |
PROXY STATEMENT SUMMARY |
Director Nominees | Age |
Director Since |
Principal Occupation / Key Experience |
Committee Membership | ||||||||||
Doug Jones
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66
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2023
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Director, President and Chief Mortgage Banking Officer of PennyMac Financial Services, Inc.
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None
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Patrick Kinsella †
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69
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2014
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Former Adjunct Professor at USC Marshall School of Business and Retired Senior Audit Partner with KPMG, LLP
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Audit
Related Party Matters
Risk
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Joseph Mazzella
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70
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2012
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Retired Managing Director and General Counsel of Highfields Capital Management L.P.
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Nominating & Corp. Gov.
Related Party Matters
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Farhad Nanji
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44
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2012
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Compensation
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Jeffrey A. Perlowitz*
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| Retired Managing Director and Co-Head of Global Securitized Markets of Citigroup and/or its Predecessors
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Compensation
Finance
Risk
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Lisa M. Shalett
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56
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2020
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Former Goldman Sachs Partner and Former Managing Partner of Brookfield Asset Management
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Audit
Nominating & Corp. Gov.
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Theodore W. Tozer
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66
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2017
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Non-resident fellow at the Urban Institute and Former President of Government National Mortgage Association
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Audit
Related Party Matters
Risk
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Emily Youssouf
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Clinical Professor at NYU Schack Institute of Real Estate
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Audit
Finance
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† Audit Committee Financial Expert
* Independent Lead Director
Director Nominees |
Age |
Director |
Principal Occupation /
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Committee
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Joseph Mazzella
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67
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2012
| Retired Managing Director and General Counsel of Highfields Capital Management LP
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Nominating and Corporate
Related Party Matters
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Farhad Nanji |
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2012
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Co-Founder of MFN Partners Management, L.P.
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Nominating and Corporate
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Jeffrey A. Perlowitz |
63
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2019
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Retired Managing Director andCo-Head of Global Securitized Markets of Citigroup and/or its Predecessors
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Finance
Risk | ||||
Theodore W. Tozer |
63
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2017
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Senior Fellow at the Milken Institute’s Center for Financial Markets; Former President of Government National Mortgage Association
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Audit
Related Party Matters
Risk
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Emily Youssouf |
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2013
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Clinical Professor at NYU Schack Institute of Real Estate
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Audit
Finance
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We believe our Board possesses deep and broad skill sets and specific experience and expertise that facilitate strong oversight and strategic direction for us as a leading specialty financial services firm focused on the production and servicing of U.S. mortgage loans and the management of investments related to the U.S. mortgage market.
2 | | 2023 Proxy Statement |
PROXY STATEMENT SUMMARY |
Core Qualifications and Experiences of All Directors
Integrity and Ethical Conduct | Leadership Abilities | |
Strategic Thinking | Experience and Business Knowledge | |
Financial Literacy | Business Judgement |
Corporate Governance Highlights
We continuously monitor developments, trends and best practices in corporate governance and consider feedback from stockholders and proxy advisory firms, such as Institutional Shareholder Services, or ISS, as appropriate, when enhancing our governance, policies and structure.
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Majority Voting Standard in the Election of Directors. Our Amended and Restated Bylaws provide for a majority voting standard for uncontested director elections and plurality voting standard for contested director elections.
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Independent Lead Director. The independent directors of our Board elected
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Director Resignation Policy.Our Corporate Governance Guidelines include a requirement that any director nominee who fails to receive a majority vote, if required, for election orre-election will promptly tender his or her resignation to the Board.
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Director Limitations on Number of Boards. A director who is currently serving as a chief executive officer of a public company, including our Chief Executive Officer, is not permitted to serve on more than two outside public company boards. No other director is permitted to serve on more than five outside public company boards.
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Regular Executive Sessions. Our independent directors meet privately on a regular basis. Our independent lead director presides at such meetings.
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Robust Stock Ownership Guidelines. We have robust stock ownership guidelines for ournon-management directors (five times the base annual retainer) and executive officers (five times base salary for our
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Regular Board Evaluation. The Nominating and Corporate Governance Committee sponsors an annual self-assessment of the Board’s performance as well as the performance of each committee of the Board.
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Stockholder Engagement. We engage in active discussions with our stockholders on a variety of topics throughout the year to ensure that we are addressing their concerns.
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Annual Elections. Our Board is not classified and, therefore, we conduct annual elections for all directors who serve on our Board.
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2019 Business
| 2023 Proxy Statement | 3 |
PROXY STATEMENT SUMMARY |
Financial Highlights(a)
PennyMac Financial Services, Inc.
Full Year 2022 Highlights and Accomplishments
A summary of our full-year financial highlights is as follows:
Full-Year 2019 Highlights(1)
Total net revenue of $1.5 billion, up 50 percent from the prior year
Pretax income was $529.4 million, up 98 percent from the prior year and the highest level on record for PennyMac Financial
Diluted earnings per share of $4.89, up from $2.59 in 2018 and also a record
Record loan production of $117.6 billion in UPB, an increase of 74 percent from the prior year, which included $9.8 billion in UPB of consumer direct production, an increase of 209 percent from the prior year; we were the 3rd largest mortgage producer in the U.S., according to Inside Mortgage Finance
Servicing portfolio reached $368.7 billion in UPB, up 23 percent from December 31, 2018; we were the 6th largest servicer in the U.S. as of December 31, 2019, according to Inside Mortgage Finance
Investment management had $2.5 billion of assets under management at year end, up 56 percent from December 31, 2018, driven by $830 million in new common equity raised by PennyMac Mortgage Investment Trust (NYSE:PMT), the real estate investment trust we manage
Return on average common stockholders’ equity was 21.6%
For complete information regarding our Fiscal |
A summary of the substantial growth in our book value per share driven by strong return on equity (ROE) is provided below.
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Executive Compensation Highlights
Our compensation governance best practices are summarized as follows:
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CORPORATE GOVERNANCE |
Director Qualification, Board Refreshment and Selection Criteria
The Nominating and Corporate Governance Committee is responsible for developing the general criteria, subject to approval by the full Board, for use in identifying, evaluating and selecting qualified candidates for election orre-election to our Board. The Nominating and Corporate Governance Committee periodically reviews with our Board the appropriate skills and characteristics required of directors in the context of the current composition of our Board. Final approval of director candidates is determined by the full Board, and invitations to join our Board are extended by our Chairman on behalf of the entire Board.
In March 2023, the Board, based on the recommendation of the Nominating and Corporate Governance Committee, determined that Doug Jones should be elected as a director because of his many contributions to the growth and success of the Company since he joined the Company’s executive management team in 2012. In addition, as a director, Mr. Jones’ deep understanding of the mortgage banking industry combined with his operational experience and success in executing business strategies will benefit the Board, the Company and its stakeholders.
The Nominating and Corporate Governance Committee, in accordance with our Corporate Governance Guidelines, seeks to create a board that is strong in its collective knowledge and has skills and experience with respect to accounting and finance, management and leadership, vision and strategy, business operations, business judgment, risk management, corporate governance, and knowledge of the mortgage and real estate investment trust sectors and the global markets. The Nominating and Corporate Governance Committee also focuses on issues of diversity, such as diversity of gender, race and national origin, education, professional experience, and differences in viewpoints and skills. We do not have a formal policy with respect to diversity; however, our Board and Nominating and Corporate Governance Committee believe that it is essential that our directors represent diverse viewpoints and backgrounds. In considering candidates for our Board, the Nominating and Corporate Governance Committee considers the entirety of each candidate’s credentials in the context of these standards and in light of the needs of our Board and our Company at that time, given the then current mix of director attributes. The Nominating and Corporate Governance Committee also considers a candidate’s accessibility and availability to serve effectively on our Board, and it conducts inquiries into the background and qualifications of potential candidates. With respect to the nomination of continuing directors forre-election, the individual’s past contributions to our Board are also considered.
Pursuant to a separate stockholder agreement with HC Partners LLC, or HCP, HCP has the right to nominate up to two individuals for election to our Board, depending on the percentage of the voting power of our outstanding shares of common stock that it holds, and we are obligated to use our best efforts to cause the election of those nominees. Based on current levels of ownership, HCP has the right to nominate two directors to the Board. HCP has elected to nominate one individual, Joseph Mazzella and Jonathon S. Jacobson for election to our Board. Although HCP has chosen not to exercise its right to nominate a second director at this time, it reserves the right to do so in the future as provided in the HCP stockholder agreement.
The Nominating and Corporate Governance Committee uses a variety of methods for identifying and evaluating nominees for director. The Nominating and Corporate Governance Committee assesses the appropriate size of our Board and whether any vacancies on our Board are expected due to retirement or otherwise. In the event that a vacancy is anticipated, or otherwise arises, the Nominating and Corporate Governance Committee considers whether to fill any such vacancy and, if so, identifies various potential candidates for director. These candidates are evaluated at regular or special meetings of the Nominating and Corporate Governance Committee, and may be considered at any point during the year. In evaluating such nominations, the Nominating and Corporate Governance Committee seeks to achieve a balance of knowledge, experience and capability on our Board.
Candidates may come to the attention of the Nominating and Corporate Governance Committee through current members of our Board, professional search firms or other persons. The Nominating and Corporate Governance Committee also will consider recommendations for nominees properly submitted by our stockholders. These recommendations should be submitted in writing to our Secretary at our principal executive offices located at 3043 Townsgate Road, Westlake Village, California 91361.See “Information Concerning Voting and Solicitation—When are stockholder proposals due for the 2024 Annual Meeting of Stockholders?” for procedures on submitting any recommendations. If any materials are provided by a stockholder in connection with a recommendation for a director nominee, such materials are forwarded to the Nominating and Corporate Governance Committee. Following verification of the stockholder status of persons proposing candidates, recommendations will be aggregated and considered by the Nominating and Corporate Governance Committee, in the same manner as other recommendations, at its next regularly scheduled or special meeting. During 2019, theThe Nominating and Corporate Governance Committee did notmay also retain an independent third party to assist in identifying appropriate director candidates for our Board.
| 2023 Proxy Statement | 5 |
CORPORATE GOVERNANCE |
Independence of Our Directors
The New York Stock Exchange, or NYSE, rules require that at least a majority of our directors be independent of our Company and management. The rules also require that our Board affirmatively determine that there are no material relationships between a director and us (either directly or as a partner, stockholder or officer of an organization that has a relationship with us) before such director can be deemed independent. We have adopted independence standards consistent with NYSE rules and the rules of the SEC. Our Board has reviewed both direct and indirect transactions and relationships that each of our directors has or had with us and our management.
management and holders of our common stock
As a result of this review, our Board affirmatively determined that Messrs. Botein,83% of our directors are independent under the NYSE rules. The Board determined that our independent directors are James K. Hunt, Jonathon S. Jacobson, Patrick Kinsella, Joseph Mazzella, Anne McCallion, Farhad Nanji, Jeffrey A. Perlowitz, andLisa M. Shalett, Theodore W. Tozer and Ms.Emily Youssouf, are independent directors under NYSE rules, based upon the fact that none of these directors havehas any material relationships with us other than as directors and holders of our common stock.
Board of Directors Leadership
and Independent Lead Director
Our Board leadership structure is currently comprised of our Chairman our President and Chief Executive Officer, ourthe independent lead director provide leadership to and work with our independent Board committees. We believe thisto define its structure includingand activities in the separationfulfillment of its responsibilities. The Board determined in March 2023 that the position of Chairman of the officesBoard should continue to be held by David A. Spector. Mr. Spector has served as a key executive since our founding in 2008 and throughout our growth into one of the Chairmanlargest mortgage lenders in the country. The Board believes Mr. Spector’s past experience has made him uniquely positioned to lead and the President and Chief Executive Officer, provides a well-functioning and effective balance between strong management leadership and appropriate safeguards and oversight bynon-management Board members. As Chairman, Mr. Kurland is charged with providing overall leadership to our Board, presiding over the Board meetings, facilitating communication among the directors and betweenoversee the Board and the Chief Executive Officer,identify and collaborating with the Nominating and Corporate Governance Committee inexecute our Chief Executive Officer succession planning and Board evaluation process. As President and Chief Executive Officer,future strategic initiatives. In addition, Mr. Spector has thein-depth focusproven himself capable of leading Board discussions on new initiatives andhands-on perspective strategic priorities, facilitating internal Board communication and ensuring proper Board oversight of being ultimately responsible for strategic and business initiatives,day-to-day management decisions and leadingkey issues.
This determination is based, in part, on our senior management team in the execution of such strategic and business initiatives.
Our Board believesbelief that independent directors and management have different perspectives and roles in strategy development. Our independent directors bring experience, oversight and expertise from outside our Company and industry, while the Chairman and President and Chief Executive Officer bringbrings company-specific experience and expertise. We believe Mr. Kurland, as our former chief executive officer,Chief Executive Officer is wellthus better situated to serve as Chairman of the Board because we believe he is able to utilize thein-depth focus and perspective gained in running our Company to effectively and efficiently lead our Board. As the director most familiar with our business and industry, he is most capable of identifying new initiatives and businesses, strategic priorities and other critical and/or topical agenda items for discussion by our Board and then leading the discussion to ensure our Board’s proper oversight of these issues. Mr. Kurland served as the Executive Chairman of our Board through December 31, 2019, and, beginning on January 1, 2020 and continuing through December 31, 2022, shall serve as thenon-executive Chairman of our Board, assuming he isre-elected to that post through such date.
Our Board believes that this leadership structure, which separates the combined role of Chairman of the Board and Chief Executive Officer promotes strategy development and Chairman roles, is appropriate at this time in light of our evolving businessexecution, and operating environment, our need to facilitate the efficientfacilitates information flow between senior management and our Board, our desire to provide guidance to senior management, and our continued focus on promoting strategy development and execution, all of which are essential to effective governance.
Independent Lead Director
We believe our Board leadership structureThis determination is also strengthened throughbased on what we consider to be a strong governance structure already in place, including the appointment of an influential independent lead director with a strong voice. The Independentindependent lead director works with our Chairman of the Board and other directors to provide informed, independent oversight of our management and affairs. Among other things, the independent lead director reviews and provides input on Board meeting agendas and materials, coordinates with committee chairs to ensure the committees are fulfilling the responsibilities set forth in their respective charters, serves as the principal liaison between our Chairman of the Board and the independent directors, and chairs an executive session of the independent directors at each regularly scheduled Board meeting. Our Board hasre-appointedre-elected Mr. HuntPerlowitz in March 2022 as its independent lead director for a three (3) year term that expiresexpiring in February 2023.March 2025.
Together, our ChairmanDirector Education
New directors receive an orientation upon joining the Board, including the opportunity to meet with members of management, which is designed to familiarize new directors with the Company’s purpose, business, operations, strategic direction, financial matters, risk management, corporate governance practices and other key policies and practices. The Board also believes in the importance of continuing director education to enhance the performance of the Board and its committees. All directors are offered membership with the National Association of Corporate Directors, a nationally recognized organization providing corporate governance and director education. In addition, directors receive ongoing internal education from management and the independent lead director provide leadershipCompany’s advisors on matters relevant to the Company’s business, industry trends and work with our Boarddevelopments, corporate governance and other appropriate subjects to define its structure and activitiesassist the directors in the fulfillment of its responsibilities.discharging their duties.
