A director who is also an employee of the Company is referred to as an executive director. Executive directors do not receive compensation for serving on our board of directors. We pay directors’ fees only to those directors who are independent under the NYSE listing standards, as more fully described elsewhere in thisthe section under "Corporate Governance“Environmental and Social Responsibility and Environmental Responsibility-Director Independence"Corporate Governance—Director Independence”. We have approved and implemented a compensation program for our independent directors that consists of an annual cash retainer fee and long-term equity awards as described below. We also reimburse each of our independent directors for his or hertheir respective expenses incurred in connection with his or hertheir respective board responsibilities. The following table summarizes the annual compensation received by our independent directors for 2018.2020.
Our directors are also subject to stock ownership guidelines, which are described in more detail as set forth below under “Executive Compensation —Compensation Discussion and Analysis—Stock Ownership Guidelines for Named Executive Officers and Directors.”
Operating Partnership"). The 2019 independent director awards vest on May 15, 2020. LTIP units are described in more detail as set forth below under "Executive Compensation —Compensation Discussion and Analysis—Equity Incentive Plan."
CORPORATE GOVERNANCEENVIRONMENTAL AND SOCIAL RESPONSIBILITY AND ENVIRONMENTAL RESPONSIBILITYCORPORATE GOVERNANCE
Environmental Impact
We own and invest in climate solutions developed by the leading companies in the energy efficiency, renewable energy and other sustainable infrastructure markets and own a diversified groupportfolio of sustainable infrastructure projects focused on reducing or mitigating the impacts of climate change through the allocation of our capital across the energy efficiency, renewable energy and other sustainability focusedthese markets. Under the direction of our chief executive officer and the board of directors, we are focused on achieving a high level of environmental and social responsibility and strong corporate governance. The Nominating, Governance and Corporate Responsibility Committee of our board of directors is responsible for our ESG oversight, including for ourrelated policies and communications. Additionally, we have a committee comprised of employees from across theour organization that is focused on implementing various ESG strategies and policies and communications and reports directly to our chief executive officer. In 2019,Annually we issued our inaugural ESGpublish a report that illustrates our progress towards implementingon these strategies and policies.matters.
Our business and business strategy are focused on addressing climate change, includingin part through the reduction of carbon emissions that have been scientifically linked to climate change. We estimateIn accordance with our investment strategy, we quantify the carbon impact of each of our investments. In addition, we operate our business in a manner intended to reduce theour own environmental impact, including by purchasing renewablecarbon credits for 100% of the electricity forused by our office, encouraging recycling and by encouraging recycling. In 2018, wecomposting, and offering clean transportation employee incentives for electric and hybrid vehicles. We have also adopted our Environmental Policiespolicies focused on minimizing the environmental impact of our operations. We also participate in a number of climate focused initiatives including Climate Action 100+, We Are Still In and the Climate Disclosure Standards Board (“CDSB”). In 2017, we joined the CDSB’s initiative to pledgecontinue to implement the recommendations of the Task Force on Climate-related Financial Disclosures (“TCFD”TCFD”). Additionally,, which are set forth in 2018, we becameour Form 10-K.
We are a signatory to the United Nations Global Compact, an initiative focused on responsible business practices related to human rights, labor, the environment and anti-corruption.
We are also focused on our social responsibility within our workforceparticipate in a number of initiatives and our community. In 2018, we adopted our Human Capital and Human Rights Management Policies to furthercoalitions that share our commitment to climate action, corporate sustainability, climate-risk disclosure and reporting, and the expansion of clean energy including the United Nations-supported Principles for Responsible Investment, the United Nations Global Compact campaign entitled Business Ambition for 1.5°- Only Our Future, Climate Action 100+, and the reporting framework established by an international consortium of business and environmental NGOs referred to as the Climate Disclosure Standards Board.
In 2020, we joined the Partnership for Carbon Accounting Financials (“PCAF”), a global financial industry-led partnership to implement a consistent and transparent disclosure framework to report carbon emissions resulting from financed assets. We anticipate that our reporting in accordance with PCAF will be implemented by 2023.
With scientific consensus that global-warming trends are linked to human activities and resulting in various extreme weather events, we believe the Company is well-positioned to generate attractive risk-adjusted returns by investing in, and managing a portfolio of, assets that address climate-changing carbon emissions. Further, with increasing weather related events, we see similar investment opportunities in infrastructure assets that mitigate the impact of, and increase the resiliency to, these weather events and other adverse impacts of climate change.
Our vision is that every investment improves our climate future and thus the carbon impact of an investment is at the core of our business model. We believe that climate positive investments will produce attractive risk adjusted returns and require investments to be neutral to negative on incremental carbon emissions or have some other tangible environmental benefit such as reducing water consumption.
Our climate-positive investment thesis is based on the following theories:
•More efficient technologies are more productive and thus should lead to higher economic returns;
•Lower portfolio risk is inherent in a portfolio of smaller investments, generated by trends of increasing decentralization and digitalization of energy assets, compared to larger, centralized utility-scale investments;
•Investing in assets aligned with scientific consensus and broadly held societal values will reduce potential regulatory and social responsibility. costs through better internalization of externalities; and
•Assets that reduce carbon emissions represent an embedded option that may increase in value if regulatory authorities were to set a price on carbon emissions.
As part of our investment process, we calculate the ratio of the estimated first year of metric tons of carbon emissions avoided by our investments divided by the capital invested to quantify the carbon impact of our investments. In this calculation, which we refer to as CarbonCount®, we use emissions factor data, expressed on a CO2 equivalent basis, from the U.S. Government or the International Energy Administration to an estimate of a project’s energy production or savings to compute an estimate of metric tons of carbon emissions avoided. We estimate that our investments originated in 2020 will reduce annual carbon emissions by approximately 2.0 million metric tons, equating to a CarbonCount® of 1.03. In addition to carbon, we also consider other environmental attributes, such as water use reduction, stormwater remediation benefits and stream restoration benefits.
In assessing our performance and results of operations, we also consider the impact of our operations on the environment. We utilize the carbon emissions categorizations established by the World Resources Institute Greenhouse Gas Protocol Corporate Standards to set goals and calculate our estimated emissions. The categorizations are as follows:
•Scope 1 GHG emissions - Direct emissions - Emissions from operations that are owned or controlled by the reporting company.
•Scope 2 GHG emissions - Indirect emissions - Emissions from the generation of purchased or acquired energy such as electricity, steam, heating or cooling, consumed by the reporting company.
•Scope 3 GHG emissions - Indirect emissions - All other indirect emissions that occur in the value chain of the reporting company, including both upstream and downstream emissions.
The table below illustrates our goals and performance for 2020 in metric tons ("MT").
| | | | | | | | | | | | | | | | | | | | |
Category | | Goal | | Performance | | Verification (3) |
Scope 1 GHG emissions | | 0 MT | | 0 MT | | Apex Cos. |
Scope 2 GHG emissions | | 0 MT | | 0 MT (1) | | Apex Cos. |
Scope 3 GHG emissions | | 0 MT (2) | | <200 MT (2) | | Apex Cos. |
Scope 3 GHG less avoided emissions from 2020 investments (4) | | <0 MT | | (1,800,000) MT | | N/A |
(1)Performance stated is market-based.
(2)Our stated actual performance for Scope 3 GHG emissions does not include the carbon emissions reductions as a result of our investments. The first year carbon emissions reductions as a result of our investments originated in 2020 are 2.0 million MT.
(3)In addition to our internal review, Apex Companies, LLC was commissioned as an independent organization to verify our GHG emissions reporting as estimated in accordance with GHG measurement and reporting protocols of the World Resources Institute / World Business Council for Sustainable Development Greenhouse Gas Protocol Corporate Accounting and Reporting Standard (Scope 1, 2) and Corporate Value Chain Accounting and Reporting Standard (Scope 3).
(4)This metric (sometimes referred to as Scope 4 emissions) adjusts our Scope 3 GHG emissions to include the expected annual avoided emissions of our 2020 investments to illustrate the full climate impact of our operations including the positive externalities of our investments.
Human Capital Overview
Our culture is focused on hiring and retaining diverse and highly talented employees with diverse backgrounds and empowering them to create value for our stockholders. InOur success is dependent on employee understanding of their respective roles in creating that value as well as our employee selection process and operationinvestment in the continuity of our business we adhere to equal employment opportunity policies and encourage the participation of our employees in training programs that will enhance their effectiveness in the performance of their duties.workforce. Our chief executive officer periodically leads employee meetings intended to encourage employees to understand why reinforce the importance ofsustainability matters and regularly meets with small groups of employees to receive their feedback on our business. Our employees are responsible for upholding our purpose, values, strategy, and talent leadership expectations.
It is important to us that our employees are engaged in our mission of sustainability. We also want them to be engaged to drive our business forward, to recruit from their networks, and envision a long tenure with us. We meet no less than quarterly as a Company to provide information to employees on our mission, strategic planning and financial results. We continuously evaluate our employees’ level of engagement by walking the business.floors (or, when the team is working remotely, scheduling one-on-one check-in calls) and asking open-ended questions. We also evaluate our employees’ engagement via formal surveys or similar tools on a periodic basis. We care about our employees’ employment experience and care about them as individuals who are motivated in different ways.
We adhere to a blended learning approach with the understanding that our people learn from experiences (on the job and in life), from other people (mentors or supportive managers), and formal learning and training programs. We acknowledge that learning is highly individualized and needs to be offered in a way that is most conducive to a specific learner’s needs. We run a periodic education series which includes internal and external speakers presenting topics of interest that are relevant to our employees. We provide multiple learning solutions which cover a wide range of areas such as diversity and inclusion training, leadership skills, financial knowledge, technology training, and presentation skills. We also support the pursuit of advanced certifications and degrees in areas including business, science and engineering, and liberal and fine arts and employ formal and informal coaching arrangements.
Managers hold performance conversations with their employees on a periodic basis (targeting a minimum of twice a year) to ensure they receive the performance feedback they deserve, and to allow managers to obtain insight into how to support the development of their staff, and to ensure that performance expectations are clear and aligned with the overarching objectives of the Company. We also provide continuous dialogue in between these formal touchpoints.
We provide competitiveattractive benefits that promote the health of our employees and their families and design compelling job opportunities, aligned with our mission, in an energizing work environment. We also encourage our employees to continue to develop in their careers, including by obtaining advanced degrees or professional certifications. We compensate our employees according to our fair remuneration policies and believe deeply in paying for performance. Therefore, employees generally receive a portion of their compensation in the form of stockequity grants tied to performance. We encourage our employees to contribute their time to support various community and charitable activities and sponsor several local community organizations with a primary focus on environmental organizations. In addition to competitive base salaries, cash bonuses, and equity participation for the majority of employees, we are committed to continuously evaluating and ensuring the competitiveness of our benefits offerings so that we meet the various needs of our employees and their families. Despite a healthcare environment that is facing rising costs, we continue to pay the vast majority of the cost of our employees’ healthcare insurance.
Our total rewards include:
• Medical/Prescription Drug
•Dental
•Vision
•Group Life/AD&D Insurance
•Long-Term Disability (LTD)
•401k Retirement Plan with match
•Vacation
•Tuition reimbursement
•Reimbursement for gym memberships and equipment
•Employee assistance program – encompasses wellness, legal, and financial tools and resources
•Flu shot clinics on-site
•Leave policies include 11 paid holidays, maternity and paternity plans, and paid time off including sick leave.
We also take a values-driven, broad view of diversity and inclusion. We believe that fostering an internal climate that is supportive and allows people of all backgrounds to flourish lends itself to the highest levels of Company performance and facilitates the attraction and retention of best-in-class talent. We further believe it is inherently the right way to conduct business and we have structuredreceived support, encouragement and insightful observations from some of our socially responsible investors in this regard. We support an innovative, creative culture where people can bring their best and most authentic selves to work. Employees who hold divergent opinions are encouraged to voice their views. We have implemented processes to track and report internally on key talent metrics including workforce demographics, critical role pipeline data, diversity data, and engagement and inclusion indices.
We are committed to identifying and developing the talents of our next generation of leaders and our decisions regarding staffing, selection, and promotions are made on the basis of individual qualifications related to the requirements of the position. We endeavor to select qualified individuals from a diverse pool of candidates sourced from broad outreach and networking efforts when we are recruiting. We are committed to the sourcing and promotion of highly-qualified women, people of color and other under-represented groups for management and positions with our board of directors. We are also challenging ourselves to better support our female and underrepresented employees in their onboarding, training, development and progression within the Company.
Our policy is “equal pay for equal work” in compliance with applicable state law. Compensation for our employees is based upon experience, seniority, educational-attainment, and individual contribution and company performance against goals.
Human Capital Metrics
As part of our broader human capital strategy, we monitor and disclose certain metrics which help us understand our workforce and our progress in fostering a diverse and inclusive work environment. As of December 31, 2020, we employed 73 people full-time, one person part-time, and five people as independent contractors. As a growing company, the average tenure of our employees as of December 31, 2020, was approximately 5 years, and more than 47% of our employees had been employed by us for more than 4 years.
We are undertaking studies and are focused on continuing to increase the diversity of our workforce at all levels of our organization and we continue to develop goals to enhance diversity and inclusion. These metrics are and will continue to be actively
managed and will be reported along with the results of the studies to our executive leadership and our board of directors and will be summarized, as appropriate, in subsequent public disclosures.
Metrics surrounding the diversity and inclusion of our workforce as of December 31, 2020 are shown below:
Percentage of various levels of the workforce who identify as male or female
Percentage of various levels of the workforce who identify as racial- or ethnic-minorities
Percentage of various levels of the workforce who possess degrees outside the fields of business or economics, including in science and engineering, liberal and fine arts, and law.
Corporate Governance Philosophy
Our corporate governance inphilosophy is based on maintaining a manner we believe closely alignsclose alignment of our interests with those of our stockholders. Notable features of our corporate governance structure include the following:
our board of directors is not staggered, with each of our directors subject to re-election annually;
our board of directors has determined that six of our seven directors are independent for purposes of the NYSE corporate governance listing standards and Rule 10A-3 under the Exchange Act;
we have a Lead Independent Director, who convenes and chairs executive sessions of the independent directors to discuss certain matters without management present, as described in greater detail below;
two of our directors each qualify as an “audit committee financial expert” as defined by the SEC;
two of our directors are women, constituting 29% of our board of directors and 33% of the independent directors;
• our Guidelines provide for a majority vote policy for the election of directors pursuant to which any nominee who receives a greater number of votes “withheld” from his or her election than votes “for” such election shall promptly tender his or her resignation to our board of directors, which shall consider whether or not to accept such resignation, as described in greater detail below;
•our board of directors is not staggered, with each of our directors subject to re-election annually;
• our board of directors has determined that eight of our nine directors are independent for purposes of the NYSE corporate governance listing standards and Rule 10A-3 under the Exchange Act;
•we have a Lead Independent Director, who convenes and chairs executive sessions of the independent directors to discuss certain matters without management present, as described in greater detail below;
• four of our directors each qualify as an “audit committee financial expert” as defined by the SEC;
• three of our directors, including our Lead Independent Director, are women, constituting 33% of our board of directors;
• we have established a target retirement age of 75 for our directors;
• we have an active stockholder outreach program, including annually providing our stockholders the opportunity to vote on an advisory basis on the compensation of executives;NEOs;
•our board members and NEOs are required to maintain certain levels of stock ownership in our company ranging between three and six times their base salary or retainer, depending on position;
• our Statement of Corporate Policy Regarding Equity TransactionTransactions prohibits our directors and officers from hedging our equity securities, holding such securities in a margin account or pledging such securities as collateral for a loan;
• we have a Clawback Policy that provides for the possible recoupment of performance or incentive-based compensation in the event of an accounting restatement due to material noncompliance by us with any financial reporting requirements under the securities laws (other than due to a change in applicable accounting methods, rules or interpretations);
• we have opted out of the control share acquisition statute in the Maryland General CorporationsCorporation Law (the ““MGCL”);
•MGCL”) andwe have exempted from the business combinations statute in the MGCL transactions that are approved by our board of directors;directors (including a majority of our directors who are not affiliates or associates of the acquiring person);
• we do not have a stockholder rights plan; andplan (i.e., no poison pill);
we have expanded the role of• our Nominating, Governance and Corporate Responsibility Committee to also focus on directing the strategyoversees and oversight ofdirects our ESG strategies, activities, policies and communications; and
•we have a committee comprised of employees from across our organization that is focused on implanting ESG strategies, policies and reports.
In order to foster the highest standards of ethics and conduct in all business relationships, we have adopted a Code of Business Conduct and Ethics policy (the “Code“Code of Conduct”Conduct”). This policy, which covers a wide range of business practices and procedures, applies to our officers, directors, employees, agents, representatives, and employees.consultants. In addition, we have implemented Whistleblowing Procedures related to accounting and auditing matters as well as Code of Conduct mattersa whistleblowing policy (the “Whistleblower Policy”“Whistleblower Policy”) that sets forth procedures by which any Covered Persons (as defined in the Whistleblower Policy) may raise,report, on a confidential basis, concerns regarding, among other things,relating to any questionable or unethical accounting, internal accounting controls or auditing matters with our Audit Committee as well as any potential code of conduct or ethics violations with our Nominating, Governance and Corporate Responsibility Committee or our General Counsel.chief legal officer. We review these policies on a periodic basis with our employees.
Role of theour Board of Directors and Risk Oversight
Pursuant to our Charter and Bylaws and the MGCL, our business and affairs are managed under the direction of our board of directors. Our board of directors has the responsibility for establishing broad corporate policies and for our overall performance and direction but is not involved in our day-to-day operations which are managed by our senior management team. Members of our board of directors keep informed of our business by participating in meetings of our board of directors and its committees, by reviewing analyses, reports and other materials provided to them and through discussions with the chairman of our board of directors, president and chief executive officer and other executive officers and other employees of the Company.
Currently, Mr. Eckel serves as the chairman of our board of directors and chief executive officer. In addition, our board of directors has an active Lead Independent Director, Richard J. Osborne.Teresa M. Brenner. Our board of directors believes that this leadership structure is best for the Company and its stockholders at this time. In his dual role, Mr. Eckel uses his extensive experience in managing companies operating in the energy sector and expertise in energy investments for over 35 years through many business cycles to effectively and efficiently guide the Company and our board of directors, including overseeing the Company’s strategies relating to ESG matters. He fulfills his responsibilities as chairman of our board of directors through close interaction with Mr. Osborne, our Lead Independent Director since 2014,Ms. Brenner and the committee chairs.