6 | | 2023 Proxy Statement |
CORPORATE GOVERNANCE |
Succession Planning
Our Board oversees management’s succession plan for the Chairman and Chief Executive Officer and key positions at the executive officer level. Our Board annually reviews succession plans for the Chairman and Chief Executive Officer and executive management. In addition, the Chairman and Chief Executive Officer annually provides his assessment to our Board of executive leaders and their potential to succeed at key executive management positions.
The Role of the Board in Risk Oversight
Our senior management is responsible for designing, implementing and maintaining an effective and appropriate approach for managing enterprise risk. Our Board and each of its committees, and in particular, the Audit and Risk Committee,Committees, have an active role in overseeing our risk management process, while supporting organizational objectives, improving long-term organizational performance and creating stockholder value. A fundamental part of risk management oversight is not only understanding the risks a company faces and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for our Company. The involvement of the full Board in determining our business strategy is a key part of its assessment of management’s appetite for risk and determination of what constitutes an appropriate level of risk for our Company.
Our Board encourages senior management to promote a culture that incorporates risk management into the Company’s corporate strategy and day-to-day business operations. Additionally, our Board works with the input of the Company’s senior management, to assess and analyze the most likely areas of future risk. While our Board has the ultimate oversight responsibility for the risk management process, particularly with respect to those risks inherent in the operation of our businesses and the implementation of our strategic plan, the committees of our Board also share responsibility for overseeing specific areas of risk management as follows:
Committee
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Primary Risk Oversight Responsibility
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Audit | The Audit Committee focuses on risks associated with internal controls and securities, financial and accounting compliance, and receives an annual risk assessment report from our internal auditors. The Audit Committee also discusses with management the Company’s major risk exposures and the framework management has established to monitor and control such exposures, including the Company’s risk assessment and risk management policies. | |
Compensation | The Compensation Committee focuses on oversight of our compensation policies and practices, including whether such policies and practices balance risk taking and rewards in an appropriate manner so as not to encourage excessive risk taking. | |
Finance | The Finance Committee focuses on risks relating to our Company’s liquidity and capital resources and our investment policies and strategies. | |
Nominating and Corporate Governance | The Nominating and Corporate Governance Committee focuses on risks associated with proper board governance, including the independence of our directors and the assessment of the performance and effectiveness of each member and Board Committee. The Nominating and Corporate Governance Committee | |
Related Party Matters | The Related Party Matters Committee focuses on risks arising out of potential conflicts of interest between us or any of our subsidiaries, on the one hand, and (i) PennyMac Mortgage Investment Trust, or PMT, and its subsidiaries, (ii) any othernon-wholly-owned entity that we may manage or over which we may have control (whether through ownership, voting power, contract or otherwise), and (iii) any other identified related party, on the other hand. | |
Risk | The Risk Committee oversees our enterprise risk management function in relation to our business activities and focuses on credit risk, mortgage compliance risk, environmental and climate risk and operational risk, including cybersecurity and data privacy risk. The Risk Committee, as well as other members of the Board, receive updates from the Company’s Chief Information Officer on the overall cybersecurity and data privacy risk environment including our enterprise-wide cybersecurity risk assessment results and key initiatives. |
| 2023 Proxy Statement | 7 |
CORPORATE GOVERNANCE |
While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board is regularly informed through committee reports about the nature of all such risks.
Committees of the Board of Directors
Our Board has established six principal committees: the Audit Committee, the Compensation Committee, the Finance Committee, the Nominating and Corporate Governance Committee, the Related Party Matters Committee and the Risk Committee. Our Board committees have also adopted written charters that govern their conduct, each of which is available on our website at www.ir.pennymacfinancial.com.pfsi.pennymac.com.
The current chairs and members of the committees are identified in the following table:
Directors | Audit | Compensation | Finance |
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James K. Hunt | X | CC | ||||||||||||||
Jonathon S. Jacobson | X | X | ||||||||||||||
Patrick Kinsella | CC | X | X | |||||||||||||
Joseph Mazzella | X | CC | ||||||||||||||
Anne D. McCallion | X | X | ||||||||||||||
Farhad Nanji | CC | |||||||||||||||
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† – Chairman
* – Independent Lead Director
CC – Committee Chair
The primary committee responsibilities, current committee membership and number of meetings held by each such committee of our Board during 2019 are summarized below:
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Board of Directors and Committee Meetings
During Fiscal 2019, our full Board held six regular meetings. All directors are expected to make every effort to attend all meetings of the Board and meetings of the committees of which they are members. Each of our current directors who served on the Board during Fiscal 2019 attended at least 83% of the aggregate number of meetings held in Fiscal 2019 for the period during which such director served, with respect to meetings of our Board and each committee on which such director served.
Executive Sessions of the Independent Directors
Our Corporate Governance Guidelines require that our Board hold at least four regularly scheduled meetings each year and that our independent directors meet in executive session without management on a regularly scheduled basis. These executive sessions, which are designed to promote unfettered discussions among our independent directors, are presided over by the independent lead director, Mr. Hunt. During Fiscal 2019, ournon-management directors, all of whom were independent, held four meetings in executive session.
Attendance by Members of our Board of Directors at the 2019 Annual Meeting of Stockholders
We expect each member of the Board to attend our annual meetings of stockholders except for absences due to causes beyond the reasonable control of the director. Each of the current members of our Board attended the 2019 annual meeting of stockholders.
Board Evaluations and Refreshment
As described in our Corporate Governance Guidelines, it is our general policy that no director having attained the age of 75 years shall be nominated forre-election orre-appointment to the Board, although the Board may waive this policy in individual cases. In addition, the charters of each of the Audit Committee, Compensation Committee, Finance Committee, Nominating and Corporate Governance Committee, Related Party Matters Committee and Risk Committee require an annual performance evaluation. The Nominating and Corporate Governance Committee oversees the annual board assessment process and the implementation of the annual committee assessments. The Nominating and Corporate Governance Committee typically engages an external evaluator to facilitate the board and committee assessment process. The key areas of focus for the evaluation are Board operations, Board accountability and committee performance. The results of the evaluation are reviewed with the Nominating and Corporate Governance Committee and the full Board.
Codes of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics, which sets forth the basic principles and guidelines for resolving various legal and ethical questions that may arise in the workplace and in the conduct of our business. This code is applicable to all of our officers and directors, as well as to the employees of PNMAC.
In addition, we have adopted a Code of Ethics for the Chairman, Chief Executive Officer and Senior Financial Officers, which sets forth specific policies to guide these individuals in the performance of their duties. The Code of Business Conduct and Ethics and the Code of Ethics for the Chairman, Chief Executive Officer and Senior Financial Officers are available on our website at www.ir.pennymacfinancial.com.
Corporate Governance Guidelines
We have adopted Corporate Governance Guidelines, available on our website at www.ir.pennymacfinancial.com, which, in conjunction with the charters and key practices of the committees of our Board, provide the framework for the governance of our Company. In connection with the change to a majority voting standard in our Amended and Restated Bylaws, our Board also amended and restated our Corporate Governance Guidelines to provide that if any nominee for director fails to receive a majority vote for election orre-election, if so required, the director will promptly tender to the Board for its consideration his or her offer to resign from the Board.
Corporate Sustainability and Social Responsibility
Commitment to Advancing ESG Priorities in Alignment with our Strategic Objectives. With oversight from our Board and the Nominating and Corporate Governance Committee, we are committed to being responsive to our stockholders and stakeholders as it relates to our environmental, social, and governance (ESG) principles and continuously improving our ESG and corporate sustainability related disclosures. Our Board believes that it is important to establish a robust corporate sustainability program and framework that will support our corporate initiatives. As part of our corporate sustainability program, we expect to issue a comprehensive corporate sustainability report that utilizes Sustainability Accounting Standards Board (SASB) industry-specific standards relevant to the mortgage finance industry, as well as other relevant standards and guidelines.
We strive not only to drive high operational and financial performance but also to serve a greater social purpose through our core businesses, which are centered around the essential public good of homeownership. Mortgage banking allows us to serve our customers throughout the country by facilitating home purchases, refinancings that make homes more affordable, and, when necessary, loss mitigation alternatives designed to avoid foreclosure and keep our customers and their families in their homes.
We also encourage and support principles of corporate sustainability through Board governance best practices, in our operations and throughout our communities. Corporate sustainability goals are included in our annual corporate strategic plan and are linked to compensation, including variable pay, where applicable. We believe these principles promote the sustainable, long-term growth of our organization for the benefit of our stockholders and the housing industry for the benefit of our customers, improving the environment in which we live. We hold ourselves accountable for managing our social, environmental and economic impact through a number of initiatives.
Corporate Governance. We amended the Nominating and Corporate Governance Committee Charter to provide that this committee has specific oversight responsibility relating to our corporate sustainability practices, including environmental stewardship and corporate social responsibility, and will make recommendations to the Board, as appropriate. Our Board has established a set of principles, guidelines and practices that support sustainable financial performance and long-term value creation for our stockholders.
Board Diversity. Currently, two women serve on our Board, representing 18% of our total Board members. In addition, we have a number of directors who represent other diverse backgrounds and experiences. Our Board believes that these sorts of diversity factors are essential in promoting our long-term sustainable growth. Our Board maintains a policy regarding the evaluation of director candidates which states that the Board in its selection of director candidates will consider the overall Board balance of diversity of viewpoints, backgrounds and experiences. Our Board has also established director selection criteria which provides that the Board in its selection of director candidates will consider factors that contribute to Board diversity in the broadest sense, including gender, ethnicity, geography, education, and personal and professional experiences.
Environmental Sustainability. We seek to operate our facilities in an environmentally sustainable manner that manages our impact on the environment by investing in sustainable products and services, committing to increased waste recycling, focusing on energy efficiency and engaging in conservative water consumption practices. We are committed to environmental sustainability and energy conservation and recognize the importance of being a responsible steward of the environment.
Diversity and Inclusion. We believe that building a diverse and inclusive, high-performing workforce where our employees bring diverse perspectives and varied experiences to work every day allows us to develop better and more innovative solutions for our customers. 52% of our employees are women. During Fiscal 2017, we established a mentorship program that is designed to promote opportunities for women at our company to strengthen networks, exchange ideas and build skills and relationships.
Human Capital. Our long-term sustainability as a company is highly dependent upon our people. Our goal is to recruit and develop the best talent, provide a supportive work environment and promote healthy living. We support the U.S. military through our continued focus on recruiting and creating opportunities for veterans. We have also partnered with a third party to establish a comprehensive, fully integrated wellness program designed to enhance the productivity of our employees. We believe it is important to support human rights in every aspect of our operations. Our commitment to human rights is grounded in our Code of Business Conduct and Ethics, our various Company policy statements, and our vendor master services agreements. We have not been linked to any labor and human rights violations.
Communications with our Board of Directors
Our stockholders and other interested persons may send written communications to the Board, committees of the Board and individual directors (including our independent lead director or theindependent/non-management directors as a group) by mailing those communications to:
[Specified Addressee]
c/o PennyMac Financial Services, Inc.
3043 Townsgate Road
Westlake Village, California 91361
Email:PFSI_IR@pnmac.com
Attention: Investor Relations
Generally, these communications are sent by us directly to the specified addressee. Any communication that is primarily commercial, offensive, illegal or otherwise inappropriate, or does not substantively relate to the duties and responsibilities of our Board, may not be forwarded.
PROPOSAL I – ELECTION OF DIRECTORS
We have eleven (11) directors. The Board has nominated Stanford L. Kurland, David A. Spector, Anne D. McCallion, Matthew Botein, James K. Hunt, Patrick Kinsella, Joseph Mazzella, Farhad Nanji, Jeffrey A. Perlowitz, Theodore W. Tozer and Emily Youssouf for election as directors, and each nominee has consented to being named in this Proxy Statement and has agreed to serve if elected. If our director nominees are elected at this year’s Annual Meeting, they will serve until our annual meeting of stockholders in 2021 and until their successors have been duly elected and qualified.
Because this is considered an uncontested election under our Amended and Restated Bylaws, a nominee for director is elected to the Board if he or she receives a majority of the votes cast for his or her election, meaning the number of shares voted for such nominee’s election exceeds the number of shares voted against such nominee’s election. Abstentions and brokernon-votes will not affect the election of directors. In tabulating the voting results for the election of directors, only “FOR” and “AGAINST” votes are counted. If an incumbent director receives a greater number of votes against his or her election than votes for such election, such director shall tender his or her resignation as provided in our Corporate Governance Guidelines. The Nominating and Corporate Governance Committee of the Board will then act on an expedited basis to determine whether to accept the director’s tendered resignation and will submit such recommendation for prompt consideration by the Board. In considering whether to accept or reject the tendered resignation, the Nominating and Corporate Governance Committee and the Board will consider any factors they deem relevant.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR STANFORD L. KURLAND, DAVID A. SPECTOR, ANNE D. MCCALLION, MATTHEW BOTEIN, JAMES K. HUNT, PATRICK KINSELLA, JOSEPH MAZZELLA, FARHAD NANJI, JEFFREY A. PERLOWITZ, THEODORE W. TOZER AND EMILY YOUSSOUF AS DIRECTORS TO SERVE UNTIL OUR 2021 ANNUAL MEETING OF STOCKHOLDERS AND UNTIL THEIR RESPECTIVE SUCCESSORS ARE DULY ELECTED AND QUALIFIED.
The following paragraphs provide the name and age (as of April 3, 2020) of each director, as well as each director’s business experience over the last five years or more. Immediately following the description of each director’s business experience is a description of the particular experience, skills and qualifications that were instrumental in the Nominating and Corporate Governance Committee’s determination that the director should serve on our Board.
Jeffrey A. Perlowitz* |
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Non-Management Director Compensation
The Compensation Committee reviews and recommends to our Board the form and level of director compensation and seeks outside advice from our independent compensation consultants on market practices when changes are contemplated. Director compensation was reviewed during September 2019 by our independent compensation consultants who found that our ongoing compensation was not an outlier relative to certain industry, S&P 600, and Russell 3000 benchmarks. The compensation program for ournon-management directors is intended to be competitive and fair so that we can attract the best talent to our Board, and recognize the time and effort required of a director given the size and complexity of our operations. In addition to cash compensation, we provide equity grants and have stock ownership guidelines to align the directors’ interests with our stockholders’ interests and to motivate our directors to focus on our long-term growth and success. Management directors who also serve as our executive officers are not paid any fees for serving on our Board or for attending Board meetings.
The following table summarizes the annual retainer fees of ournon-management directors during Fiscal 2019:
Lisa M. Shalett |
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Our directors are also eligible to receive certain types of equity-based awards under the 2013 Plan. During Fiscal 2019, each of Messrs. Botein, Hunt, Kinsella, Mazzella, Nanji, Perlowitz and Tozer and Ms. Youssouf received a grant of 4,450 time-based restricted stock units, or RSUs, on March 15, 2019 and Ms. McCallion received a grant of 4,485 time-based RSUs on July 1, 2019, in each case with a grant date fair value of approximately $102,000. Subject to continued service through each vesting date, these RSUs generally vest in full on the one (1) year anniversary of the date of the grant, except in the case of Ms. McCallion, whose RSUs vested in full on March 15, 2020. Prior to the vesting of an RSU, such RSU is generally subject to forfeiture upon termination of service to us.
Each independent director newly elected or appointed to our Board is entitled to receive aone-time initial RSU grant with a grant date fair value of approximately $102,000 in RSUs (annualized for the annual equity award cycle).
Further, all members of our Board will be reimbursed for their reasonable out of pocket costs and expenses in attending all meetings of our Board and its committees and certain other Company-related functions.
Policy Regarding Receipt of Shares in Lieu of Cash Director Fees.During 2014, the Board adopted a policy wherebynon-management director fees may be paid in cash or common stock at the election of eachnon-management director. The number of shares of common stock delivered in lieu of any cash payment of director fees shall be equivalent in value to the amount of forgone director fees divided by the
Theodore W. Tozer | X | CC |
market value (as defined in our 2013 Plan) of the common stock on the last market trading day preceding the day on which the director fees otherwise would have been paid in cash to thenon-management director, rounded down to the nearest whole share.
Change of Control. Upon a change of control (as defined in our 2013 Plan), all outstanding equity awards granted tonon-management directors will be assumed, or substantially equivalent rights will be substituted, or the awards otherwise will be continued in a manner satisfactory to the Compensation Committee, by the acquiring or succeeding entity or its affiliate.
2019 Director Compensation Table
The table below summarizes the compensation earned by eachnon-management director who served on our Board for Fiscal 2019.
Name(1)
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Fees Earned
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Matthew Botein
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106,250
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102,000
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208,250
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James K. Hunt
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132,369
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102,000
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234,369
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Patrick Kinsella
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117,750
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102,000
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219,750
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Joseph Mazzella
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201,250
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201,250
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45,402
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102,000
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147,402
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Farhad Nanji
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197,342
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197,342
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Jeffrey Perlowitz
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84,075
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106,478
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190,823
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Theodore W. Tozer
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116,017
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102,000
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218,017
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Emily Youssouf
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108,103
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102,000
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210,103
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Non-Management Director Stock Ownership Guidelines
Non-management directors are subject to robust stock ownership guidelines whereby each such director is expected to hold common stock and unvested RSUs with an aggregate market value equal to at least five times the base annual retainer.Non-management directors are expected to meet the ownership guidelines within five years from the date of appointment or election to the Board. Eachnon-management director who has been a member of our Board for five years or more is in compliance with our stock ownership guidelines. The Nominating and Corporate Governance Committee will annually review each director’s progress toward meeting the stock ownership guidelines.
The Board of Directors has determined that all of the members of the Audit Committee meet the independence and experience requirements of The New York Stock Exchange, or the NYSE, and that Mr. Kinsella is an “audit committee financial expert” within the meaning of the applicable rules of the Securities and Exchange Commission, or the SEC, and the NYSE.
The Audit Committee met 10 times in 2019. The Audit Committee’s agenda is established by the Chair of the Audit Committee. The Audit Committee engaged Deloitte & Touche LLP, or Deloitte, as the Company’s independent registered public accounting firm and reviewed with the Company’s Chief Financial Officer and Deloitte the overall audit scope and plans, the results of the external audit examination, evaluations by the independent registered public accounting firm of the Company’s internal controls and the quality of its financial reporting.
The Audit Committee has reviewed and discussed the audited financial statements with management, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. The Audit Committee also discussed with Deloitte other matters required to be discussed by a registered public accounting firm with the Audit Committee under applicable standards of the Public Company Accounting Oversight Board, or the PCAOB. The Audit Committee received and discussed with Deloitte its annual written report on its independence from the Company’s and its management, which is made pursuant to applicable requirements of the PCAOB and considered with Deloitte whether the provision ofnon-audit services is compatible with its independence.
In performing all of these functions, the Audit Committee acts only in an oversight capacity and, necessarily, in its oversight role, the Audit Committee relies on the work and assurances of the Company’s management, which has the primary responsibility for financial statements and reports, and of Deloitte, which, in its report, expresses an opinion on the conformity of the Company’s annual financial statements to generally accepted accounting principles and on the effectiveness of its internal control over financial reporting as ofyear-end.
In reliance on these reviews and discussions, and the report of Deloitte, the Audit Committee recommended to the Board of Directors, and the Board of Directors approved, the inclusion of the Company’s audited financial statements in its Annual Report on Form10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 28, 2020.
The foregoing report has been furnished by the current members of the Audit Committee:
Patrick Kinsella,Chair
Theodore W. Tozer
Emily Youssouf
X | CC | |||||||||||
Management Directors | ||||||||||||
David A. Spector† | ||||||||||||
Doug Jones |
† – Chairman of the Board
* – Independent Lead Director
CC – Committee Chair
CORPORATE GOVERNANCE |
The primary committee responsibilities, current committee membership and number of meetings held by each such committee of our Board during Fiscal 2022 are summarized below:
Audit Committee | Primary Responsibilities | |||
Members: |
Relationship with Independent Registered Public Accounting Firm
In addition to performing the audits of our financial statements in Fiscal 2019 and Fiscal 2018, Deloitte provided other audit-related andnon-audit-related services for us during these years.
Fees to Registered Public Accounting Firm for 2019 and 2018
The following table shows the fees billed by Deloitte for the audit and other services it provided to us in respect of Fiscal 2019 and Fiscal 2018.
2019
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Audit Fees (1)
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2,253,349
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514,427
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499,315
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14,085
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30,000
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Total
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2,797,776
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2,477,675
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Pre-Approval Policies and Procedures
The Audit Committee approved all services performed by Deloitte during Fiscal 2019assists our Board in accordance with applicable SEC requirements. The Audit Committee has alsopre-approved the use of Deloitte for certain audit-related andnon-audit-related services, setting a specific limit on the amount of such services that we may obtain from Deloitte before additional approval is necessary. In addition, the Audit Committee has delegated to the chair of the Audit Committee the authority to approve both audit-related andnon-audit-related services provided by Deloitte, provided that the chair will present any decision to the full Audit Committee for ratification at its next scheduled meeting.overseeing:
• our accounting and financial reporting processes;
PROPOSAL II – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM• the integrity and audits of our financial statements;
The Audit Committee is presenting a proposal
• our internal control function;
• our compliance with related legal and regulatory requirements;
• the effectiveness of our compliance programs as they relate to ratify its appointmentapplicable laws and regulations governing securities, financial and accounting matters;
• the framework established to monitor major financial risk exposures, including risk assessment and risk management policies;
• the qualifications and independence of our independent registered public accounting firm; and
• the performance of our independent registered public accounting firm Deloitte & Touche LLP and its affiliated entities,our internal auditors.
The Audit Committee is also responsible for preparing an audit committee report to be included in our annual proxy statement, reviewing and discussing management’s discussion and analysis of financial condition and results of operations to be included in our filings with the Securities and Exchange Commission, or Deloitte, which has served asSEC, the engagement, retention and compensation of our independent registered public accounting firm, sincereviewing with our formation. During this time, Deloitte has performedindependent registered public accounting firm the plans and auditingresults of the audit engagement, approving professional services for us. We expectprovided by our independent registered public accounting firm, considering the range of audit and permissible non-audit fees, and reviewing the adequacy of our internal accounting controls. The Audit Committee also monitors innovation trends that representativesmay impact the Company’s business operations or strategies.
Patrick Kinsella, Chair
Lisa M. Shalett
Theodore W. Tozer
Emily Youssouf
Meetings in 2022: 9
Mr. Kinsella serves as an “audit committee financial expert,” as that term is defined by the SEC. Each of Deloitte will be present at the Annual Meeting, will have the opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions. If the appointmentmembers of Deloitte is not ratified, the Audit Committee will reconsideris “financially literate” under the appointment.
OUR BOARD OF DIRECTORS AND OUR AUDIT COMMITTEE UNANIMOUSLY RECOMMEND A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2020.rules of the NYSE.
Our Board has determined that all of the directors serving on the Audit Committee are independent under the applicable rules of the NYSE and SEC. For additional information on the Audit Committee, please see the section below entitled “Report of the Audit Committee.” |
| 2023 Proxy Statement | 9 |
CORPORATE GOVERNANCE |
Primary Responsibilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Members: | The principal functions of the Compensation Committee are to: • evaluate the performance of our Chief Executive • review and/or recommend to the Board the compensation of our Chief Executive Officer and other executive officers; • adopt and administer compensation policies, plans and benefit programs for our executive officers and all other members of our executive team; • review and recommend to our Board compensation plans, policies and programs; • prepare the compensation committee report on executive compensation to be included in our annual proxy statement; • review and discuss our compensation discussion and analysis to be included in our annual proxy statement; • recommend to our Board the compensation for our non-management directors; • collaborate with the Board’s Nominating and Corporate Governance Committee on succession plans; and • administer the issuance of any securities under the PennyMac Financial Services, Inc. 2013 and 2022 Equity Incentive Plans and future equity incentive plans adopted by stockholders (collectively the “Equity Plans”).
The | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Farhad Nanji, Chair James K. Hunt Jeffrey A. Perlowitz | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Meetings in 2022: 4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Our Board has determined that all of
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Finance Committee | Primary Responsibilities | |||
Members: | The • review, assess and monitor our capital structure, liquidity, capital adequacy and reserves; • review and assess any policies we may establish from time to time that relate to our liquidity management, capital structure and dividend approvals; • review our short- and long-term investment strategy, investment policies and the performance of our investments; • monitor our capital budget; and • review our policies and procedures on hedges, swaps and other derivative transactions. | |||
Emily Youssouf, Chair Jonathon S. Jacobson Anne D. McCallion Jeffrey A. Perlowitz | ||||
Meetings in 2022: 4 | ||||
Our Board has determined that all of the directors serving on the Finance Committee are independent under the applicable rules of the NYSE. |
10 | | 2023 Proxy Statement |
CORPORATE GOVERNANCE |
Nominating and Corporate | Primary Responsibilities | |||
Members: | The principal functions of the Nominating and Corporate Governance Committee are to: • seek, consider and recommend to the full Board qualified candidates for election as directors and then recommend nominees for election as directors at the annual meeting of stockholders; • review periodically with the Board and Compensation Committee the succession plans relating to the • periodically prepare and submit to our Board for adoption the Nominating and Corporate Governance Committee’s selection criteria for director nominees; • review and make recommendations to our Board on matters involving the general operation of our • annually recommend to our Board nominees for each of its committees; • annually assess our stock ownership guidelines; • annually facilitate the assessment of the performance of the individual committees and our Board as a whole and reporting thereon to our Board; and • regularly oversee our environmental, social and governance criteria and policies, practices and initiatives regarding corporate sustainability. | |||
James K. Hunt, Chair Jonathon S. Jacobson Joseph Mazzella Lisa M. Shalett | ||||
Meetings in 2022: 4 | ||||
Our Board has determined that all of the directors serving on the Nominating and Corporate Governance Committee are independent under the applicable rules of the NYSE. |
Related Party Matters Committee | Primary Responsibilities | |||
Members: | The principal functions of the Related Party Matters Committee are to: • establish policies and procedures related to the identification and management of certain transactions, and resolve other potential conflicts of interest, between our Company • establish policies and procedures related to the identification of any other transactions in which certain related parties, including our directors, executive officers and their family members, have a direct or indirect interest; • oversee and administer all such policies; and • review and, if necessary, approve and/or make recommendations to the Board regarding all such transactions, including, but not limited to, our management agreement, servicing agreement, mortgage banking services agreement, MSR recapture agreement, and mortgage loan purchase agreement with PMT, and any amendments of or extensions to such agreements. | |||
Joseph Mazzella, Chair Patrick Kinsella Theodore W. Tozer | ||||
Meetings in 2022: 4 | ||||
Our Board has determined that all of the directors serving on the Related Party Matters Committee are independent under the applicable rules of the NYSE. |
| 2023 Proxy Statement | 11 |
CORPORATE GOVERNANCE |
Risk Committee | Primary Responsibilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Members: | The principal function of the Risk Committee is to assist our Board in fulfilling its oversight responsibilities relating to: (i) our Company’s aggregate risk profile; (ii) specific risks expressly delegated to the Risk Committee, including credit risk, mortgage compliance risk, and operational risk; and (iii) management’s approach for assessing, monitoring and controlling such aggregate and specific risks. In carrying out its duties, the responsibilities of the Risk Committee include, but are not limited to, the following: • reviewing, discussing and overseeing our management’s establishment and operation of our • reviewing annually a schedule of all identified risks facing our • reviewing annually our enterprise risk management policy; • reviewing and overseeing credit risk, mortgage compliance risk, environmental and climate risk, and operational risk (including regular reviews of risks arising from cybersecurity and data privacy), as well as the establishment and operation of policies and procedures and remediation for any deficiencies with respect to such specific risks; and • directing management to evaluate the | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Theodore W. Tozer, Chair Patrick Kinsella Anne D. McCallion Jeffrey A. Perlowitz | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Meetings in 2022: 4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Our Board has determined that all of the
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Board of Directors and Committee Meetings
During Fiscal 2022, our full Board held eight meetings. All directors are expected to make every effort to attend all meetings of the Board and meetings of the committees of which they are members. Each of our incumbent directors attended at least 75% of the aggregate number of meetings held in Fiscal 2022 for the period during which such director served with respect to meetings of our Board and each committee on which such director served. Executive Sessions of the Independent Directors Our Corporate Governance Guidelines require that our Board hold at least four regularly scheduled meetings each year and that our independent directors meet in executive session without management on a regularly scheduled basis. These executive sessions, which are designed to promote unfettered discussions among our independent directors, are presided over by the independent lead director. Board Member Attendance at the 2022 Annual Meeting of Stockholders We expect each member of the Board to attend our annual meetings of stockholders except for absences due to causes beyond the reasonable control of the director. Each incumbent director serving during the 2022 annual meeting of stockholders attended the meeting.
Codes of Business Conduct and Ethics We have adopted a Code of Business Conduct and Ethics, which sets forth the basic principles and guidelines for resolving various legal and ethical questions that may arise in the workplace and in the conduct of our business. This code is applicable to all of our officers, employees and directors. In addition, we have adopted a Code of Ethics for the Chief Executive Officer and Senior Financial Officers, which sets forth specific policies to guide these individuals in the performance of their duties. The Code of Business Conduct and Ethics and the Code of Ethics for the Chairman, Chief Executive Officer and Senior Financial Officers are available on our website at pfsi.pennymac.com. Our directors, officers and employees are also encouraged to anonymously report suspected violations of the Code of Business Conduct and Ethics through various means, including a toll-free hotline available 24 hours a day, 7 days a week. Corporate Governance Guidelines We have adopted Corporate Governance Guidelines, available on our website at pfsi.pennymac.com, which, in conjunction with the charters and key practices of the committees of our Board, provide the framework for the governance of our Company. Pursuant to the majority voting standard in our Amended and Restated Bylaws, our Corporate Governance Guidelines provide that if any incumbent nominee for director fails to receive a majority vote for election or re-election, if so required, the director will promptly tender to the Board for its consideration his or her offer to resign from the Board.
| CORPORATE SUSTAINABILITY |
Corporate Sustainability and ESG Overview and Goals
Stakeholder Engagement
Our corporate sustainability and ESG approach starts with acknowledging that our stakeholders are the beneficiaries of our growth and success as an enterprise.