In reaching the conclusion that the roles of the chairman and chief executive officer should be held by one person, our board of directors has considered the performance of the Company since its IPO as well as the views expressed by our stockholders and other constituents, both through stockholder votes and through direct outreach by management and our board of directors. Our board of directors concluded that Mr. Eckel is a well-seasoned leader with a proven track record of leading the Company over a long period of growth both before and after our IPO. Based on his and our track record, our board of directors determined that Mr. Eckel is the best person to continue to lead the Company and our board of directors. Our board of directors also considered the actual board relationships and determined that there is actual and effective independent oversight of management by our supermajority independent board led by Mr. OsborneMs. Brenner in hisher capacity as our Lead Independent Director.
In connection with their oversight of risk to our business, our board of directors considers feedback from management concerning the risks related to our business, operations and strategies. The Finance and Risk Committee of theour board of directors has the responsibility to discuss and review policies with respect to our risk assessment and risk management, including, but not limited to, guidelines and policies to govern the process by which risk assessment and risk management is undertaken, the adequacy of our insurance coverage, our interest rate risk management, our counter-party and credit risks, our capital availability, our refinancing risks, and our cybersecurity risk. Our Audit Committee also consults with the Finance and Risk Committee on certain of these matters. Management regularly reports to our board of directors on our leverage policies, our asset acquisition process, any asset impairments and our compliance with applicable REIT and Investment Company Act of 1940 rules. Members of our board of directors routinely
meet with management in connection with their consideration of matters submitted for the approval of our board of directors and the risks associated with such matters.
Our board of directors believes that its composition protects stockholder interests and provides sufficient independent oversight of management. A supermajority of our current directors are “independent”“independent” under NYSE listing standards, as more fully described
elsewhere in this section under “Corporate Governance“Environmental and Social Responsibility and Environmental Responsibility—Corporate Governance—Director Independence.” The independent directors, led by Mr. Osborne,Ms. Brenner, our Lead Independent Director, meet separately from management at least four times a year and are active in the oversight of the Company. The independent directors oversee such critical matters as the integrity of our financial statements, the evaluation and compensation of executive officers and the selection and evaluation of directors. Each independent director has the ability to add items to the agenda of our board of directors meetings or raise subjects for discussion that are not on the agenda for that meeting.
Mr. OsborneMs. Brenner works with the chairman of our board of directors to establish the agenda for regular meetings of our board of directors, serves as chair of regular meetings of our board of directors when our chairman is absent, presides at executive sessions, serves as a liaison between our chairman and chief executive officer and our independent directors, and encourages dialogue between our independent directors and management. HeShe also establishes the agenda for meetings of our independent directors and performs such other duties as our board of directors may establish or delegate.
Our board of directors believes that its supermajority independent composition and the roles that our independent directors perform provide effective corporate governance at theour board of directors’ level and independent oversight of both our board of directors and management. The current governance structure, when combined with the functioning of the independent director component of our board of directors and our overall corporate governance structure, strikes an appropriate balance between strong and consistent leadership and independent oversight of our business and affairs.
Code of Business Conduct and Ethics
Our board of directors has adopted a Code of Conduct that applies to our directors, executive officers, employees, agents, representatives, and employees.consultants. The Code of Conduct was designed to assist in complying with the law, in resolving moral and ethical issues that may arise and in complying with our policies and procedures. Among the areas addressed by the Code of Conduct are compliance with applicable governmental, state and local laws, compliance with securities laws, the use and protection of company assets, data privacy, the protection of our confidential corporate information, dealings with the press and communications with the public, internal accounting controls, improper influence of audits, records retention, fair dealing, discrimination and harassment, health and safety, and conflicts of interest, including payments and gifts by third parties, outside financial interests that might be in conflict with our interests, access to our confidential records, corporate opportunities, and loans. The Code of Conduct is available for viewing on our website at www.hannonarmstrong.com.www.hannonarmstrong.com. We will also provide the Code of Conduct, free of charge, to stockholders who request it. Requests should be directed to Steven L. Chuslo, our general counsel,chief legal officer, executive vice president and secretary, at Hannon Armstrong Sustainable Infrastructure Capital, Inc., 1906 Towne Centre Blvd, Suite 370, Annapolis, Maryland 21401.
Corporate Governance Guidelines
Our board of directors has adopted the Guidelines that address significant issues of corporate governance and set forth procedures by which our board of directors carries out its responsibilities. Among the areas addressed by the Guidelines are the composition of our board of directors, its functions and responsibilities, its standing committees, director qualification standards, access to management and independent advisors, director compensation, management succession, director orientation and continuing education and the annual performance evaluation and review of our board of directors and committees. The Guidelines are available for viewing on our website at www.hannonarmstrong.com.www.hannonarmstrong.com. We will also provide the Guidelines, free of charge, to stockholders who request it. Requests should be directed to Steven L. Chuslo, our general counsel,chief legal officer, executive vice president and secretary, at Hannon Armstrong Sustainable Infrastructure Capital, Inc., 1906 Towne Centre Blvd, Suite 370, Annapolis, Maryland 21401.
Majority Vote Policy
The Guidelines provide for a majority vote policy for the election of directors. Pursuant to this policy, in any uncontested election of directors, any nominee who receives a greater number of votes “withheld” from his or her election than votes “for” such election shall promptly tender his or her resignation to our board of directors following certification of the stockholder vote. The Nominating, Governance and Corporate Responsibility Committee shall promptly consider the resignation and make a recommendation to our board of directors with respect to the tendered resignation. In considering whether to accept or reject the tendered resignation, the Nominating, Governance and Corporate Responsibility Committee shall consider all factors it deems relevant, which may include the stated reasons, if any, why stockholders withheld votes from the director, any alternatives for curing the underlying cause of the withheld votes, the length of service and qualifications of the director, the director’s past and expected
future contributions to the Company, the composition of our board of directors, and such other information and factors as members of the Nominating, Governance and Corporate Responsibility Committee shall determine are relevant.
Our board of directors will act on the Nominating, Governance and Corporate Responsibility Committee’s recommendation no later than 90 days after the certification of the stockholder vote. Any director who tenders his or her resignation to our board of
directors will not participate in the Nominating, Governance and Corporate Responsibility Committee’s consideration or board action regarding whether to accept such tendered resignation.
We will promptly disclose our board of director’s decision whether to accept the resignation as tendered (providing a full explanation of the process by which the decision was reached and, if applicable, the reasons for rejecting the tendered resignation) in a press release, a filing with the SEC or in another broadly disseminated means of communication.
Director Independence
The Guidelines provide that a majority of the directors serving on our board of directors must be independent as required by NYSE listing standards. In addition, as permitted under the MGCL, our board of directors has adopted certain independence standards (the “Independence Standards”“Independence Standards”) to assist it in making determinations with respect to the independence of directors. The Independence Standards are available for viewing on our website at www.hannonarmstrong.com.www.hannonarmstrong.com. Based upon its review of all relevant facts and circumstances, our board of directors has affirmatively determined that sixeight of our sevennine current directors—Rebecca Blalock,Clarence Armbrister, Teresa Brenner, Mark Cirilli,Michael Eckhart, Nancy Floyd, Simone Lagomarsino, Charles O’Neil, Richard Osborne and Steven Osgood—qualify as independent directors under the NYSE listing standards and the Independence Standards.
Identification of Director Candidates
In accordance with the Guidelines and its written charter, the Nominating, Governance and Corporate Responsibility Committee is responsible for identifying director candidates for our board of directors and for recommending director candidates to our board of directors for consideration as nominees to stand for election at our annual meetings of stockholders. Director candidates are recommended for nomination for election as directors in accordance with the procedures set forth in the written charter of the Nominating, Governance and Corporate Responsibility Committee.
We seek highly qualified director candidates from diverse business, professional and educational backgrounds who combine a broad spectrum of experience and expertise with a reputation for the highest personal and professional ethics, integrity and values. The Nominating, Governance and Corporate Responsibility Committee periodically reviews the appropriate skills and characteristics required of our directors in the context of the current composition of our board of directors, our operating requirements and the long-term interests of our stockholders. In accordance with the Guidelines, directors should possess the highest personal and professional ethics, integrity and values, exercise good business judgment, be committed to representing the long-term interests of the Company and our stockholders and have an inquisitive and objective perspective, practical wisdom and mature judgment. The Nominating, Governance and Corporate Responsibility Committee reviews director candidates with the objective of assembling a slate of directors that can best fulfill and promote our goals, regardlesstaking into consideration personal factors and professional characteristics of gender, age or race,each potential candidate, and recommends director candidates based upon contributions they can make to our board of directors and management and their ability to represent our long-term interests and those of our stockholders.