As a Foundational Discipline
Board and Management Oversight – Policies and Procedures Monitoring and Evaluation – Sustainability Reporting |
Core Values
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14 | | 2023 Proxy Statement |
CORPORATE SUSTAINABILITY |
Corporate Sustainability Priorities Aligned with our Strategic Objectives
With oversight from our Board and its various committees, we are committed to being responsive to our stakeholders as it relates to managing the environmental, social, and governance impacts of our business activities and continuously improving our corporate sustainability and ESG related disclosures. Our Board believes that it is important to establish a robust corporate sustainability and ESG program and framework that will support our corporate initiatives. This year, as part of our ongoing corporate sustainability and ESG program, we will publish another corporate sustainability report on our website with additional goals and industry-specific standards relevant to the mortgage finance industry. Our corporate sustainability report is prepared by our Senior Managing Director and Chief Human Resources Officer and our Managing Director, Corporate Sustainability. We maintain a Corporate Sustainability and ESG Policy, which defines the framework requirements and governing platform for how we identify and manage the ESG impacts of our operations in furtherance of our strategic plans.
We maintain a pay-for-performance culture but we also acknowledge that our core business centered on the essential public good of homeownership serves a greater corporate purpose. Mortgage banking allows us to serve our customers throughout the country by facilitating home purchases, refinancings that make homes more affordable, and, when necessary, loss mitigation alternatives designed to avoid foreclosure and keep our customers and their families in their homes. We also encourage and support our corporate sustainability objectives through our Board governance, our employees and operations and through our community commitments. Corporate sustainability goals are included in our annual corporate strategic plan and are used to determine overall compensation, including variable pay, where applicable. Our corporate sustainability priorities promote our long-term growth that benefits all of our investors, employees, housing industry customers and other stakeholders. We hold ourselves accountable for managing the ESG impact of our business activities through a number of operational initiatives.
Age
| 2023 Proxy Statement | 15 |
CORPORATE SUSTAINABILITY |
Corporate Sustainability and Board Committee Oversight
Our Board has established a set of principles, guidelines and practices that support sustainable financial performance and long-term value creation for our stakeholders supported by Board Committee oversight:
Position Held with the Company
Nominating and Corporate Governance Committee | Review of our overall corporate sustainability and ESG policies and practices, including human capital management, community involvement, corporate governance and stakeholder reports. | |
Audit Committee | Review of our financial disclosures, as well as human capital disclosures in our Form 10-K, and monitoring of regulatory developments pertaining to best practices in environmental and sustainability policies and disclosures. | |
Compensation Committee | Review of our proxy statement compensation disclosures, our corporate sustainability and human capital performance in determining compensation and managing talent and our Say-On-Pay voting results. | |
Risk Committee | Review of the physical environmental risks as well as risks related to transitioning to a low carbon economy that may impact properties that we own or that collateralize loans we own or service, or locations where we conduct operations. |
Environmental Sustainability
We seek to operate our facilities in an environmentally sustainable manner that manages our impact on the environment by investing in sustainable products and services, committing to increased waste recycling, focusing on energy efficiency and engaging in conservative water consumption practices. We are committed to environmental sustainability and energy conservation and recognize the importance of being a responsible steward of the environment.
Board Diversity
Currently, three women serve on our Board representing 25% of our Board members. In addition, three directors self-identify as representing underrepresented communities, including one director of Indian/South Asian heritage, one director of Middle-Eastern/North African heritage and one director of gay, lesbian, bisexual or transgender orientation. Our Board believes that diversity factors are important in promoting our long-term sustainable growth. Our Board maintains a policy regarding the evaluation of director candidates which states that the Board in its selection of director candidates will consider the overall Board balance of diversity of viewpoints, backgrounds and experiences. Our Board has also established director selection criteria which provides that the Board in its selection of director candidates will consider factors that contribute to Board diversity in the broadest sense, including gender, ethnicity, geography, education, and personal and professional experiences.
Workforce
Our long-term growth and success is highly dependent upon our employees and our ability to maintain a diverse, equitable and inclusive workplace representing a broad spectrum of backgrounds, ideas and perspectives. As part of these efforts, we strive to offer competitive compensation and benefits, foster a community where everyone feels a sense of belonging and purpose, and provide employees with the opportunity to give back and make an impact in the communities where we live and serve.
We had over 4,000 domestic employees as of the end of fiscal year 2022. In addition, as of the end of fiscal year 2022, our workforce was 49.9% female and 50.1% male, and the ethnicity of our workforce was 44.4% White, 22.6% Hispanic or Latino, 14.3% Black or African American, 14.2% Asian and 4.5% other (which includes American Indian or Alaska Native, Native Hawaiian or Other Pacific Islander, and “Two or More Races” as defined in our EEO-1 Report filed with the Department Labor).
16 | | 2023 Proxy Statement |
CORPORATE SUSTAINABILITY |
Our Workforce Diversity
Employee Retention and Development
We believe in attracting, developing and engaging the best talent, while providing a supportive work environment that prioritizes the health and safety of our employees. Talent development is a critical component of the employee experience and ensures that all employees have career growth opportunities, including establishing development networks and relationships and fostering continued growth and learning. Employees receive regular business and compliance training to help further enhance their career development objectives. We also actively manage enterprise-wide and divisional mentoring programs and have partnered with an external vendor to establish a comprehensive, fully integrated wellness program designed to enhance the productivity of our employees.
Compensation and Succession Planning
Our compensation programs are designed to motivate and reward employees who possess the necessary skills to support our business strategy and create long-term value for our stockholders and other stakeholders. Employee compensation may include base salary, annual cash incentives, and long-term equity incentives, as well as life insurance and 401(k) plan matching contributions. We also offer a comprehensive selection of health and welfare benefits to our employees including emotional well-being support and paid parental leave programs. Succession planning is also critical to our operations and we have established ongoing evaluations of our leadership depth and succession capabilities, including Board review.
Diversity, Equity and Inclusion
We believe that building a diverse, equitable and inclusive, high-performing workforce where our employees bring varied perspectives and experiences to work every day creates a positive influence in our workplace, community and business operations. Our Board and our Board Committees provide regular oversight of our corporate sustainability program, including our diversity, equity and inclusion programs and initiatives.
We have also taken proactive measures to strategically and sustainably advance equity in the workplace through our Business Resource Groups (“BRG”), a diversity hiring initiative, mentorship programs, and external partnerships with organizations such as the Mortgage Bankers Association and the National Association of Minority Mortgage Bankers of America. We also established leadership goals and created customized initiatives that focus on our continued effort to increase the number of women and underrepresented communities in management positions throughout our company and its business divisions.
As it relates to our inclusive culture, we established the following BRGs to emphasize career growth, networking, and learning opportunities for employees and allies with shared backgrounds and experiences: the BOLD BRG (for Black and African American employees and allies), the HOLA BRG (for Hispanic, Latino and Latinx employees and allies), the InspirASIAN BRG (for our Asian American and Pacific Islander employees and allies), the Pennymac PRIDE BRG (for our LGBTQIA employees and allies), the SERVE BRG (for our veteran and military family employees and allies), and the wEMRG BRG (for our women employees and allies). We also foster a more inclusive culture through a variety of initiatives, including corporate training, special events, community outreach and corporate philanthropy.
| 2023 Proxy Statement | 17 |
CORPORATE SUSTAINABILITY |
Community Involvement
We have a corporate philanthropy program that is governed by a philosophy of giving that prioritizes the support of causes and issues that are important in our local communities, and drives a culture of employee engagement and collaboration throughout our organization. We are committed to empowering our employees to be a positive influence in the communities where we live and serve, and believe that this commitment supports our efforts to attract and engage employees and improve retention.
Our philanthropy program consists of three key components: an employee matching gift program, a charitable grants program and a corporate sponsorship program. Our five philanthropic focus areas are: community development and equitable housing, financial literacy and economic inclusion, human and social services, health and medical research, and environmental sustainability.
We have established a separate donor advised fund to facilitate donations to various local and national charitable organizations and have provided funding to several charitable organizations located near our office sites and national organizations that support missions such as sustainable homeownership, mortgage and rental assistance, food insecurity, disaster recovery, family and child advocacy, and community empowerment. We also manage our environmental impact by focusing on improving our waste reduction, energy efficiency and water conservation.
Communications with our Board of Directors
Our stockholders and other interested persons may send written communications to the Board, committees of the Board and individual directors (including our independent lead director or the independent/non-management directors as a group) by mailing those communications to:
[Specified Addressee]
c/o PennyMac Financial Services, Inc.
3043 Townsgate Road
Westlake Village, California 91361
Email: PFSI_IR@pnmac.com
Attention: Investor Relations
Generally, these communications are sent by us directly to the specified addressee. Any communication that is primarily commercial, offensive, illegal or otherwise inappropriate, or does not substantively relate to the duties and responsibilities of our Board may not be forwarded.
18 | | 2023 Proxy Statement |
PROPOSAL I – ELECTION OF DIRECTORS |
PROPOSAL I – ELECTION OF DIRECTORS
We have twelve directors. The Board has nominated David A. Spector, James K. Hunt, Jonathon S. Jacobson, Doug Jones, Patrick Kinsella, Joseph Mazzella, Anne D. McCallion, Farhad Nanji, Jeffrey A. Perlowitz, Lisa M. Shalett, Theodore W. Tozer and Emily Youssouf for election as directors, and each nominee has consented to being named in this Proxy Statement and has agreed to serve if elected. If our director nominees are elected at this year’s Annual Meeting, they will serve until our 2024 annual meeting of stockholders and until their successors have been duly elected and qualified.
Because this is considered an uncontested election under our Amended and Restated Bylaws, a nominee for director is elected to the Board if he or she receives a majority of the votes cast for his or her election, meaning the number of shares voted “FOR” such nominee’s election exceeds the number of shares voted “AGAINST” such nominee’s election. Abstentions and broker non-votes will not affect the election of directors. In tabulating the voting results for the election of directors, only “FOR” and “AGAINST” votes are counted. If an incumbent nominee for director receives a greater number of votes against his or her election than votes for such election, such director shall tender his or her resignation as provided in our Corporate Governance Guidelines. The Nominating and Corporate Governance Committee of the Board will then act on an expedited basis to determine whether to accept the director’s tendered resignation and will submit such recommendation for prompt consideration by the Board. In considering whether to accept or reject the tendered resignation, the Nominating and Corporate Governance Committee and the Board will consider any factors they deem relevant. After the Board’s determination, we will promptly publicly disclose in a document filed or furnished with the SEC the Board’s decision regarding the action to be taken with respect to such incumbent director’s resignation. If the Board’s decision is to not accept the resignation, such disclosure will include the reasons for not accepting the resignation. If the director’s resignation is accepted, then the Board may fill the resulting vacancy in accordance with our bylaws. For additional information on voting, see the section of this Proxy Statement titled “Information Concerning Voting and Solicitation” including the section therein titled “—What stockholder approvals are required to approve the proposals?”
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR DAVID A. SPECTOR, JAMES K. HUNT, JONATHON S. JACOBSON, DOUG JONES, PATRICK KINSELLA, JOSEPH MAZZELLA, ANNE D. MCCALLION, FARHAD NANJI, JEFFREY A. PERLOWITZ, LISA M. SHALETT, THEODORE W. TOZER AND EMILY YOUSSOUF AS DIRECTORS TO SERVE UNTIL OUR 2024 ANNUAL MEETING OF STOCKHOLDERS AND UNTIL THEIR RESPECTIVE SUCCESSORS ARE DULY ELECTED AND QUALIFIED.
The following paragraphs provide the name and age of each director, as well as each director’s business experience over the last five years or more. Immediately following the description of each director’s business experience is a description of the particular experience, skills and qualifications that were instrumental in the Nominating and Corporate Governance Committee’s determination that the director should serve on our Board.
Name | Age | Position | ||
David A. Spector | 60 | Chairman | ||
James K. Hunt | 71 | Director | ||
Jonathon S. Jacobson | 61 | Director | ||
Doug Jones | 66 | Director | ||
Patrick Kinsella | 69 | Director | ||
Joseph Mazzella | 70 | Director | ||
Anne D. McCallion | 68 | Director | ||
Farhad Nanji | 44 | Director | ||
Jeffrey A. Perlowitz | 66 | Independent Lead Director | ||
Lisa M. Shalett | 56 | Director | ||
Theodore W. Tozer | 66 | Director | ||
Emily Youssouf | 71 | Director |
| 2023 Proxy Statement | 19 |
PROPOSAL I – ELECTION OF DIRECTORS |
Director Nominees
David A. Spector
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Director,
DAVID A. SPECTOR | Mr. Spector has been a member of our Board since December 2012 and has been our Chairman and Chief Executive Officer since February 2021 and, prior thereto, as our President and Chief Executive | |||
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Biographical information for Mr. Spector is provided above under the caption “Proposal I - Election of Directors.” Certain biographical information for the other executive officers is set forth below.
Andrew S. Chang. Mr. Chang has been our Senior Managing Director and Chief Financial Officer since January 2017. Prior thereto, heHe served as our seniorexecutive managing director, president and chief business developmentoperating officer from February 2016 through December 2016 and, prior thereto, as ourpresident and chief business developmentoperating officer from February 2013 to February 2016. Mr. ChangSpector has also has served in a variety of similar executive positions at PNMAC since its founding in January 2008. In addition, Mr. Spector has been a member of the board of PMT since its formation in May 2008. Mr. Chang is responsible for overseeing our financial management, reporting2009 and controls and tax management,has served as well as our corporate development and investor relations activities.its chairman since February 2021. Prior to joining PNMAC, from June 2005 to May 2008, Mr. ChangSpector was employed at BlackRock and wasco-head of global residential mortgages for Morgan Stanley, a senior member in its advisory services practice, specializing in financial strategy and risk management for banks and mortgage companies. Mr. Chang is an experiencedglobal financial services executive with substantial experiencefirm, based in corporate finance and mortgage banking.
Vandad Fartaj.London. Before joining Morgan Stanley in September 2006, Mr. Fartaj has been our Senior Managing Director and Chief Investment Officer since September 2018. Prior thereto, he served asSpector was the senior managing director, and chief capital markets officersecondary marketing, at Countrywide, where he was employed from February 2016May 1990 to September 2018August 2006. Mr. Spector holds a B.A. from the University of California, Los Angeles. We believe Mr. Spector is qualified to serve on our Board because of his experience as a member of our executive management team and as chief capital markets officer from February 2013 to February 2016. Mr. Fartaj also has served in a variety of similar executive positions at PNMAC since April 2008. Mr. Fartaj is responsible for all capital markets and investment-related activities, including the development and execution of investment strategies, secondary marketing, hedging activities and capital markets strategies with government-sponsored enterprises. In addition, Mr. Fartaj is responsible for developing and managing relationships with Wall Street broker-dealers and fixed income investors. Prior to joining PNMAC, from November 1999 to April 2008, Mr. Fartaj was employed in a variety of positions at Countrywide Securities Corporation, including managing the strategy and execution of the whole loan conduit. Mr. Fartaj is an experienced executive with broad mortgage banking executive with substantial experienceexpertise in capital markets, mortgage-relatedportfolio investments, and interest rate and credit risk management.management, and capital markets activity that includes pricing, trading and hedging.
Jeffrey P. Grogin.
Board Member Since: 2012
Age: 60
JAMES K. HUNT | Mr. | |
Board Member Since: 2013 Age: 71 Independent Director | ||
Committees: • Compensation • Nominating and Corporate Governance (Chair) |
20 | | 2023 Proxy Statement |
PROPOSAL I – ELECTION OF DIRECTORS |
JONATHON S. JACOBSON | Mr. Jacobson has been a member of our Board since February 2021. Mr. Jacobson is currently the Assistant Head Coach of and Senior Advisor to UNC Charlotte Football and the Founder and non-executive Chairman of HighSage Ventures, a private investment firm formed in 2019 to exclusively manage his family’s assets and those of the One8 Foundation. Mr. Jacobson was the Co-Founder, Chief Investment Officer and Chief Executive Officer of Highfields Capital Management from 1998 until 2021, when it returned all remaining capital to investors. Prior to founding Highfields, he was a senior portfolio manager at Harvard Management Company. Mr. Jacobson serves on the Lone Pine Capital Advisory Board and the Novo Capital Investors International Advisory Committee and is a co-trustee of the One8 Foundation. He is a Lifetime Trustee of the Gilman School in Baltimore, Maryland, where he serves on the Investment Committee. Mr. Jacobson is a former director of iHeartMedia and iHeartCommunications. He is a past Vice Chairman of the Board of Trustees of Brandeis University and formerly chaired the International Board of Trustees of Israel’s Institute for National Security Studies. He also formerly served on the Investment Committee of the Weizmann Global Endowment Management Trust and the Board of Dean’s Advisors at Harvard Business School. Mr. Jacobson received an M.B.A. from Harvard Business School and a B.S. in Economics from the University of Pennsylvania. We believe Mr. Jacobson is qualified to serve on our Board because of his expertise in investing and financial services businesses as well as his prior public company board experience. | |
Board Member Since: 2021 Age: 61 Independent Director | ||
Committees: • Finance • Nominating and Corporate Governance |
DOUG JONES | Mr. Jones has been a member of our Board since March 2023 and has been our
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Board Member Since: 2023 Age: 66 |
PATRICK KINSELLA | Mr. | |
Board Member Since: 2014 Age: 69 Independent Director | ||
Committees: • Audit (Chair) • Related Party Matters • Risk |
| 2023 Proxy Statement | 21 |
PROPOSAL I – ELECTION OF DIRECTORS |
JOSEPH MAZZELLA | Mr. Mazzella has been a member of our Board since our formation in December 2012. Mr. Mazzella retired in March 2017 after serving as the managing director and the general counsel of Highfields, which he joined in 2002. Prior to joining Highfields, Mr. Mazzella was a partner at the law firm of Nutter, McClennen & Fish, L.L.P., in Boston, Massachusetts. Prior to private practice, he was an attorney at the Securities and Exchange Commission from 1978 to 1980, and previously served as a law clerk in the Superior Court of the District of Columbia. Mr. Mazzella has served on multiple public company boards of directors, including Alliant Techsystems, Inc. and Data Transmission Networks Corporation, and he served as chairman of the board of Insurance Auto Auctions, Inc. Mr. Mazzella received a B.A. from City College of New York and a J.D. from Rutgers University School of Law. We believe Mr. Mazzella is qualified to serve on our Board because of his broad experience and strong business and legal backgrounds in the financial services industry. | |
Board Member Since: 2012 Age: 70 Independent Director | ||
Committees: • Nominating and Corporate Governance • Related Party Matters (Chair) |
FARHAD NANJI | Mr. Nanji has been a member of our Board since our formation in December 2012. In December 2016, Mr. Nanji co-founded MFN Partners Management, L.P., a value-oriented investment management firm based in Boston, Massachusetts. Prior thereto, until December 2015, Mr. Nanji served as a managing director of Highfields, where he focused on portfolio investments in distressed securities, restructurings, structured credit and global financial services from 2006. Mr. Nanji received an MBA from Harvard Business School and a B.Com. from McGill University. We believe Mr. Nanji is qualified to serve on our Board because of his expertise in the mortgage and financial services businesses. | |
Board Member Since: 2012 Age: 44 Independent Director | ||
Committees: • Compensation (Chair) |
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PROPOSAL I – ELECTION OF DIRECTORS |
JEFFREY A. PERLOWITZ Independent Lead Director | Mr. Perlowitz has been a member of our Board since February 2019 and our independent lead director since February 2021. He is currently retired. From 1998 until his retirement in 2016, Mr. Perlowitz served as managing director and co-head of global securitized markets at Citigroup and predecessor entities, where he was responsible for sales and trading of residential mortgage loans, commercial mortgages and consumer products. Mr. Perlowitz also currently serves as a director at the CION Ares Diversified Credit Fund. Mr. Perlowitz holds a B.S. in economics and accounting from The State University of New York at Albany. We believe Mr. Perlowitz is qualified to serve on our Board because of his extensive mortgage finance background and expertise in the securitization of residential mortgage loans. | |
Board Member Since: 2019 Age: 66 Independent Director | ||
Committees: • Compensation • Finance • Risk |
LISA M. SHALETT | Ms. Shalett has been a member of our Board since October 2020. Ms. Shalett is a former Goldman Sachs Partner and former Managing Partner at Brookfield Asset Management. Over her 20 years at Goldman Sachs, she held leadership roles in Equities, Global Compliance, Legal and Internal Audit, and Brand Marketing and Digital Strategy. At Brookfield, she was the firm’s first Head of Strategic Innovation. Currently, Ms. Shalett advises growth companies, serves on the boards of AccuWeather, MPower Partners, and FTA C Emerald Acquisition Corp., and is the founder of Extraordinary Women on Boards, a community of women board directors focused on board excellence. Ms. Shalett served on the boards of Brookfield Property Partners from 2015 to 2018, and Bully Pulpit Interactive from 2017 to 2022. She holds a Masters of Business Administration from Harvard Business School and a B.A., summa cum laude, in East Asian Studies from Harvard University. We believe Ms. Shalett is qualified to serve on our Board because of her broad experience in finance, compliance, marketing and strategy in the financial services industry. | |
Board Member Since: 2020 Age: 56 Independent Director | ||
Committees: • Audit • Nominating and Corporate Governance |
| 2023 Proxy Statement | 23 |
PROPOSAL I – ELECTION OF DIRECTORS |
THEODORE W. TOZER | Mr. Tozer has been a member of our Board since August 2017. Mr. Tozer currently serves as a non-resident fellow at the Urban Institute where he works on housing issues. Prior thereto, Mr. Tozer served as the president of the Government National Mortgage Association, or Ginnie Mae, from February 2010 to January 2017 as well as a senior fellow at the Milken Institute’s Center for Financial Markets from June 2017 until January 2022. Before joining Ginnie Mae, Mr. Tozer served as senior vice president of capital markets at National City Mortgage Company. He also has served as a charter member of the National Lender Advisory Boards of both Fannie Mae and Freddie Mac, chairman of the Capital Markets Committee of the Mortgage Bankers Association of America (MBA), and as a member of the Residential Board of Governors of the MBA. Mr. Tozer received a B.S. degree in Accounting and Finance from Indiana University in 1979, and is a Certified Public Accountant (inactive) and a Certified Management Accountant. We believe Mr. Tozer is qualified to serve on our Board because of his numerous years of experience in the mortgage and financial services businesses and his deep understanding of mortgage banking and agency relations. | |
Board Member Since: 2017 Age: 66 Independent Director | ||
Committees: • Audit • Related Party Matters • Risk (Chair) |
EMILY YOUSSOUF | Ms. Youssouf has been a member of our Board since November 2013. Ms. Youssouf has served as a clinical professor at the NYU Schack Institute of Real Estate since 2009. Ms. Youssouf served as vice chair of the New York City Housing Development Corporation from 2011 to 2013 and as a member of its board from 2013 to 2014. Previously, she served as an independent consultant from 2008 to 2011, during which time her clients included Rockefeller Foundation, Washington Square Partners and various real estate investors. Prior thereto, she was a managing director with JPMorgan Securities, Inc., a broker-dealer, from 2007 to 2008, and the president of the NYC Housing Development Corporation from 2003 to 2007. Ms. Youssouf has also held various senior positions at Natlis Settlements, LLC, Credit Suisse First Boston, Daiwa Securities America, Prudential Securities, Merrill Lynch and Standard & Poor’s. Ms. Youssouf currently serves as a board member of numerous organizations, including the Unified JP Morgan Funds where she is a board member of the ETF and the Fixed Income Committees, the NYC Health and Hospitals Corporation, the NYC School Construction Authority, the NYS Job Development Authority and the TransitCenter. Ms. Youssouf is a graduate of Wagner College and holds an M.A. in Urban Affairs and Policy Analysis from The New School for Social Research. We believe Ms. Youssouf is qualified to serve on our Board because of her numerous years of experience in the investment banking, finance and real estate industries and deep understanding of the housing market. | |
Board Member Since: 2013 Age: 71 Independent Director | ||
Committees: • Audit • Finance (Chair) |
24 | | 2023 Proxy Statement |
PROPOSAL I – ELECTION OF DIRECTORS |
Non-Management Director Compensation
The Compensation Committee reviews and recommends to our Board the form and level of director compensation and seeks outside advice from our independent compensation consultants on market practices when changes are contemplated. Director compensation was reviewed in Fiscal 2022 by our independent compensation consultant relative to peer companies and selected companies within the S&P 500 and Russell 3000 indexes and, in connection with such review, our independent compensation consultant recommended that an increase in compensation may be warranted based on market studies, however, our Compensation Committee recommended no changes in non-management director compensation from the prior year.
The compensation program for our non-management directors is intended to be competitive and fair so that we can attract the best talent to our Board, and recognize the time and effort required of a director given the size and complexity of our operations. In addition to cash compensation, we provide equity grants and have stock ownership guidelines to align our directors’ interests with our stockholders’ interests and to motivate our directors to focus on our long-term growth and success. Mr. Spector, our Chairman and Chief Executive Officer, and Mr. Jones, our President and Chief Mortgage Banking Officer, are not paid any fees for serving on our Board or for attending Board meetings.
The following table summarizes the annual retainer fees of our non-management directors as of the end of Fiscal 2022:
Base Annual Retainer, all non-management directors | $ | 80,000 | ||
Additional Base Annual Retainer, independent lead director | $ | 30,000 | ||
Base Annual Retainer, all non-management committee members: |
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Audit Committee | $ | 10,000 | ||
Compensation Committee | $ | 7,750 | ||
Finance Committee | $ | 7,750 | ||
Nominating and Corporate Governance Committee | $ | 7,750 | ||
Related Party Matters Committee | $ | 7,750 | ||
Risk Committee | $ | 10,000 | ||
Additional Annual Retainer, all committee chairs: |
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Audit Committee | $ | 12,000 | ||
Compensation Committee | $ | 10,750 | ||
Finance Committee | $ | 10,750 | ||
Nominating and Corporate Governance Committee | $ | 10,750 | ||
Related Party Matters Committee | $ | 10,750 | ||
Risk Committee | $ | 12,000 |
Our non-management directors are also eligible to receive certain types of equity-based awards under our Equity Plans that vest on the first anniversary of the grant date. The non-management director annual RSU grant in Fiscal 2022 was $145,000. Grants to newly elected or appointed non-management directors are prorated for the remaining portion of the annual equity award cycle. During Fiscal 2022, each of Messrs. Hunt, Jacobson, Kinsella, Mazzella, Nanji, Perlowitz, and Tozer and Mmes. McCallion, Shalett and Youssouf received a grant of 2,539 time-based restricted stock units, or RSUs, for their annual grant, in each case with a grant date fair value of $145,000. All members of our Board will also be reimbursed for their reasonable out of pocket costs and expenses in attending all meetings of our Board and its committees and certain other Company-related functions.
Policy Regarding Receipt of Shares in Lieu of Cash Director Fees. During 2014, the Board adopted a policy whereby non-management director fees may be paid in cash or fully vested shares of common stock at the election of each non-management director. The number of shares of common stock delivered in lieu of any cash payment of director fees shall be equivalent in value to the amount of forgone director fees divided by the market value (as defined in our Equity Plans) of the common stock on the last market trading day preceding the day on which the director fees otherwise would have been paid in cash to the non-management director, rounded down to the nearest whole share.
Change of Control. Upon a change of control (as defined in our Equity Plans), all outstanding equity awards granted to non-management directors will be assumed, or substantially equivalent rights will be substituted, or the awards otherwise will be continued in a manner satisfactory to the Compensation Committee, by the acquiring or succeeding entity or its affiliate.
| 2023 Proxy Statement | 25 |
PROPOSAL I – ELECTION OF DIRECTORS |
2022 Director Compensation Table
The table below summarizes the compensation earned by each non-management director who served on our Board for Fiscal 2022.
Name(1) | Fees Earned or Paid in Cash ($)(2) | Stock Awards ($)(2)(3) | Other ($) | Total ($) | ||||||||||||
James K. Hunt | 106,250 | 145,000 | — | 251,250 | ||||||||||||
Jonathon S. Jacobson | 95,500 | 145,000 | — | 240,500 | ||||||||||||
Patrick Kinsella | 119,750 | 145,000 | — | 264,750 | ||||||||||||
Joseph Mazzella | 106,250 | 145,000 | — | 251,250 | ||||||||||||
Anne D. McCallion | 97,750 | 145,000 | — | 242,750 | ||||||||||||
Farhad Nanji | 98,500 | 145,000 | — | 243,500 | ||||||||||||
Jeffrey A. Perlowitz | 135,500 | 145,000 | — | 280,500 | ||||||||||||
Lisa M. Shalett | 97,750 | 145,000 | — | 242,750 | ||||||||||||
Theodore W. Tozer | 119,750 | 145,000 | 458 | 265,208 | ||||||||||||
Emily Youssouf | 108,500 | 145,000 | — | 253,500 |
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(1) | Mr. Spector, our Chairman and Chief Executive Officer, and Mr. Jones, our President and Chief Mortgage Banking Officer, are not included in this table as they are executive officers of our Company and do not receive any additional compensation for their board services. The compensation that was paid to, or earned by, Messrs. Spector and Jones in Fiscal 2022 is discussed below under “—2022 Summary Compensation Table” and “—Narrative to 2022 Summary Compensation Table.” |
(2) | Reflects fees earned by the director in Fiscal 2022, whether or not paid in such year. During all or part of Fiscal 2022, each of Messrs. Mazzella and Nanji elected to receive their respective director fees, in the amount of $106,250 and $98,500 in fully vested shares of common stock in lieu of cash. |
(3) | Reflects the grant date fair value, as determined in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, Compensation—Stock Compensation, or ASC 718, of RSUs granted to Messrs. Hunt, Jacobson, Kinsella, Mazzella, Nanji, Perlowitz, Tozer and Mmes. McCallion, Shalett and Youssouf on February 23, 2022. Such aggregate grant date fair values do not take into account any estimated forfeitures related to service vesting conditions. For more information on the assumptions used in our estimates of value, please refer to Note 20—Stock-based Compensation in our Annual Report on Form 10-K filed on February 22, 2023. The amounts reported in this column reflect the accounting cost for these RSUs and do not correspond to the actual economic value that may be received by the directors upon vesting and/or settlement of the RSUs. As of December 31, 2022, each of our non-management directors held an aggregate number of RSUs in the following amounts: Messrs. Hunt, Jacobson, Kinsella, Mazzella, Nanji, Perlowitz, Tozer and Mmes. McCallion, Shalett and Youssouf – 2,539. |
Non-Management Director Stock Ownership Guidelines
Non-management directors are subject to robust stock ownership guidelines whereby each such director is expected to hold common stock and unvested RSUs with an aggregate market value equal to at least five times the base annual retainer. Non-management directors are expected to meet the ownership guidelines within five years from the date of appointment or election to the Board. Each non-management director who has been a member of our Board for five years or more is in compliance with our stock ownership guidelines. The Nominating and Corporate Governance Committee will annually review each director’s progress toward meeting the stock ownership guidelines based on share ownership calculated as of the average closing share price over the prior year.