The Nominating, Governance and Corporate Responsibility Committee evaluates the skill sets required for service on our board of directors and has developed a list of potential director candidates. If it is determined there is the need for additional or replacement board members, the Nominating, Governance and Corporate Responsibility Committee will assess potential director candidates included on the list as well as other appropriate potential director candidates based upon information it receives regarding such potential candidates or otherwise possesses, which assessment may be supplemented by additional inquiries. In conducting this assessment, the Nominating, Governance and Corporate Responsibility Committee considers knowledge, experience, skills, diversity and such other factors as it deems appropriate in light of our current needs and those of our board of directors. The Nominating, Governance and Corporate Responsibility Committee may seek input on such director candidates from other directors, including the chairman and chief executive officer, and recommends director candidates to our board of directors for nomination. The Nominating, Governance and Corporate Responsibility Committee does not solicit director nominations, but it will consider recommendations by stockholders with respect to elections to be held at an annual meeting, so long as such recommendations are sent on a timely basis and in accordance with applicable law.law and our Bylaws. The Nominating, Governance and Corporate Responsibility Committee will evaluate nominees recommended by stockholders against the same criteria that it uses to evaluate other nominees. The Nominating, Governance and Corporate Responsibility Committee may, in its sole discretion, engage one or more search firms or other consultants, experts or professionals to assist in, among other things, identifying director candidates or gathering information regarding the background and experience of director candidates. The Nominating, Governance and Corporate Responsibility Committee will have sole authority to approve any fees or terms of retention relating to these services.
Our stockholders of record who comply with the advanced notice procedures set forth in our current Bylaws and outlined under the “Submission of Stockholder Proposals” section of this proxy statement may nominate candidates for election as directors. Our Bylaws currently provide that any stockholder nominationsintending to nominate a director or present a stockholder proposal of director candidatesother business for anconsideration at the 2022 annual meeting of stockholders, but not intending for such a nomination or proposal to be considered for inclusion in our proxy statement and proxy card relating to such meeting (i.e., not pursuant to Rule 14a-8 of the Exchange Act), must be receivednotify us in writing no earlier than the 150th day and not later than 5:00 p.m., Eastern time, on the 120th day prior to the first anniversary of the date of the proxy statement for the immediately preceding annual meeting of stockholders; provided, however, that in the event that the date of the
annual meeting with respect to which such notice is advanced or delayed by more thanto be tendered is not held within 30 days frombefore or after the first anniversary of the date of the preceding year’s annual meeting of stockholders, to be timely, notice by the stockholder to be timely, must be so delivered notreceived no earlier than the 150th day prior to the date of such annual meeting and not later than 5:00 p.m., Eastern time, on the later of the 120th day prior to the first anniversary of the date of suchthe immediately preceding annual meeting of stockholders, as originally convened, or the close of business on the tenth day following the day on which public announcement of the date of such meeting is first made. Accordingly, to submit a director candidate for consideration for nomination at our 20202022 annual meeting of stockholders, stockholders must submit the recommendation, in writing, by 5:00 p.m., Eastern time on December 20, 2019,14, 2021, but in no event earlier than November 20, 2019.14, 2021. The written notice must set forth the information and include the materials required by our current Bylaws. The advanced notice procedures set forth in our current Bylaws do not affect the right of stockholders to request the inclusion of proposals in our proxy statement pursuant to SEC rules. See “Submission of Stockholder Proposals” for information regarding providing timely notice of stockholder proposals under SEC rules.
Annual Board of Directors and Committee Assessments
Our board of directors and each of its committees conducts an annual self-assessment process, implemented and overseen by our Nominating, Governance and Corporate Responsibility Committee in order to review the effectiveness of our board of directors and its committees. The formal self-evaluation may be in the form of written or oral questionnaires and may be administered by board members and/or by third parties, as determined appropriate by our Nominating, Governance and Corporate Responsibility Committee for the related performance cycle. Director feedback is solicited at both the board and committee levels. The results of our board of directors and committee self-assessments are compiled and presented to our board of directors, and items identified in the self-assessments requiring follow-up are monitored on an ongoing basis by our board of directors and by management. In addition to the formal annual board and committee evaluation process, our Lead Independent Director speaks with each board member at least quarterly, and receives input regarding board and committee practices and management oversight. Throughout the year, committee members also have the opportunity to provide input directly to committee chairs or to management.
Personal Loans to Executive Officers and Directors
We comply with, and operate in a manner consistent with, applicable law prohibiting extensions of credit in the form of personal loans to or for the benefit of our directors and executive officers.
Director Attendance at Annual Meetings of Stockholders
We have scheduled a board meeting in conjunction with the Annual Meeting and, asAs set forth in the Guidelines, our policy is to encourage and promote the attendance by each director at all scheduled meetings of our board of directors and all meetings of our stockholders.
Communications with theour Board of Directors
Our board of directors has approved a process to enable communications with the independent members of the board of directors or the chair of any of the committees of the board of directors. Communications by email should be sent to generalcounsel@hannonarmstrong.com.legaldepartment@hannonarmstrong.com. Communications by regular mail should be sent to the attention of Steven L. Chuslo, our general counsel,chief legal officer, executive vice president and secretary, at our office at 1906 Towne Centre Blvd, Suite 370, Annapolis, MD 21401. Each communication received will be reviewed to determine whether the communication requires immediate action. All appropriate communications received, or a summary of such communications, will be sent to the appropriate member(s) of our board of directors. However, we reserve the right to disregard any communication we determine is unduly hostile, threatening, illegal, does not reasonably relate to us or our business, or is similarly inappropriate. Our secretary, or his or her delegate, has the authority to disregard any inappropriate communications or to take other appropriate actions with respect to any such inappropriate communications.
In addition, any of our stockholders and any other person may make a good faith report to the Audit Committee regarding any questionable or unethical accounting or auditing matters via regular mail addressed to the Audit Committee, 1906 Towne Centre Blvd, Suite 370, Annapolis, MD 21401.
Executive Sessions of Independent Directors
The independent directors serving on our board of directors meet in executive sessions at least four times per year at regularly scheduled meetings of our board of directors. These executive sessions of our board of directors will beare presided over by Mr. Osborne, our Lead Independent Director.
Active Stockholder Outreach
We believe that engaging with investors is fundamental to our commitment to good governance and essential to maintaining our industry-leading practices. Throughout the year, we seek opportunities to connect with our investors to gain and share valuable insights into current and emerging business and governance trends. During 2018,2020, we held over 90300 meetings with stockholders whose ownership represent approximately 40%42% of shares outstanding as of the end of the year to discuss various key corporate matters. Topics discussed include our investment criteria, interest rate and other risk management practices, political and regulatory matters and our focus on sustainability and strong governance practices, including with respect to allowing our stockholders to amend our bylaws. These meetings were conducted in person, via teleconference or one-on-one at industry conferences. Our engagement activities take place throughout the year and we also conduct quarterly earnings calls where we try to answer many of the new questions that we receive during our investor outreach.
Corporate Governance Review
In overseeing our corporate policies and our overall performance and direction, our board of directors has adopted the approach of operating in what it believes are the long-term best interests of the Company and our stockholders. In operating under these
principles, our board of directors continuously reviews our corporate governance structure and considers whether any changes are necessary or desirable. As part of this review, our board of directors has adopted a number of corporate governance guidelines to better align the interests of our directors with those of our stockholders, including those set forth above. As part of this review, our board of directors also considered amending our bylaws to allow our stockholders (without the concurrence of our board of directors) to implement bylaw amendments. After careful consideration of this matter and discussion with some of our larger stockholders, our board of directors has determined that at this time, it remains in the best interests of our stockholders and the Company that the authority to amend our bylaws continues to remain vested exclusively in our board of directors as is permitted by Maryland law and which has been the case since our IPO in 2013. We continue to monitor and evaluate developments on this issue.
Environmental ImpactManagement Succession Planning
With scientific consensus Our board of directors recognizes that climate warming trends are linkedmanagement succession planning is a fundamental and ongoing part of its responsibilities. Our Nominating, Governance and Corporate Responsibility Committee has utilized a framework relating to human activitiesexecutive succession planning under which the Committee has defined specific criteria for, and resulting in various extreme weather events, we believeresponsibilities of, each of the Company is well positioned to generate attractive risk-adjusted returns by investing in, and managing a portfolioexecutive officer roles of assets that reduce climate changing carbon emissions. Further, with increasing weather related events affecting certain of our markets, we see similar investment opportunities in infrastructure assets that mitigate the impact of, and increase the resiliency to, these weather events and climate change.
Our investment thesis is basedCompany. The Committee then focuses on the following theories:
More efficient technologies are more productive and thus should leadskill set needed to higher economic returns;
Lower portfolio risk is inherentsucceed in a portfolio of smaller investments, generated by trends of increasing decentralization and digitalization of energy assets, compared to larger, centralized utility-scale investments;
Investing in assets aligned with scientific consensus and society’s general beliefs will reduce potential regulatory and social costs through better internalization of externalities; and
Assets that reduce carbon emissions represent an embedded option that may increase in value if carbon regulations were to set a price on carbon emissions.
As part of our investment process, we calculate the ratio of the estimated first year of metric tons of carbon emissions avoided by our investments divided by the capital invested to understand the impact our investments are having on climate change. In this calculation, which we refer to as CarbonCount®, we use emissions factor data, expressedthese roles both on a CO2 equivalent basis, fromlong-term and an emergency basis. Our Lead Independent Director also meets on this topic separately with our CEO and facilitates additional discussions with our independent directors about executive succession planning throughout the U.S. Government or the International Energy Administrationyear, including at executive sessions. Succession planning remains a priority for our Nominating, Governance and Corporate Responsibility Committee, which has worked with Mr. Eckel to ensure an estimate of a project’s energy production or savingsappropriate emergency succession protocol and to compute an estimate of metric tons of carbon emissions avoided. We estimate thatdevelop our investments originated in 2018 will reduce annual carbon emissions by approximately 496,000 metric tons.
In assessing our performance and results of operations, we also consider the impact of our operations on the environment. We utilize the carbon emissions categorizations established by the World Resources Institute Greenhouse Gas Protocol Corporate Standards to set goals and calculate our estimated emissions. The categorizations are as follows:
long-term succession plan.
Scope 1 GHG emissions - Direct emissions 26 -
- Emissions from operations that are owned or controlled by the reporting company.
Scope 2 GHG emissions - Indirect emissions - Emissions from the generation of purchased or acquired energy such as electricity, steam, heating or cooling, consumed by the reporting company.
Scope 3 GHG emissions - Indirect emissions - All other indirect emissions that occur in the value chain of the reporting company, including both upstream and downstream emissions.
The table below illustrates our goals and performance for 2018 in metric tons ("MT").
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Category | | Goal | | Performance | | Verification (3)
|
Scope 1 GHG emissions | | 0 MT | | 0 MT | | Bureau Veritas |
Scope 2 GHG emissions | | 0 MT | | 0 MT (1)
| | Bureau Veritas |
Scope 3 GHG emissions | | 0 MT2
| | 365 MT (2)
| | Bureau Veritas |
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(1) | Performance stated is market-based which includes the impact of purchasing renewable energy credits.
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(2) | Our stated actual performance for Scope 3 GHG emissions does not include the carbon emissions reductions as a result of our investments. The first year carbon emissions reductions as a result of our investments originated in 2018 are 496,000 MT. |
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(3) | In addition to our internal review, Bureau Veritas North America, Inc. was commissioned as an independent organization to verify our GHG emissions reporting as estimated in accordance with GHG measurement and reporting protocols of the World Resources Institute / World Business Council for Sustainable Development Greenhouse Gas Protocol Corporate Accounting and Reporting Standard (Scope 1, 2) and Corporate Value Chain Accounting and Reporting Standard (Scope 3). |
INFORMATION REGARDING OUR EXECUTIVE OFFICERS
Our Named Executive Officers and their ages as of April 11, 20198, 2021 are as follows:
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| | | | | | | |
Name | | Age |
Jeffrey W. Eckel | | 6062 |
Jeffrey A. Lipson | | 5153 |
Susan D. Nickey | | 60 |
Nathaniel J. Rose | | 43 |
Steven L. Chuslo | | 63 |
Daniel K. McMahon | | 49 |
Marc Pangburn | | 35 |
J. Brendan Herron | | 58 |
Nathaniel J. Rose | | 41 |
Steven L. Chuslo | | 61 |
Daniel K. McMahon | | 4760 |
Biographical information with respect to Mr. Eckel is set forth above under “Election of Directors—Information Regarding the Nominees for Election as Directors.”
Jeffrey A. Lipson, 51, joined the Company53, has served as our deputy chief financial officer in January 2019. Effective March 1, 2019, Mr. Lipson became an executive vice president and our chief operating officer since 2021 and chief financial officer. From 2013 until 2018,officer since 2019. Previously, Mr. Lipson was Presidentpresident and Chief Executive Officerchief executive officer and Directordirector of Congressional Bancshares and its subsidiary Congressional Bank; where he began as President and Chief Operating Officer in 2012. HeBank from 2013 to 2018. Mr. Lipson continues to serve on the Boardboard of Directorsdirectors of Congressional Bank. Prior to that, Mr. Lipson washas also been a senior vice president and the Senior Vice President and Treasurertreasurer of CapitalSource Inc. and its subsidiary CapitalSource Bank and Senior Vice President,a senior vice president, Corporate Treasury, at Bank of America and its predecessor FleetBoston Financial. Mr. Lipson received a Bachelor of Science degree in Economics from Pennsylvania State University in 1989 and a Masters in Business Administration in Finance from New York University’s Leonard N. Stern School of Business in 1993. Mr. Lipson serves on the Board of Directors of the Jewish Council for the Aging of Greater Washington.Washington
J. Brendan HerronSusan D. Nickey, , 58,60, has served as an executive vice president and our chief financialclient officer since 2013 andJanuary 2021. Ms. Nickey previously served inas a variety of roles at the predecessor of our company and its affiliatesmanaging director from 19942014 to 2005, and from 2011 to 2013. Effective March 1, 2019, Mr. Herron took on a leadership role2021. Ms. Nickey currently serves as an executive vice president focusedinterim treasurer on the company’s strategyboard of directors of the American Clean Power Association and growth initiatives. Mr. Herron has over 25 years of experience in structuring, executing and operating infrastructure and technology investments. He formerly servedalso serves on the U.S. Commerce Secretary’sboard of directors of the American Council of Renewable Energy and Energy Efficiency Advisory Committee andEnergy. Additionally, Ms. Nickey is presently a member of the BoardPresident’s Council at Ceres, a non-profit sustainability advocacy organization. Previously, she founded and served as CEO of Trustees of Calvert Hall College High School (Baltimore, MD). Mr. HerronThreshold Power. Ms. Nickey received a Bachelor in Business Administration from the University of Notre Dame in 1983 and a Master’s of Science degree in accounting and computer scienceForeign Service from LoyolaGeorgetown University Maryland in 1982 and a Master of Business Administration degree from Loyola University Maryland in 1987 and has passed the CPA and CMA examinations.1986.
Nathaniel J. Rose, CFA, 41,43, has been an executive vice president since 2015 and our chief investment officer since 2017.2017 and assumed the role of co-chief investment officer in January 2021. He served as our chief operating officer from 2015 to 2017, our chief investment officer from 2013 to 2015 and has been with the Company and its predecessor since 2000. He has been involved with a vast majority of our transactions since 2000. He earned a joint Bachelor of Science and Bachelor of Arts degree from the University of Richmond in 2000, a Master of Business Administration degree from the Darden School of Business Administration at the University of Virginia in 2009, is a CFA charter holder and has passed the CPA examination. He holds a Series 63 and 79 securities licenses.
Steven L. Chuslo, 61,63, has served as an executive vice president and our general counsel and secretary since 2013 and assumed the role of chief legal officer in January 2021. Previously, Mr. Chuslo has served with the predecessor of our company as general counsel since 2008.and secretary from 2008 to 2013. Mr. Chuslo is responsible for internal governance matters and is actively involved in structuring, developing, negotiating and closing transactions. He has more than 2530 years of experience in the fields of securities, commercial and project finance, and energy project development, and U.S. federal regulation and project finance.regulation. Mr. Chuslo received a Bachelor of Arts degree in History from the University of Massachusetts/Massachusetts Amherst in 1982 and a Juris Doctorate from the Georgetown University Law Center in 1990.
Daniel K. McMahon, CFA, 47,49, has served us as an executive vice president since 2015 and is the head of our portfolio management group. He has been with the Company and its predecessor since 2000 in a variety of roles, including as a senior vice president from 2007 to 2015. He has played a role in analyzing, negotiating, structuring, and managing several billion dollars of transactions. Mr. McMahon received his Bachelor of Arts degree from the University of California, San Diego in 1993, and is a CFA charter holder. He holds Series 24, 63 and 79 securities licenses.
Marc Pangburn, CFA, 35, has served as an executive vice president and a co-chief investment officer since January 2021. Mr. Pangburn joined the Company in 2013 and previously served as a managing director until 2021. Previously, Mr. Pangburn worked at MP2 Capital, a solar development and financing company, where he was responsible for structuring the firm’s transactions, and worked in the private capital group at New York Life Investments, focusing on utilities, energy and infrastructure debt and equity investments. Mr. Pangburn received his Bachelor of Arts degree in economics from Drew University and is a CFA charter holder
J. Brendan Herron, 60, has served as an executive vice president since 2013 and served as our chief financial officer from 2013 to 2019. Effective in April 2021, he will become a strategic advisor for the Company. He also served in a variety of roles at the predecessor of our company and its affiliates from 2011 to 2013 and from 1994 to 2005. He formerly served on the U.S. Commerce Secretary’s Renewable Energy and Energy Efficiency Advisory Committee and is presently a member of the Board of Trustees of Calvert Hall College High School (Baltimore, MD). Mr. Herron received a Bachelor of Science degree in accounting and computer science from Loyola University Maryland in 1982 and a Master of Business Administration degree from Loyola University Maryland in 1987 and has passed the CPA and CMA examinations.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
This Compensation Discussion and Analysis (“CD&A”&A”) describes the executive compensation program that was in place for 20182020 for our “chief“chief executive officerofficer” or “CEO,” or "CEO," our "CFO"“CFO,” and our next four most highly compensated executive officers. We refer to these individuals as our “Named“Named Executive Officers,” or “NEOs“NEOs.”
This CD&A explains the overall objectives, elements and policies underlying our NEO compensation program for 2018.2020. In general, our 20182020 compensation consisted of a base salary, an annual bonus paid in cash and stock based on our 20182020 performance and the 20182020 long-term equity incentive program. We also provide some forward-looking detail in regard to eachcurrent NEO's 20192021 base salary that was adjusted to be effective April 20192021 and annual bonus to be paid in cash and stock (if earned) based on our 20192021 performance. This discussion contains forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs.
The CD&A also details the annual equity bonus awarded in 20182020 for 20172019 performance. We provide this detail in compliance with the SEC Summary Compensation Table reporting rules, which require that all equity award values granted in the fiscal year of 20182020 be disclosed, despite the fact that these particular equity awards were made in connection with 20172019 performance.