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26 | | 2023 Proxy Statement |
AUDIT MATTERS |
Audit Matters
Report of the Audit Committee
The Board of Directors has determined that all of the members of the Audit Committee meet the independence and experience requirements of The New York Stock Exchange, or the NYSE, and that Mr. Kinsella is an “audit committee financial expert” within the meaning of the applicable rules of the Securities and Exchange Commission, or the SEC, and the NYSE.
The Audit Committee met nine times in 2022. The Audit Committee’s agenda is established by the Chair of the Audit Committee. The Audit Committee engaged Deloitte & Touche LLP, or Deloitte, as the Company’s independent registered public accounting firm and reviewed with the Company’s Chief Financial Officer and Deloitte the overall audit scope and plans, the results of the external audit examination, evaluations by the independent registered public accounting firm of the Company’s internal controls and the quality of its financial reporting.
The Audit Committee has reviewed and discussed the audited financial statements with management, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. The Audit Committee also discussed with Deloitte other matters required to be discussed by a registered public accounting firm with the Audit Committee under applicable standards of the Public Company Accounting Oversight Board, or the PCAOB. The Audit Committee received and discussed with Deloitte its annual written report on its independence from the Company’s and its management, which is made pursuant to applicable requirements of the PCAOB and considered with Deloitte whether the provision of non-audit services is compatible with its independence.
In performing all of these functions, the Audit Committee acts only in an oversight capacity and, necessarily, in its oversight role, the Audit Committee relies on the work and assurances of the Company’s management, which has the primary responsibility for financial statements and reports, and of Deloitte, which, in its reports, expresses an opinion on the conformity of the Company’s annual financial statements to generally accepted accounting principles and on the effectiveness of its internal control over financial reporting as of year-end.
In reliance on these reviews and discussions, and the reports of Deloitte, the Audit Committee recommended to the Board of Directors, and the Board of Directors approved, the inclusion of the Company’s audited financial statements in its Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 22, 2023.
The foregoing report has been furnished by the current members of the Audit Committee:
Patrick Kinsella, Chair
Lisa M. Shalett
Theodore W. Tozer
Emily Youssouf
| 2023 Proxy Statement | 27 |
AUDIT MATTERS |
Relationship with Independent Registered Public Accounting Firm
In addition to performing the audits of our financial statements in Fiscal 2022 and Fiscal 2021, Deloitte provided other audit-related and non-audit-related services for us during these years.
Fees to Registered Public Accounting Firm for 2022 and 2021
The following table shows the fees billed by Deloitte for the audit and other services it provided to us in respect of Fiscal 2022 and Fiscal 2021.
| 2022 | 2021 | ||||||
Audit Fees(1) | $ | 2,345,241 | $ | 2,243,063 | ||||
Audit-Related Fees(2) | 666,526 | 891,760 | ||||||
Tax Fees(3) | — | 32,240 | ||||||
All Other Fees(4) | 180,000 | 300,000 | ||||||
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Total | $ | 3,191,767 | $ | 3,467,063 |
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(1) | Audit Fees consist of fees for professional services rendered for the annual audit and reviews of the consolidated financial statements included in our quarterly reports on Form 10-Q and the audit of the annual financial statements of certain of our subsidiaries. |
(2) | Audit-Related Fees consist of fees for professional services provided in connection with the issuance of comfort letters and consents in connection with SEC filings and other compliance related testing. |
(3) | Tax Fees consist of fees for professional services rendered for tax advisory services. |
(4) | All Other Fees consist of certain agreed upon procedures related to certain of our financing transactions. |
Pre-Approval Policies and Procedures
The Audit Committee approved all services performed by Deloitte during Fiscal 2022 in accordance with applicable SEC requirements. The Audit Committee has also pre-approved the use of Deloitte for certain audit-related and non-audit-related services, setting a specific limit on the amount of such services that we may obtain from Deloitte before additional approval is necessary. In addition, the Audit Committee has delegated to the chair of the Audit Committee the authority to approve both audit-related and non-audit-related services provided by Deloitte, provided that the chair will present any decision to the full Audit Committee for ratification at its next scheduled meeting.
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28 | | 2023 Proxy Statement |
PROPOSAL II – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
PROPOSAL II – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee is responsible for the appointment, compensation, retention and oversight of the independent registered public accounting firm retained to audit our financial statements. The Audit Committee conducts a comprehensive annual evaluation of the independent registered public accounting firm’s qualifications, performance and independence, and takes into account the insight provided to the Audit Committee and the quality of information provided on accounting issues, auditing issues and regulatory developments. The Audit Committee also considers whether, in order to ensure continuing auditor independence, there should be periodic rotation of the independent registered public accounting firm, taking into consideration the advisability and potential costs and impact of selecting a different firm.
The Audit Committee appointed Deloitte to serve as our independent registered public accounting firm for the 2023 fiscal year. Deloitte has served as our independent registered public accounting firm since 2008.
The Audit Committee exercises sole authority to approve all audit engagement fees and terms associated with the retention of Deloitte. In addition to ensuring the regular rotation of the lead audit partner as required by law, the Audit Committee is involved in the selection of, and reviews and evaluates, the lead audit partner.
The Audit Committee evaluated Deloitte’s institutional knowledge and experience, quality of service, sufficiency of resources and quality of the team’s communications and interactions as well as the team’s objectivity and professionalism. As a result, the Audit Committee believes that the continued retention of Deloitte to serve as our independent registered public accounting firm is in the best interests of the Company and its stockholders. Accordingly, we are asking stockholders to ratify the appointment of Deloitte.
The Board is submitting the appointment of Deloitte to our stockholders for ratification because we value our stockholders’ views on this appointment and as a matter of good corporate governance. In the event that stockholders fail to ratify the appointment, it will be considered a recommendation to the Board and the Audit Committee to consider the selection of a different firm. Even if the appointment is ratified, the Audit Committee may in its discretion select 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 and its stockholders.
Representatives of Deloitte are expected to be present at the Annual Meeting and will have an opportunity to make a statement, if they so desire, and will be available to respond to appropriate questions.
Ratification of the appointment of Deloitte as our independent registered public accounting firm requires the affirmative vote of a majority of the votes cast on this proposal. Abstentions and broker non-votes, if any, will not affect the approval of this proposal. For additional information on voting, see the section of this Proxy Statement titled “Information Concerning Voting and Solicitation” including the section therein titled “—What stockholder approvals are required to approve the proposals?”
OUR BOARD OF DIRECTORS AND OUR AUDIT COMMITTEE UNANIMOUSLY RECOMMEND A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2023.
| 2023 Proxy Statement | 29 |
SECURITY OWNERSHIP INFORMATION |
Security Ownership Information
Security Ownership of Executive Officers and Directors
The following table sets forth certain information regarding the beneficial ownership of shares of common stock by (1) each of our named executive officers, (2) each of our current directors and director nominees, and (3) all of our current directors and executive officers as a group as of March 31, 2023. Unless otherwise indicated, all shares are owned directly and the indicated person has sole voting and investment power.
Common Stock Beneficially Owned(1) | ||||||||||
Number | Percentage | |||||||||
Executive Officers and Directors | ||||||||||
David A. Spector(2) | 1,693,456 | 3.3 | % | |||||||
Doug Jones(3) | 893,070 | 1.8 | % | |||||||
Vandad Fartaj(4) | 1,191,774 | 2.4 | % | |||||||
James Follette(5) | 59,838 | * | ||||||||
Daniel S. Perotti(6) | 469,225 | * | ||||||||
James K. Hunt(7) | 64,402 | * | ||||||||
Jonathon S. Jacobson(8) | 224,442 | * | ||||||||
Patrick Kinsella | 34,209 | * | ||||||||
Joseph Mazzella(9) | 312,931 | * | ||||||||
Anne D. McCallion(10) | 270,241 | * | ||||||||
Farhad Nanji(11) | 4,707,969 | 9.4 | % | |||||||
Jeffrey A. Perlowitz | 12,219 | * | ||||||||
Lisa M. Shalett | 5,354 | * | ||||||||
Theodore W. Tozer | 19,247 | * | ||||||||
Emily Youssouf | 30,866 | * | ||||||||
Current Executive Officers and Directors as a group (18 persons) | 8,979,596 | 17.4 | % |
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* | Represents less than 1.0%. | |
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(1) |
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(2) | Includes 435,604 shares of common stock owned by ST Family Investment Company LLC and 657,822 shares underlying stock options that |
(3) | Includes 505,000 shares of common stock held by GR Family Investments, 30,000 shares of common stock held by Jones A LLC, 30,000 shares of common stock held by Jones B LLC, 17,477 shares held by the Jones Family Trust and 290,773 shares underlying stock options that are exercisable on or before May 30, 2023. |
(4) | Includes 828,906 shares of common stock held by the Fartaj Family Trust and 253,548 shares underlying stock options that are exercisable on or before May 30, 2023. Mr. Fartaj ceased serving as the Company’s Senior Managing Director and Chief Investment Officer on March 3, 2023. |
(5) | Includes 59,339 shares underlying stock options that are exercisable on or before May 30, 2023. |
(6) | Includes 288,297 shares of common stock held by the Perotti Family Trust and 164,949 shares underlying stock options that are exercisable on or before May 30, 2023. |
(7) | Includes 36,821 shares of common stock held by the Hunt Living Trust 1994. |
(8) | Includes 219,760 shares of common stock owned by Highline Investments LLC. |
(9) | Includes 177,031 shares of common stock owned by the Mazzella Family Irrevocable Trust. Mr. Mazzella is not a trustee of that entity, however, and disclaims beneficial ownership of the common stock held by that entity. |
(10) | Includes 148,176 shares of common stock held by the McCallion Family Trust and 119,526 shares underlying stock options that are exercisable on or before May 30, 2023. |
(11) | Includes 4,531,792 shares of common stock held by MFN Partners, LP, or MFN Partners. MFN Partners GP, LLC, or MFN GP, is the general partner of MFN Partners. MFN Partners Management, LP, or MFN Management, is the investment adviser to MFN Partners. MFN Partners Management, LLC, or MFN LLC, is the general partner of MFN Management. Mr. Nanji is a managing member of MFN GP and MFN LLC but disclaims beneficial ownership of the securities held by MFN Partners, except to the extent of his pecuniary interest, if any, therein. |
30 | | 2023 Proxy Statement |
SECURITY OWNERSHIP INFORMATION |
Security Ownership of Other Beneficial Owners
The following table sets forth certain information relating to the beneficial ownership of shares of our common stock by each person or entity known to our Company to be the beneficial owner of more than five percent of our shares of our common stock, based on our review of publicly available statements of beneficial ownership filed with the SEC. Beneficial ownership reflected in the table below is based on 50,147,288 shares of common stock outstanding as of March 31, 2023 and review of publicly available statements of beneficial ownership filed with the SEC.
Common Stock Beneficially Owned | ||||||||||
Number | Percentage | |||||||||
5% Stockholders | ||||||||||
HC Partners LLC(1) 200 Clarendon Street, 59th Floor Boston, Massachusetts 02116 | 15,741,237 | 31.4 | % | |||||||
T. Rowe Price Investment Management, Inc.(2) 101 E. Pratt Street Baltimore, Maryland 21201 | 4,992,531 | 10.0 | % | |||||||
MFN Partners, LP(3) 222 Berkeley Street, 13th Floor Boston, Massachusetts 02116 | 4,531,791 | 9.0 | % | |||||||
Senvest Management, LLC(4) 540 Madison Avenue, 32nd Floor New York, New York 10022 | 2,524,675 | 5.0 | % |
(1) | As reported in |
(2) |
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(3) | As reported in Amendment No. 3 to Schedule 13D filed with the SEC on August 8, 2022, MFN Partners, LP disclosed that it had shared voting power and shared dispositive power over 4,531,791 shares of common stock. MFN Partners GP, LLC, or MFN GP, is the general partner of MFN Partners. MFN Partners Management, LP, or MFN Management, is the investment adviser to MFN Partners. MFN Partners Management, LLC, or MFN LLC, is the general partner of MFN Management. Mr. Nanji is a managing member of MFN GP and MFN LLC but disclaims beneficial ownership of the securities held by MFN Partners, except to the extent of his pecuniary interest, if any, therein. |
(4) | As reported in Schedule 13G filed with the SEC on January 7, 2023, Senvest Management, LLC disclosed that it has shared voting power and shared dispositive power over 2,524,675 shares of common stock as of December 31, 2022. The reported securities are held in the account of Senvest Master Fund, LP, of which Senvest Management, LLC is the investment manager. |
| 2023 Proxy Statement | 31 |
EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION |
Executive Officers and Executive Compensation
Our Executive Officers
The following sets forth certain information with respect to our current executive officers:
Name
| Age | Position Held with the Company | ||
David A. Spector | 60 | Chairman and Chief Executive | ||
Steven R. Bailey | 62 | Senior Managing Director and Chief Servicing Officer | ||
William Chang | 45 | Senior Managing Director and Chief Capital Markets Officer | ||
| 51 | Senior Managing Director and Chief Mortgage Operations Officer | ||
Doug Jones | 66 | Director, President and Chief Mortgage Banking Officer | ||
Daniel S. Perotti | 42 | Senior Managing Director and Chief Financial Officer | ||
Derek W. Stark | 55 | Senior Managing Director, Chief Legal Officer and Secretary | ||
Don White | 53 | Senior Managing Director and Chief Risk Officer |
Biographical information for Mr. Spector and Mr. Jones is provided above under the caption “Proposal I - Election of Directors.” Certain biographical information for or other executive officers is set forth below.
Steven R. Bailey. Mr. Bailey, age 62, has been Senior Managing Director and Chief Servicing Officer since March 2022. Mr. Bailey previously served as our Chief Mortgage Operations Officer from February 2016 to March 2022 among other executive positions at PNMAC since 2010. Mr. Bailey is responsible for directing loan servicing operations, setting and managing performance goals for all aspects of the servicing and loan administration functions and oversight of our portfolio strategy groups. Prior to joining PNMAC, Mr. Bailey served in a variety of executive and leadership positions within Countrywide Financial Corporation (and Bank of America Corporation, as its successor) from 1985 until 2010. Mr. Bailey earned a bachelor’s degree in Music from the University of Southern California. Mr. Bailey is an experienced mortgage banking executive with significant experience in loan servicing and mortgage administration.
William Chang. Mr. Chang, age 45, has been our Senior Managing Director and Chief Capital Markets Officer since March 2023. Prior thereto, he served as our Senior Managing Director and Deputy Chief Investment Officer from January 2021 to March 2023 and as Managing Director, Capital Markets from June 2018 to January 2021. Mr. Chang also has served in a variety of similar executive positions at PNMAC since September 2012. Mr. Chang is responsible for all capital markets and investment-related activities, including the development and execution of investment strategies, secondary marketing, hedging activities and capital markets strategies with government-sponsored enterprises. In addition, Mr. Chang is responsible for developing and managing relationships with Wall Street broker-dealers and fixed income investors. Prior to joining PNMAC, Mr. Chang served in the Mergers & Acquisitions Group at Credit Suisse. Mr. Chang earned a B.A. in Political Economy from Williams College. Mr. Chang is an experienced mortgage banking executive with substantial experience in capital markets, mortgage-related investments and risk management.