Executive Summary
We focus oninvest in climate solutions that reduce carbon emissions and increase resilience to climate changedeveloped by providing capital to the leading companies in the energy efficiency, renewable energy and other sustainable infrastructure markets. We believe we are one of the first U.S. public companies solely dedicated to such climate change investments. Our goal is to generate attractive returns for our stockholders by investing infrom a diversified portfolio of investments that generateprojects with long-term, recurring and predictable cash flows from proven commercial technologies.technologies that reduce carbon emissions or increase resilience to climate change.
We believe we were one of the first U.S. public companies focused exclusively on making investments in climate change solutions. Our investments, which typically benefit from contractually committed high credit quality obligors, have taken a number of forms including equity, joint ventures, land ownership, lending or other financing transactions. We also generate ongoing fees through gain-on-sale securitization transactions, services and asset management.
We are internally managed, and our management team has extensive relevant industry knowledge and experience, dating back more than 30 years. We have long-standing relationships with the leading energy service companies, (“ESCOs”), manufacturers, project developers, utilities, owners and operators. Our origination strategy is to use these relationships to generate recurring, programmatic investment and fee generatingfee-generating opportunities. Additionally, we have relationships with leading banks, investment banks, and institutional investors from which we are referred additional investment and fee generating opportunities.
Executive Compensation Program Objectives
The Compensation Committee of our board of directors is responsible for establishing and administering policy with respect to the compensation of our NEOs on an annual basis. We are committed to providing an executive compensation program that supports the following goals and philosophies:
• aligning our management team’s interests with those of our stockholders, including our continued investment in solutions that reduce carbon emissions and increase resilience to climate change;
• motivating and rewarding our management team for executing our operational plans with a focus on sustainable long-term growth in a manner that is consistent with appropriate risk-taking based on sound corporate governance practices; and
• attracting and retaining an experienced and effective management team while also maintaining an appropriate expense structure.
Structure of Our Executive Compensation Program
As discussed in more detail herein, our executive compensation program is comprised of the following primary compensation elements:
• base salary, which is an element of compensation set at levels that are commensurate with our NEOs positions and provide fixed pay to attract and retain our NEOs, taking into account our budgeted operating expenses;
• incentive compensation (annual bonus) that is payable in cash or equity that vests over a period of time from date of grant and is based on achievement of certain quantitative and qualitative corporate and individual performance objectives; and
• long-term equity incentive program comprised of awards subject to both time-based and performance-based vesting that are designed to meet both our long-term growth and retention objectives.
For 2018,2020, over 75% of our targeted executive compensation was variable or equity-based (as opposed to a fixed cash amount) as shown below:
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| | Percentage of 20182020 Targeted Compensation |
Compensation Element | Type of Compensation | Mr. Eckel | Other Named Executive Officers |
Annual base salary | Fixed | 13% | 18%19% to 23%24% |
Annual cash or equity incentive | Variable / Equity-based | 24% | 23% to 30%31% |
Long-term equity incentive program | Variable / Equity-based | 63% | 49%45% to 59%58% |
Our Compensation Committee believes having a significant portion of variable or equity-based compensation achieves our goals of encouraging high performance, promoting accountability, retaining skilled and diverse leadership and motivating our executives to achieve our business objectives and aligning their interests with those of our stockholders.
Overview of 20182020 Performance and our Pay for Performance Philosophy
One of the guiding principles underlying the Compensation Committee’s executive compensation philosophy is that compensation should encourage and reward strong financial and operational performance. Our executive compensation philosophy is also implicitly linked to ESG performance, as our financial performance is driven in part from investments that address climate change. In furtherance of this philosophy, the Compensation Committee established the 20182020 annual incentive plan with quantitative and qualitative performance goals based upon the Company’s strategic goals. The quantitative goals were intended to focus our NEOs on the key financial metrics that impact the Company’s results and stockholder value, including CoreDistributable Earnings per share and CoreDistributable ROE. The qualitative goals included an evaluation of overall performance of each NEO. Set forth below is graphical illustration of our Core Earnings and Core ROE growth from 2017
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Higher recurring net investment income due to 2018.
Strongsignificant origination volumes, a continued reduction to our financing costs, and higher gain-on-salecontinued strength in gain on sale and other fee income helpedcontributed to overcome a flattening yield curve and higher interest expense, causing Core Earnings and Core ROE to exceed our predetermined corporate targets for these measures.successful year. This resulted in Distributable Earnings per
share and Distributable ROE exceeding our predetermined targets which, when taken together, entitled the NEOs being entitled to receive 145%200% of their target corporate performance bonus amounts, which was 70% of NEO incentive compensation. TheIt was also determined, based on Compensation Committee evaluation and input from the CEO, that the NEOs had performed at expected levels on their individual performance measures, which comprised the remaining 30% was based on an evaluation of individual performance.such NEO compensation. The calculated corporate performance combined with individual performance resulted in the NEOs receiving an average of 135%170% of their target incentive compensation, an increase from approximately 80% for 2017.106% from 2019.
Our 20182020 results would not have been achieved without the leadership and efforts of the NEOs, and the results had a direct impact on the compensation decisions. In making its compensation decisions to be paid in 2019,2021, the Compensation Committee recognized the 20182020 results and achievements noted above, the performance of the Company and the NEOs, the performance of the Company as compared to other companies in our peer group (as defined below) and the contributions and accomplishments of our NEOs to our continuing growth.
Our Executive Compensation Program Best Practices
Our executive compensation program incorporates the following best practices:
• Compensation Committee comprised solely of independent directors.
• Independent compensation consultants that are engaged directly by the Compensation Committee and providesprovide no other services to management or the Company.
• Compensation structure with targeted compensation that is predominately variable based on performance and equity-based.
• Compensation Committee reviewedreviews and consideredconsiders total compensation for each NEO against a peer group (as defined below).
• Robust stock ownership guidelines.
Recoupment• Clawback policy for the recoupment of performance or incentive-based compensation in the event of an accounting restatement due to material noncompliance by the Company with any financial reporting requirements under the securities laws.
• Limited executive perquisites.
• Hedging, pledging and margin accounts related to our Common Stock not permitted by any of our NEOs.
• Equity incentive plan that prohibits repricing of stock options without prior stockholder approval.
• Equity incentive plan provides that equity awards are subject to a minimum vesting period of no less than one year.
Process for Setting Executive Compensation
The Compensation Committee has primary responsibility for setting and approving the compensation of our chief executive officer and reviewing, approving and recommending to our board of directors, compensation for our other NEOs in a manner that is effective and consistent with our overall executive compensation strategy. As part of that responsibility, the Compensation Committee reviews on an individual basis the performance of our NEOs. As part of its process for reviewing the performance of our NEOs for 2018,2020, the Compensation Committee considered the recommendations of our chief executive officer, with respect to the compensation of our NEOs.
The Compensation Committee typically reviews compensation levels for our NEOs near the beginning of each calendar year in determining base salaries and budgeted amounts for total compensation for the new fiscal year, and then meets again following the end of such fiscal year to review the Company’s and the NEOs’ actual performance, at which time it makes determinations with respect to adjustments to base salary, annual cash and equity bonuses and our long-term equity incentive program. As part of its annual review of the compensation paid to our NEOs, the Compensation Committee typically considers a number of factors in determining or structuring compensation, including the nature of the executive’s job and the responsibilities related thereto, the executive’s job performance compared to goals and objectives established for the Company and the executive at the beginning of the year, the experience level of the executive in his or her current position, the compensation levels of competitive jobs within our peer group (as defined below), our financial performance and financial condition, the execution of our investment and financing strategy, the impact of compensation determinations on our budgeted operating expense ratios and certain other quantitative and qualitative factors. These factors described above may vary from year to year in importance to, and usage by, the Compensation Committee, depending upon market conditions, corporate priorities and individual circumstances.
From 2016 to July 2019, the Compensation Committee engaged FTI to provide advice regarding the executive compensation program for our senior management team and board of directors, including analysis and recommendations regarding (1) base salaries, annual bonuses, including the mix of cash and equity, and long-term incentive compensation for our executive management team, (2) the director compensation program for independent members of our board of directors, and (3) other matters as requested by the Compensation Committee. TheFrom 2018, the Compensation Committee also engaged Pay Governance, a compensation consulting firm, to report to the Compensation Committee on the setting of certain annual bonus targets for our NEOs. FTI and Pay Governance report directly toIn July 2019, the Compensation Committee replaced FTI with Pay Governance as its primary compensation consultant. Pay Governance was also engaged by the Compensation Committee in March 2021 to ascertain the benefits of adopting a DEIJ policy as well as proposing various performance standards related to the promotion of such policy as it relates to the composition of the members of the Company’s board of directors and they have not performed,leadership team against which annual CEO and do not currently provide, anythe other services to management orNEOs’ compensation would be evaluated by the Company.board of directors.
As part of the annual review of compensation payable to each of our NEOs, the Compensation Committee typically considers the compensation practices and levels at other companies that it deems generally comparable in structure and strategy. For 2018,2020, this consideration was based on an October 2018 FTIa July 2019 Pay Governance peer group development report that includesincluded other internally managed mortgage REITs or specialty-finance or renewable energy companies with market capitalizations ranging from approximately $0.6$0.7 billion to $2.3 billion as compared to our market capitalization at the same time of approximately $1.1$1.9 billion. We sometimes refer to this group as our “peer group” for purposes of determining compensation.
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Arbor Realty Trust, Inc. | Pattern Energy Group Inc. * |
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Capstead Mortgage Corporation | Redwood Trust, Inc. |
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Hercules Capital, Inc. | SunPower Corporation*Corporation |
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HFF, Inc. * | Sunrun Inc.* |
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iStar Inc. | TPI Composites, Inc.* |
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Ladder Capital Corp. | Vivint Solar, Inc.* |
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Main Street Capital Corporation | Walker & Dunlop, Inc. |
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New York Mortgage Trust, Inc. | |
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* | Added to the peer group in 2018. The following companies were removed from the peer group in 2018 due to changes in their business, size, or their business model not being comparable to ours: CYS Investments, Inc., NewStar Financial, Inc., PHH Corporation, and Triangle Capital Corporation. |
* For purposes of evaluating comparative compensation levels for 2021 and thereafter, a change occurred in December 2020 that removed these companies from the peer group as they were no longer publicly traded. They were replaced with Plug Power, Inc., First Solar, Inc., Iron Mountain, Inc., CoreSite Realty Corporation, and Uniti Group Inc.
The Compensation Committee works jointly with management and the compensation consultant to design and implement oura compensation plan that combines the elements of current cash compensation in the form of a base salary, an annual bonus (payable in cash and equity) and long-term equity incentive compensation in one plan, which we refer to as the executive compensation program, the components of which are described below. The Compensation Committee and our board of directors approved the program on an annual basis for the purpose of (i) attracting and retaining top performing employees, (ii) motivating employees by tying compensation directly to our financial performance, and (iii) rewarding exceptional individual performance that supports our overall objectives. The Compensation Committee believes that by issuing both cash and equity incentive awards based on an individual’s achievement of the performance criteria, the executive compensation program allows us to more closely match the incentives of our NEOs with both the long and short-term goals of the business while also improving our ability to monitor the results of our compensation program.
The Compensation Committee also reviews and makes recommendations to our board of directors annually with respect to the compensation of our independent directors. In setting director compensation, our board of directors generally considers the compensation practices and levels for directors paid by our peer group, as well as the expected time commitment from the independent directors in such year.
Scope of Authority of Compensation Committee
The Compensation Committee has overall responsibility for approving, evaluating and, in some cases, recommending to theour board of directors, on an annual basis, director and officer compensation plans, policies and programs of the Company, including determining salaries, annual cash bonuses, equity awards, change in control and termination arrangements and director fees. Pursuant to its charter, the Compensation Committee has the sole authority to retain, terminate and pay any compensation consultant to be used to assist in the evaluation of director and senior executive compensation, as well as the authority to retain special legal, accounting or other consultants to advise the committee and may form subcommittees and delegate its authority to such subcommittees. No subcommittees were formed by the Compensation Committee in 2018.2020.
Executive Compensation Program Components
The following provides an overview of our approach to each primary element of our NEO compensation program and an analysis of the compensation paid under each of these elements. Equity incentives are granted under the 2013 Hannon Armstrong Sustainable Infrastructure Capital, Inc. Equity Incentive Plan, as amended (the “Equity“Equity Incentive Plan”Plan”).
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Compensation Element | Objective | Key Features |
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Base Salary (Cash) | • Provides a fixed element of compensation commensurate with each NEOs position and responsibility. | • Adjustments are generally considered annually based on individual performance, level of pay relative to the market and our peer group, internal pay equity, and retention issues. |
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Annual Incentive Compensation (Cash and Equity) | • Provides an annual incentive or bonus based upon our overall corporate and individual performance as well as objective and subjective performance criteria that are aligned with the strategic direction of the Company. | • Compensation Committee approves the overall corporate and individual performance measures as well as objective and subjective performance criteria on an annual basis. • Compensation Committee determines allocation between cash and equity on an annual basis, as well as the vesting criteria of the annual equity awards. |
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Long-term incentive program (Equity) | • Provides equity-based incentives that contain multi- year vesting and/or performance criteria in order to further our retention objectives and align the interests of our NEOs with those of our stockholders over a longer time period. | • Compensation Committee determines allocation between time-based and performance-based awards. • Compensation Committee determines the performance targets and vesting criteria. |
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Health Welfare, and Other Benefits | • Offers all eligible employees a competitive benefits package, which includes health and welfare benefits, such as 401(k), medical, dental, disability insurance, and life insurance benefits. | • The plans under which these benefits are offered do not discriminate in scope, terms or operation in favor of officers and are available to all eligible employees. |
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Perquisites and Other Benefits | • Other than key man life insurance and disability benefits provided to Mr. Eckel as described below, we do not provide any perquisites and do not intend to provide perquisites exceeding $15,000 in the aggregate to our NEOs because we believe that we can provide better incentives for desired performance with compensation in the forms described above. | • N/A |
In terms of compensation paid to our NEOs, we have generally provided lower annual base salaries and target annual bonuses thanbonus opportunities within a competitive range of the median of the peer group with a higher level of long-term incentive equity compensation. For example, the 2018 annual base salary and target bonus of our chief executive officer that was earned in 2018 was approximately $1.8 million as compared to a median chief executive officer annual base salary and bonus of the peer group of approximately $2.0 million. The total target compensation of our chief executive officer including the 2018 long-term incentive grant was approximately $4.7 million. This was approximately at the 60th percentile of the total 2018 target compensation of the chief executive officers of our peer group, which ranged from approximately $2.0 million to approximately $14.6 million. We do not, however, have a policy of targeting compensation for our NEOs to any specific level within the range of total compensation paid by our peer group (i.e., median, upper or lower); rather, we have attempted to structure our executive compensation program and to compensate our NEOs in a manner that is both competitive enough to retain their services and rewards their performance, hard work and dedication, but is also consistent with our needs to maintain an appropriate expense structure.
Base Salary
Base salary, which represents the fixed element of our executive compensation program, provides for basic economic security at a level that allows us to retain the executive’s services. The Compensation Committee generally establishes annual base salaries for our NEOs commensurate with the level of experience that the executive brings to the position, the nature of the responsibilities required of the executive, such as whether the executive is performing in multiple roles, how successful the executive is in achieving goals established by the Compensation Committee and the executive’s contributions to the Company, but does not assign any specific weights to these factors. As discussed in other parts of this CD&A, the Compensation Committee also considers the size of the Company and our budgeted operating expenses in setting annual base salaries. Base salaries are reviewed and may be adjusted to better match competitive market levels or to recognize an executive’s professional growth and development, increased responsibility or other discretionary factors. The table below reflects the annual salary of our NEOs with increases effective in April of each of the years:
| | Name | | 2017 Annual Salary ($) | | 2018 Annual Salary ($) | | 2019 Annual Salary ($) | Name | | 2019 Annual Salary ($) | | 2020 Annual Salary ($) | | 2021 Annual Salary ($) (1) |
Jeffrey W. Eckel | | 619,500 | | 639,500 | | 639,500 | Jeffrey W. Eckel | | 639,500 | | 639,500 | | 825,000 |
Jeffrey A. Lipson (1) | | - | | - | | 350,000 | |
J. Brendan Herron | | 360,000 | | 380,000 | | 400,000 | |
Jeffrey A. Lipson | | Jeffrey A. Lipson | | 350,000 | | 400,000 | | 525,000 |
J. Brendan Herron (2) | | J. Brendan Herron (2) | | 400,000 | | 400,000 | | — |
Nathaniel J. Rose | | 343,875 | | 363,875 | | 380,000 | Nathaniel J. Rose | | 380,000 | | 390,000 | | 415,000 |
Steven L. Chuslo | | 355,000 | | 360,000 | | 360,000 | Steven L. Chuslo | | 360,000 | | 370,000 | | 395,000 |
Daniel K. McMahon | | 322,000 | | 342,000 | | 355,000 | Daniel K. McMahon | | 355,000 | | 365,000 | | 390,000 |
M. Rhem Wooten Jr. (2) | | 343,500 | | 343,500 | | - | |
Susan D. Nickey | | Susan D. Nickey | | — | | — | | 370,000 |
Marc Pangburn | | Marc Pangburn | | — | | — | | 370,000 |
(1) Ms. Nickey and Mr. Lipson joined the CompanyPangburn are included in 2019 and was appointed chief financial officer and became an NEO on March 1, 2019.this chart to show 2021 salaries for new NEOs.
(2) Mr. Wooten retired fromHerron will transition to a strategic advisor consulting role for the Company effectiveas of April 30, 2018. 18, 2021, the details of which are disclosed on form 8-K filed with the SEC.
The determination to increase base salaries in 20192021 for certain of our NEOs was driven by the performance of our NEOs and our desire to establish a base salary that is more competitive with comparable base salaries.in the market.
Annual Incentive Compensation or Bonuses
Annual incentive compensation, in the form of cash incentive compensation and equity incentive awards subject to time-based vesting conditions, is available to each of the NEOs under our executive compensation program, with the Compensation Committee determining the allocation between cash and equity. Incentive compensation serves as a means of linking annual compensation both to our overall performance and to objective and subjective performance criteria that are aligned with the Company’s strategic direction.
We provided our NEOs with the opportunity to earn annual incentive compensation for achieving corporate financial and non-financial goals for performance in 20172019 and 2018.2020. These bonus awards, which provide for no minimum award or guaranteed payment, are comprised of two parts: a quantitative component and a qualitative component.