James Follette. Mr. Follette, age 51, has been Senior Managing Director and Chief Mortgage Operations Officer since October 2022. Mr. Follette previously served as Senior Managing Director and Chief Mortgage Fulfillment Officer from February 2018 to October 2022 and Managing Director, Mortgage Fulfillment from February 2016 to February 2018 among other executive positions at PNMAC since 2011. Mr. Follette is responsible for mortgage fulfillment and servicing operations as well as the advancement of risk mitigation and technology strategies for the Company’s mortgage production channels. Prior to joining PFSI and its affiliates, Mr. Follette worked in several executive positions, including managing director, risk management, at Countrywide Financial Corporation (and Bank of America Corporation, as its successor) from 2003 until 2011, where he led operations and risk management and was responsible for all aspects of operational management, transactional risk management and business development. Mr. Follette earned a B.B.A. in Accounting from the University of Notre Dame and an M.B.A. in Finance from the University of Chicago. Mr. Follette is an experienced mortgage banking executive with significant experience in risk mitigation and technology strategies across various mortgage lending channels.
Daniel S. Perotti. Mr. Perotti, age 42, has been our Senior Managing Director and Chief Financial Officer since January 1, 2021. Prior thereto, he served as the Company’s Deputy Chief Financial Officer from January 2017 to December 2020, and served as the Company’s Chief Asset and Liability Management Officer among other positions at the Company and PNMAC since 2008. Mr. Perotti is responsible for
32 | | 2023 Proxy Statement |
EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION |
overseeing the Company’s accounting and financial reporting, treasury operations, investor relations, financial planning and analysis, valuation of investment assets, tax analysis, and Sarbanes-Oxley program. Prior to joining PNMAC, Mr. Perotti was employed at BlackRock, Inc. and served as the head of the quantitative research team within its BlackRock Solutions business as well as in various other roles at BlackRock, Inc. from 2002 to 2008. Mr. Perotti earned a B.A. in economics and computer science from Columbia University. Mr. Perotti is an experienced financial services executive with substantial experience in corporate finance and mortgage banking.
Derek W. Stark. Mr. Stark, age 55, has been our Senior Managing Director, Chief Legal Officer and Secretary since February 2018. Mr. Stark previously served as our Managing Director, General Counsel and Secretary among other executive positions at PNMAC since September 2009. Mr. Stark is responsible for overseeing all of the company’s legal management, including securities, corporate governance, corporate transactions, litigation and regulatory compliance, and he serves as the primary legal contact for the Company’s Board. Prior to joining PNMAC, and after leaving private practice, Mr. Stark served in a variety of executive positions, including Executive Vice President and Deputy General Counsel, from 1999 to 2008, at Countrywide Financial Corporation. Mr. Stark earned a B.A. in Political Science from the University of California, Berkeley, and a J.D. from Loyola Law School, Los Angeles. Mr. Stark is an experienced legal executive with significant experience in corporate and securities law and mortgage banking.
Don White. Mr. White, age 53 has been our Senior Managing Director and Chief Risk Officer since January 2022. Mr. White previously served as our Senior Managing Director and Chief Credit Officer among other executive positions at PNMAC since 2013. Mr. White is responsible for enterprise risk management, credit risk management, and mortgage compliance and administratively responsible for internal audit. Prior to joining PNMAC, Mr. White served as SVP of Mortgage Risk Management at JP Morgan Chase from 2008 to 2013 and Executive Vice President of Portfolio Credit Risk Management at Countrywide Financial Corporation from 2004 to 2008. Mr. White earned a B.A. in Mathematics from the University of Virginia, and an M.B.A. from the University of Maryland, Smith School of Business. Mr. White is an experienced mortgage banking executive with significant experience in risk and credit management and compliance.
| 2023 Proxy Statement | 33 |
COMPENSATION COMMITTEE REPORT |
Compensation Committee Report
Our Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K and, based on such review and discussions, the Compensation Committee recommended that our Board of Directors include the Compensation Discussion and Analysis in this Proxy Statement and our 2022 Annual Report on Form 10-K.
The Compensation Committee
Farhad Nanji, Chair
James K. Hunt
Jeffrey A. Perlowitz
34 | | 2023 Proxy Statement |
COMPENSATION DISCUSSION AND ANALYSIS |
Compensation Discussion and Analysis
Table of Contents
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Trading Controls and Anti-Pledging and Anti-Hedging Policies | 50 | |
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This compensation discussion and analysis provides a detailed description of our executive compensation programs and policies, the material compensation decisions made under such programs and policies with respect to our named executive officers, and the material factors that were considered in making those decisions. This narrative discussion should be read together with the compensation tables and related disclosures set forth below.
2022 Named Executive Officers
Our “named executive officers” consisting of our Chief Executive Officer, our Chief Financial Officer and our next three most highly compensated executive officers during Fiscal 2022, were:
• | David A. Spector, Chairman and Chief Executive Officer; |
• | Doug Jones, Director, President and Chief Mortgage Banking Officer; |
• | Vandad Fartaj, Former Senior Managing Director and Chief Investment |
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• | James Follette, Senior Managing Director and Chief Mortgage Operations Officer. |
| 2023 Proxy Statement | 35 |
| COMPENSATION DISCUSSION AND ANALYSIS |
Executive Summary of 2022 Compensation
Our Executive Compensation
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•Pay For Performance - Maintain apay-for-performance culture
•Stockholder Alignment - Align the interests of our executives with those of our
•Market Competitive - Assess executive compensation against market compensation benchmarks prepared by our independent board consultant •Employee Retention - Facilitate the attraction, motivation and retention of highly talented
•Support Strategy - Encourage
Performance-Based Compensation and Incentives We have three primary elements of total compensation: base salary, annual performance-based incentives and long-term equity awards. CEO and other named executive officers total compensation was down 29% in 2022 as compared to 2021 primarily due to lower annual performance-based incentive awards. The Compensation Committee’s goal has been to increase equity as a percentage of each named executive officer’s total compensation. This is consistent with the Compensation Committee’s long term goal of increasing equity as a percentage of total compensation to align with its stockholders. As a result, the overall target equity percentage in Fiscal 2022 has increased for our CEO and other named executive officers as compared to the prior years. Fiscal 2022 CEO performance-based compensation was 89% and equity incentive compensation was 48%, in each case as a percentage of total compensation: Fiscal 2022 performance-based compensation was 86% and equity incentive compensation was 41%, in each case as a percentage of total compensation for our other named executive officers:
Executive Compensation Best Practices Our compensation governance best practices are summarized as follows:
2022 Compensation Program Overview Our executive compensation program consists of three primary elements: annual base salary, annual performance-based incentives and long-term equity awards. The following table provides a snapshot of those primary elements and describes why each element is provided.
Our named executive officers also receive other benefits, which may include health, dental and vision insurance; vacation, holidays and sick days; life, accidental death and dismemberment and long-term disability insurance; and 401(k) plan matching. In addition, certain of our named executive officers receive minimal perquisites including an automobile allowance and payment for tax advice and financial counseling. We tailor our executive compensation program each year to provide what we consider to be a proper balance of these basic elements. The executive compensation program is weighted towards annual performance-based incentives and long-term equity awards, rather than toward annual base salaries, in order to ensure that a significant portion of compensation is tied to Company and stock performance and to maximize retention. We continue to assess the compensation elements for our executive officers, including our named executive officers, and are committed to ensuring that our executive compensation program remains generally consistent with market practices and focused on long-term performance.
Stakeholder Engagement and Executive Compensation Design At our 2022 annual meeting of stockholders approximately 98.7% of the total stockholder votes cast voted “For” our Say-On-Pay proposal. By contrast, at our 2019, 2020 and 2021 annual meeting of stockholders, our Say-On-Pay proposal only received the affirmative vote of approximately 77.7%, 65.8% and 92.8% of the total stockholder votes cast, respectively. Positive Say-On-Pay voting trends in the below table reflects our past compensation enhancements to address investor concerns, including adopting an annual performance-based incentive plan with objective payouts, increasing the proportion of equity incentives to total compensation as well as our commitment to maintain a pay-for-performance culture that aligns with our stockholder interests. Following our 2022 stockholder meeting, the Compensation Committee and Board closely reviewed the stockholder vote on our Say-On-Pay proposal and the differences in voting results between our 2022 annual meeting results and prior years, including the recommendations made by certain proxy advisory firms. 2022 Stakeholder Interactions We have established and maintained a robust investor relations program that includes constant and proactive outreach to and dialogue with our stockholders, bondholders, the rating agencies, and other stakeholders. Members of our executive management team and members of our investor relations team constantly meet with current and prospective investors in person at office meetings, conferences and non-deal roadshows, and virtually via fireside chats or virtual meetings. Not only do these meetings enable investors to better understand our businesses and the mortgage industry in general, but they provide us with valuable feedback and insights, which are in turn, presented to and considered by the Company’s Board.
Transparency is important: In addition to required SEC filings, earnings webcasts and press releases, we strive to publish in a timely fashion materials that effectively illustrate the drivers of our financial performance. This includes earnings presentations and supplemental financial schedules, which can be found on our corporate website at pfsi.pennymac.com. Consistent messaging: Regardless of whether the stakeholder is a prospective or current bondholder or stockholder, rating agency or ESG-focused institution, we strive to tell a consistent story, adhering to our founding principles of being Accountable, Reliable and Ethical (A.R.E.). What We Heard From Stakeholders
Compensation Decisions Made in Fiscal 2022 In making compensation decisions for Fiscal 2022, the Compensation Committee considered the 2022 Say-On-Paynon-binding advisory vote. With the assistance of its independent compensation consultant, the Compensation Committee also considers additional factors, which are summarized below. 2022 Annual Base Salaries In setting annual base salaries, the Compensation Committee generally considers benchmarking data derived from a review of the proxy statement disclosures of our peer group, and various survey sources. The Compensation Committee uses the data from these market surveys to ensure that it establishes reliable points of reference to determine whether and to what extent it is establishing competitive levels of compensation for our named executive officers. In connection with the annual compensation review in February 2022, the Compensation Committee reviewed and approved the following annual base salaries of our named executive officers:
The Compensation Committee believed that these annual base salaries were appropriate given the competitive market for their services, as well as their individual performances and strong leadership skills.
The annual base salary for Mr. Perotti remained the same and ranked below the median of the annual base salaries paid for comparable positions at peer companies.
2022 Annual Performance-Based Incentives Fiscal 2022 Performance-Based Targets We believe that our executive compensation program objectives have resulted in decisions regarding executive compensation that have appropriately encouraged growth in our businesses and the achievement of financial goals, thus benefiting our stockholders and generating long-term stockholder value. To determine annual performance-based
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Based on the overall assessment of these factors and recommendations made by the Executive Chairman,
The Fiscal 2022 performance-based incentive program has a performance component equal to 70% of the annual target incentive based on achieving ROE and a strategic award component equal to 30% of the annual target incentive based on individual strategic objectives established by the Compensation Committee in consultation with senior management. For Fiscal 2022, the Compensation Committee approved the following annual target incentives for the named executive officers:
Fiscal 2022 Annual Target Incentive | ||
David A. Spector | $3,625,000 | |
Doug Jones | $2,500,000 | |
Vandad Fartaj | $1,500,000 | |
Daniel S. Perotti | $1,250,000 | |
James Follette | $ 925,000 |
Each named executive officer’s target annual incentive was contingent on meeting the financial goals in the below table. The failure to meet the minimum ROE financial performance threshold would result in no ROE incentive payout, while exceeding the ROE financial performance target would result in incentive payouts over target, subject to a maximum payout cap of 300% for the financial performance component. The total maximum annual incentive payable in Fiscal 2022 was 255% of target assuming all goals were achieved at maximum.
Annual Incentive Objective | Annual Incentive Weighting% | At or Below Threshold | Between Threshold and Target | Target Performance | Between Target And Maximum | Maximum | ||||||||
ROE
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70%
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ROE = ≤ 5% Payout = 0%
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ROE = 7.5% Payout = 37.5%
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ROE = 10% Payout = 75%
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ROE = 15% Payout = 100%
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ROE = 20% Payout = 200%
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ROE = 30% Payout = 300%
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Strategic*
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30%
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37.5%
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75%
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100%
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125%
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150%
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Payout Percentage
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100%
| 0%
| 37.5%
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75%
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100%
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177.5%
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255%
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* | Actual results could vary as the two goals are determined independently. Payout levels interpolated between defined performance levels. |
Fiscal 2022 Performance-Based Actual Results
In Fiscal 2022 management delivered strong financial performance in a rising interest rate environment including net income of $476 million and a ROE of 13.8%. The Fiscal 2022 annual performance-based incentives were earned based on the following actual performance:
Performance Component | Performance Target |
% of |
Actual |
Actual Payout Percentage | ||||
ROE
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ROE = 15% Payout = 100%
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70%
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13.8%
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93%
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Strategic
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100%
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30%
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See following paragraph
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28% - 150%
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Payout Percentage
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100%
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100%
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See following paragraph
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73% - 110%
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| 2023 Proxy Statement | 43 |
COMPENSATION DISCUSSION AND ANALYSIS |
With respect to the portion of the annual target incentive subject to individual strategic objectives, our Compensation Committee considered a variety of factors when determining whether such objectives were achieved, including, but not limited to: (1) the delivery of strong financial and operational results during an increasing interest rate and lower loan production environment, (2) successfully navigating the continuing impact of the COVID-19 pandemic and ongoing regulatory requirements such as the CARES Act, (3) the implementation of initiatives to reduce operational expenses for a smaller loan origination and refinancing market, (4) production and servicing innovations and internal measures to increase operational efficiency, (5) the identification and development of new investment opportunities through the Company’s investment management business, and (6) positive corporate sustainability and human capital performance.
The following summarizes the actual Fiscal 2022 annual performance-based incentives:
Name
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Actual
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Actual
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David A. Spector | 110% | $3,980,000 | ||||||||
Doug Jones | 110% | $2,750,000 | ||||||||
Vandad Fartaj(2) | 73% | $1,100,000 | ||||||||
Daniel S. Perotti | 110% | $1,375,000 | ||||||||
James Follette | 105% | $ 975,000 |
(1) | Amounts may not recalculate exactly from the performance based actual results due to rounding. |
(2) | With respect to Mr. Fartaj, the amount represents the annual performance-based
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Based on the overall assessment of annual performance and the Chairman’s recommendations, the Compensation Committee approved the performance-based incentive amounts for Messrs. Jones, Fartaj, Perotti and Follette. In addition, based on the factors above, the Compensation Committee also approved the annual performance-based incentives for Mr. Spector.
2022 Long-Term Equity Awards
For Fiscal 2022, the Compensation Committee sought to balance the long term equity incentive percentage of each named executive officers’ total compensation with a mix of performance-based RSUs, time-based RSUs and stock options. In determining the equity awards granted in Fiscal 2022, the Compensation Committee considered, among other factors, the recommendations of management and various reports provided by our independent compensation consultant. The Compensation Committee also considered (i) the value of the proposed equity awards; (ii) the historical equity awards previously granted to each named executive officer and the corresponding values at the time of the consideration of the 2022 grants; (iii) the value of share grants to our named executive officers providing comparable services at our industry and sector peers; (iv) the anticipated contribution by the named executive officer in future fiscal years, taking into account the role, responsibility and scope of each position and the Compensation Committee’s perception regarding the quality of the services provided by each named executive officer in carrying out those responsibilities; (v) our financial and operating performance in the past year and our perceived future prospects; and (vi) the mix of equity awards to total compensation; and (vii) general market practices. The Compensation Committee considered these multiple factors in determining whether to increase or decrease the target amounts from the prior year’s equity award grants. There was no formulaic approach in the use of these various factors in determining the number of shares to award to each named executive officer. The share amounts were determined on a subjective basis, using the various factors, in the Compensation Committee’s sole discretion.
2022 Long-Term Equity Target Mix
The Compensation Committee provided long-term equity incentives for fiscal 2022 to the named executive officers through a target value mix of performance-based restricted stock units (50%), time-based restricted stock units (25%) and stock options (25%).
For Fiscal 2019, the Compensation Committee approved the following mix of long-term incentive elements, generally consistent with approvals made in Fiscal Year 2018, with a continued emphasis on performance-based equity awards. An illustration of the mix of long-term incentive elements is provided below:
Non-Statutory Stock Options
During Fiscal 2019, our named executive officers were awardednon-statutory stock options. The stock option award agreement provides for the award of stock options to purchase the optioned shares. In general, and except as otherwise provided by the Compensation Committee,one-third (1/3) of the optioned shares will vest on each of the first, second, and third anniversaries of the vesting commencement date, subject to the recipient’s continued service through each anniversary (with certain exceptions as specified under the award agreement or the provisions of our 2013 Plan), and each stock option will have a term of ten years from the date of grant. Additionally, the vested stock options expire (1) immediately upon termination of the holder’s employment or other association with us for cause, (2) one year after the holder’s employment or other association is terminated due to death or disability, and (3) three months after the holder’s employment or other association is terminated for any other reason.
Performance-Based Restricted Stock Units
During Fiscal 2019, our named executive officers also were awarded performance-based RSUs. The performance-based RSU award agreement provides for the award of performance-based RSUs to obtain, upon the vesting of each RSU, a variable number of shares of our common stock. The number of shares received upon vesting of performance-based RSUs is determined based on the attainment of the performance goals, subject to conditions including continued employment throughout the performance period.
Return on equity, or ROE, was the sole measure of company performance for the performance-based RSUs granted during Fiscal 2019. Vesting of the target award amount is tied to the achievement of certain ROE metrics during the performance period, with 80% of the target amount earned if the threshold performance level is met, 100% of the target amount earned if the target performance level is met and 130% of the target amount earned if the highest performance level is met. The payout that is determined based on the ROE component is then multiplied by a factor of 0% to 100% for named executive officers based on an individual effectiveness rating ranging from unsatisfactory to outstanding. Holders of performance-based RSUs do not have any voting rights or dividend rights with respect to those units until the RSUs are settled. A summary of the performance measures contained in the performance-based RSUs granted to our named executive officers during Fiscal 2019 is provided below:
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2022 Performance-Based Restricted Stock Units
Performance Measures for 2020 Performance-Based Restricted Stock Unit Grants
In light of stockholder feedback regarding our performance-based RSU design plan, the Compensation Committee revised the performance-based metrics for performance-based RSUs granted in February of 2020. Vesting of all such performance-based RSUs is now contingent upon the achievement of two performance goal components:after-tax return on equity
Fiscal 2022 performance-based RSU vesting remained contingent upon the achievement of two performance goal components: ROE and a leverage ratio modifier component based on total recourse debt to equity, as further summarized below:
2022 Performance Metrics
PSUs | Fiscal 2022 | Rational | ||
Performance Metrics | • ROE • Leverage Ratio | • Aligns with stockholder feedback supporting the use of having multiple performance goals • ROE measures a company’s profitability by revealing how much profit a company generates with the money equity holders have invested, including retained profits • Leverage ratio mitigates risk taking to achieve our ROE and is based on total recourse debt to | ||
Performance Period | Three year performance period | • Cumulative three year performance period provides a measure of long-term performance and achievement against long-term financial objectives | ||
Performance Target | • ROE Target = 15% • Leverage Ratio Target = 3.5x | • Fiscal 2022 ROE Target has a minimum threshold requirement with a 50% payout • Fiscal 2022 ROE Target is higher than the 10 year trailing ROE of large public banks and financial institutions • Fiscal 2022 ROE Target is the same ROE target as in prior years since our recent outperformance was impacted by the unusually low interest rate environment resulting from the COVID pandemic, which was not expected to continue in Fiscal 2022 and beyond. • Fiscal 2022 Leverage Ratio Target based on a what we believe is a prudent level of debt for a non-bank financial companies and allows for increases in direct lending production and continued return of capital |
The performance-based RSU awards granted in February 2022 provide for the performance-based RSUs to obtain, upon the vesting of each RSU, a variable number of shares of our common stock. The number of shares received upon vesting of performance-based RSUs is determined based on the attainment of the performance goals, subject to conditions including continued employment throughout the performance period. Vesting of the ROE performance metric is tied to the achievement of cumulative, annualized ROE metrics during the performance period, with 50% of the target amount earned if the threshold performance level is met, 100% of the target amount earned if the target performance level is met and 150% of the target amount earned if the highest performance level is met. The payout that is determined based on the above ROE performance metric is then multiplied by a factor of 66.7% to 125% for named executive officers depending on the actual achievement of the leverage ratio target during the performance period, for a maximum award payable of 187.5% of target shares. In addition, the payout is further multiplied by a factor of 0% to 100% for each named executive officer based on an individual effectiveness rating ranging from unsatisfactory to exceed expectations.
| 2023 Proxy Statement | 45 |
COMPENSATION DISCUSSION AND ANALYSIS |
A summary of the performance measures and targets contained in the performance-based RSUs granted to our named executive officers during Fiscal 2022 is provided below and each of these awards is further described in the “2022 Grants of Plan-Based Awards” table:
Fiscal 2022 PSU Awards | ||||||||||||
Performance-Based | Performance Component | Threshold | Target | Maximum | % of Target | % of Maximum | ||||||
ROE (1) |
10.0% - Cumulative Annualized ROE Payout = 50% |
15.0% - Cumulative Annualized ROE Payout = 100% |
20.0% - Cumulative Annualized ROE Payout = 150% |
100% |
150% | |||||||
Leverage Ratio (2) |
>=5x Multiplier = 66.7% |
3.5x Multiplier = 100% |
<=1x Multiplier = 125% |
100% (Multiplier) |
125% (Multiplier) | |||||||
Individual Effectiveness (3) |
Multiplier = 60% |
Multiplier = 100% |
Multiplier = 100% |
100% (Multiplier) |
100% (Multiplier) | |||||||
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100% |
187.5% |
(1) | ROE = Net Income ÷ Average Month-End Equity ÷ Years in Measurement Period (1/1/2022 – 12/31/2024). |
(2) | Leverage Ratio is the average of the ratio at the end of each month of the performance measurement period of the amount of total recourse indebtedness outstanding to total equity. |
(3) | Based on individual overall achievement of |
2022 Time-Based Restricted Stock Units
In February 2022, our named executive officers were awarded time-based RSUs. These time-based RSUs, which vest in three equal installments beginning on the first anniversary of the grant date, are to be settled in an equal number of shares of common stock upon vesting subject to the recipient’s continued service through each anniversary (with certain exceptions as specified under the applicable award agreement or the provisions of our Equity Plans). The time-based RSUs are also reflected in the “2022 Grants of Plan Based Awards” table.
2022 Stock Option Awards
In February 2022, our named executive officers were awarded non-statutory stock options. The stock option award agreement provides for the award of stock options to purchase the optioned shares. In general, and except as otherwise provided by the Compensation Committee, one-third (1/3) of the optioned shares will vest on each of the first, second, and third anniversaries of the vesting commencement date, subject to the recipient’s continued service through each anniversary (with certain exceptions as specified under the award agreement or the provisions of our Equity Plans), and each stock option will have a term of ten years from the date of grant.
The table below summarizes the grant date fair value of the long-term incentive equity awards awarded in Fiscal 2022.
Name
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Grant Date
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Number of
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Grant Date
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Number of
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Grant Date
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Number of
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Total Grant | |||||||||||||||||||||
David A. Spector | $2,249,968 | 39,404 | $1,124,984 | 19,702 | $1,214,140 | 57,136 | $4,589,092 | |||||||||||||||||||||
Doug Jones | $1,249,976 | 21,891 | $ 624,960 | 10,945 | $ 674,518 | 31,742 | $2,549,454 | |||||||||||||||||||||
Vandad Fartaj | $ 574,997 | 10,070 | $ 287,499 | 5,035 | $ 310,271 | 14,601 | $1,172,767 | |||||||||||||||||||||
Daniel S. Perotti | $ 499,968 | 8,756 | $ 249,984 | 4,378 | $ 269,811 | 12,697 | $1,019,763 | |||||||||||||||||||||
James Follette | $ 412,490 | 7,224 | $ 206,245 | 3,612 | $ 222,594 | 10,475 | $ 841,329 |
Each of the performance-based and time-based RSUs has a grant date fair value of $57.10 per share, which is based on our closing stock price on the NYSE on February 23, 2022. The stock options granted on February 23, 2022 have an exercise price of $57.10 and a Black-Scholes value of $21.25 per share, respectively, at the date of grant.
46 | | 2023 Proxy Statement |
COMPENSATION DISCUSSION AND ANALYSIS |
2020 Performance-Based Restricted Share Unit – Actual Results
The below table summarizes the target and actual results of performance-based RSUs granted to our named executive officers on February 26, 2020 for the performance period of January 1, 2020 through December 31, 2022. The payout of shares of common stock pursuant to the performance-based RSU was determined based on ROE and a Leverage Ratio Multiplier for the period as measured against the target performance goal set by the Compensation Committee when the performance-based RSU was granted in 2020. The payout percentage for the performance-based RSU was 161.5%.
Fiscal 2020 PSU Awards | ||||||||||
Performance- |
Performance Component | Performance Target | % of Targeted Award |
Actual |
Actual Payout | |||||
ROE (1)
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15% - Cumulative Annualized ROE |
100%
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32.6%
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150%
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Leverage Ratio (2)
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3.5x
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100% (Multiplier)
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2.7x
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107.7% (Multiplier)
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Individual Effectiveness (3)
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4 - Exceeds Expectations
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100% (Multiplier)
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100%
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100% (Multiplier)
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161.5%
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(1) | ROE = Net Income ÷ Average Month End Equity ÷ Years in Measurement Period (January 1, 2020 through December 31, 2022). The payout scale for the ROE component was 0% to 150%. |
(2) | Leverage Ratio is the average of the ratio at the end of each month of the performance measurement period of the amount of total recourse indebtedness outstanding to total equity. The range of the multiplier was 67% to 125%. |
(3) | Based on
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Executive Compensation Objectives and Philosophy
The overall objectives of our executive compensation program are to attract, motivate, reward and retain high-quality talent. We believe that in order to achieve these objectives, our compensation and benefits programs must be competitive with executive compensation arrangements generally provided to similarly situated executive officers in our business markets, as well as at other companies in our industry where we compete for talent. The various components of our executive compensation program are designed to create a pay-for-performance culture that rewards executives for exceptional Company and individual performance, aligns the interests of our executives with those of our stockholders, facilitates the attraction, motivation and retention of highly talented executive leaders, and encourages our executives to focus on the achievement of our annual and long-term business goals.
Our Compensation Committee aims to position the total compensation of our named executive officers at a level commensurate with the total compensation paid to other executives holding comparable positions at companies similar in industry, size, structure, scope and sophistication with which we compete for executive talent. Our Compensation Committee has structured our executive compensation program to meet these objectives.
Executive Compensation Decision Making Process
Annual Compensation Process
Compensation decisions are generally made as part of a year-long review process:
Step 1 | Step 2 | Step 3 | Step 4 | Step 5 | Step 6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Management engages with investors and reviews feedback on named executive officers
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Role of the Compensation Committee. The Compensation Committee has overall responsibility for recommending to our Board the compensation of our CEO and determining the compensation of our other named executive officers. Members of the Compensation Committee are appointed by the Board. The Compensation Committee consists of three members of the Board, Messrs. Nanji, Hunt and Perlowitz, none of whom served as our executive officers. Each of Messrs. Nanji, Hunt and Perlowitz qualified as an “independent director” under the rules of the NYSE. Each of Messrs. Nanji, Hunt and Perlowitz also qualified as an “outside director” under Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, and served as a member of a subcommittee of the Compensation Committee that was formed to approve the grant of awards to certain individuals for purposes of Section 162(m) of the Code. See the section entitled “CORPORATE GOVERNANCE—Committees of the Board of Directors.” Each year, the Compensation Committee conducts an evaluation of each named executive officer to determine if changes in such officer’s compensation are appropriate based on the considerations described below. The Chairman and CEO provides input for the Compensation Committee regarding the performance and appropriate compensation of the other named executive officers (other than himself). The Role of the Outside Independent Compensation Consultant. Our Compensation Committee has the sole authority to retain, compensate and terminate any independent compensation consultant of its choosing in assessing our compensation program and determining the appropriate, competitive levels of compensation for our executive officers. Pursuant to such authority, the Compensation Committee utilized Pearl Meyer & Partners, or Pearl Meyer, as its independent compensation consultant during Fiscal 2022. Pearl Meyer has provided various services to the Compensation Committee since its engagement including the following:
Assessment of Outside Independent Compensation Consultant Conflicts of Interest. Under rules promulgated by the SEC, the Compensation Committee must determine, after taking into account six independence-related factors, whether any work completed by a compensation consultant raised any conflict of interest. Factors considered by the Compensation Committee include the following six factors specified by the NYSE rules: (1) other services provided to us by the compensation consultant; (2) what percentage of the compensation consultant’s total revenue is made up of fees from us; (3) policies or procedures of the compensation consultant that are designed to prevent a conflict of interest; (4) any business or personal relationships between individual consultants involved in the engagement and Compensation Committee members; (5) any shares of our common stock owned by individual consultants involved in the engagement; and (6) any business or personal relationships between our executive officers and the compensation consultant or the individual consultants involved in the engagement. For Fiscal 2022, the Compensation Committee did not identify any conflict of interest with respect to Pearl Meyer. Peer Group and Benchmarking The Use of Peer Group and Competitive Market Data. On an annual basis we engage in a comprehensive review of peer companies with our independent compensation consultant. To assist in decision-making regarding our compensation and benefits program, our management and the Compensation Committee review competitive market data from a “peer group” of publicly traded companies in specific industries in which we compete for executive talent, among other factors, to assist in decision-making regarding our compensation and benefits programs. The market data reviewed includes both peer proxy data and survey data of companies similar in industry, size, structure, scope and sophistication. Proxy data was gathered from proxy statements and other publicly filed documents.
Since our peer group was initially established in 2013, we have undertaken comprehensive annual reviews of the appropriateness of such peer group. The Compensation Committee reviews other public companies similar in industry, size, structure, scope and sophistication. How We Establish our Peer Group. The Compensation Committee updated its peer group used for evaluating compensation decisions based on objective criteria as presented in the table and discussion below.
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