The following chart summarizes the target bonus percentage and actual awarded bonus percentages for 20172019 and 20182020 calculated as a percentage of the base salary at the end of the respective year.
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Name | | 2017 Target Bonus (%) | | 2018 Target Bonus (%) | | 2017 Actual Bonus (%) | | 2018 Actual Bonus (%) |
Jeffrey W. Eckel | | 150 | | 175 | | 114 | | 222 |
J. Brendan Herron | | 125 | | 125 | | 101 | | 219 |
Nathaniel J. Rose | | 125 | | 150 | | 101 | | 184 |
Steven L. Chuslo | | 125 | | 125 | | 101 | | 164 |
Daniel K. McMahon | | 125 | | 125 | | 101 | | 164 |
M. Rhem Wooten Jr. (1) | | 125 | | 125 | | 101 | | - |
(1) Mr. Wooten retired from the Company effective April 30, 2018. | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name | | 2019 Target Bonus (%) | | 2020 Target Bonus (%) | | 2019 Actual Bonus (%) | | 2020 Actual Bonus (%) |
Jeffrey W. Eckel | | 175 | | 175 | | 186 | | 298 |
Jeffrey A. Lipson | | 125 | | 125 | | 135 | | 212 |
J. Brendan Herron | | 125 | | 125 | | 133 | | 220 |
Nathaniel J. Rose | | 150 | | 150 | | 158 | | 255 |
Steven L. Chuslo | | 125 | | 125 | | 133 | | 213 |
Daniel K. McMahon | | 125 | | 125 | | 130 | | 213 |
The target bonus percentages for 20192021 are unchanged from 20182020 other than the additionMr. Lipson's, which increased to 150% of a 125% target bonus percentage for Mr. Lipson.his base salary.
20172019 Bonus Awards awarded in 20182020
For 2017, our NEOs incentive compensation was weighted such that 80% was based on quantitative corporate performance measures and 20% was based on an evaluation of individual performance except for Mr. Eckel, our CEO whose incentive compensation was 100% based on quantitative corporate performance measures. The following table sets forth the quantitative company performance measure hurdles and corresponding incentive compensation payouts for each of the NEOs under the quantitative component of the incentive plan:
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Corporate Performance Objectives | | Weighting | | Quantitative Company Performance Hurdle (1) | | Payout as a % of Target Upon Achievement of Hurdle (1) | | Actual Performance |
2017 Core Earnings / share | | 60% | | $1.25 – $1.32 | | 50% | | |
| | | | $1.32 | | 100% | | $1.27 |
| | | | $1.32 – $1.39 | | 150% | | |
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Net interest margin (dollars in millions) (2) | | 15% | | $68.2 - $71.75 | | 50% | | |
| | | | $71.75 | | 100% | | $61.3 |
| | | | $71.75-$75.3 | | 150% | | |
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Efficiency ratio (3) | | 15% | | 21% | | 50% | | |
| | | | 20% | | 100% | | 20% |
| | | | 19% | | 150% | | |
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Net credit losses, as % of total assets (4) | | 10% | | <0.11% | | 100% | | 0.0% |
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(1) | Actual results were interpolated between the values below, with exception of the net credit losses. |
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(2) | Net interest margin is not a financial measure calculated in accordance with GAAP. It is calculated as total interest income plus rental income plus core equity method investments earnings plus amortization of intangibles, less interest expense. Core equity method investments earnings and amortization of intangibles are located on page 73 of our Form 10-K for the year ended December 31, 2017. The other amounts are located on page 87 of our Form 10-K for the year ended December 31, 2017. Our Form 10-K for the year ended December 31, 2017, was filed with the SEC on February 23, 2018. |
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(3) | The efficiency ratio is not a financial measure calculated in accordance with GAAP. A lower efficiency ratio indicates a more efficient use of compensation and general and administrative expenses to generate revenue. It is calculated as compensation and benefits expense plus general and administrative expense, divided by total revenue plus core equity method investments earnings and amortization of intangibles. Compensation and benefits expense, general and administrative expense and total revenue are located on page 87 of our Form 10-K for the year ended December 31, 2017. Core equity method investments earnings and amortization of intangibles are located on page 73 of our Form 10-K for the year ended December 31, 2017. Our Form 10-K for the year ended December 31, 2017 was filed with the SEC on February 23, 2018. |
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(4) | Net credit losses is the dollar amount of any provision for credit losses as disclosed on page 87 of our Form 10-K for the year ended December 31, 2017, filed with the SEC on February 23, 2018. We realized no credit losses in 2017. |
The calculated achievement of corporate goals was approximately 63% and there was a 100% payout on qualitative measures. For 2017, the Compensation Committee determined that the measures taken to increase fixed-rate debt given the interest rate environment were in the best interest of the Company, and as such increased the total award for each NEO so that each received approximately 80% of their targeted bonus value. In accordance with the 2017 Bonus Awards, our NEOs received the following amounts of total incentive compensation for 2017 that was paid or granted in 2018:
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Name | | Total Incentive Compensation Earned in 2017 ($) | | % of Incentive Compensation Paid in Cash | | % of Incentive Compensation Paid in Restricted Stock (1) |
Jeffrey W. Eckel | | 707,624 | | — | | 100 |
J. Brendan Herron | | 363,816 | | — | | 100 |
Nathaniel J. Rose | | 347,515 | | — | | 100 |
Steven L. Chuslo | | 358,752 | | — | | 100 |
Daniel K. McMahon | | 325,405 | | — | | 100 |
M. Rhem Wooten Jr. (2) | | 347,133 | | — | | 100 |
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(1) | Shares of restricted Common Stock issued as part of the annual incentive compensation are issued from our Equity Incentive Plan, valued at $19.11 per share, the closing price of our Common Stock on the NYSE on the date of grant. The shares vest in May 2019, other than for Mr. Wooten. See footnote 2 below for details regarding Mr. Wooten's awards. |
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(2) | Mr. Wooten retired from the Company effective April 30, 2018. Upon his retirement, all unvested restricted Common Stock awarded to Mr. Wooten vested. |
2018 Bonus Awards awarded in 2019
For 2018, our NEOs incentive compensation was weighted such that 70% was based on quantitative corporate performance measures and 30% was based on an evaluation of individual performance. The following table sets forth the quantitative companycorporate performance measure hurdles and corresponding incentive compensation payouts for each of the NEOs under the quantitative component of the incentive plan:
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Corporate Performance Objectives (1) | | Weighting | | Quantitative Company Performance Hurdle (1) | | Payout as a % of Target Upon Achievement of Hurdle (1) | | Actual Performance |
2019 Distributable Earnings / share | | 75% | | $1.30 - $1.40 | | 50% | | |
| | | | $1.40 | | 100% | | $1.40 |
| | | | $1.40 - $1.47 | | 150% | | |
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2019 Distributable ROE | | 25% | | 9.0% - 10.0% | | 50% | | |
| | | | 10.0% | | 100% | | 10.5% |
| | | | 10.0%-10.5% | | 150% | | |
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Corporate Performance Objectives | | Weighting | | Quantitative Company Performance Hurdle (1) | | Payout as a % of Target Upon Achievement of Hurdle (1) | | Actual Performance |
2018 Core Earnings / share (2) | | 75% | | $1.22 – $1.32 | | 50% | | |
| | | | $1.32 | | 100% | | $1.38 |
| | | | $1.32 – $1.39 | | 150% | | |
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2018 Core ROE (3) | | 25% | | 9.0% - 10.0% | | 50% | | |
| | | | 10.0% | | 100% | | 11.1% |
| | | | 10.0%-10.5% | | 150% | | |
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(1) In 2020, we changed the name of Core Earnings and Core ROE to Distributable Earnings and Distributable ROE with no change in the historical method of calculation.
(2) Actual results were interpolated between these values.
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(1) | Actual results were interpolated between the values below. |
The calculated achievement of corporate goals was approximately 145%111% which, when combined with qualitative measures, resulted in our NEOs receiving an average of 106% of their targeted bonus. In accordance with the 2019 Bonus Awards, our NEOs received the following amounts of total incentive compensation for 2019 that was paid or granted in 2020:
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Name | | Total Incentive Compensation Earned in 2019 ($) | | % of Incentive Compensation Paid in Cash | | % of Incentive Compensation Paid in Restricted Stock (1) |
Jeffrey W. Eckel | | 1,528,281 | | 50 | | 50 |
Jeffrey A. Lipson | | 604,835 | | 50 | | 50 |
J. Brendan Herron | | 681,613 | | 50 | | 50 |
Nathaniel J. Rose | | 771,913 | | 50 | | 50 |
Steven L. Chuslo | | 614,892 | | 50 | | 50 |
Daniel K. McMahon | | 594,233 | | 50 | | 50 |
(1) Each NEO was awarded a dollar value bonus based on the achievement of corporate goals and qualitative measures as described above, which was then allocated between cash and equity using the percentages in this chart. The number of shares of restricted Common Stock awarded to each NEO was determined by dividing the equity portion of the awarded bonus by $19.78, the closing price of our Common Stock on the NYSE on January 2, 2019. The shares of restricted Common Stock are issued from our Equity Incentive Plan and are valued at $31.00 per share, the closing price of our Common Stock on the NYSE on the date of grant, and vest in May 2021.
2020 Bonus Awards awarded in 2021
For 2020, our NEO incentive compensation was weighted such that 70% was based on quantitative corporate performance measures and 30% was based on an evaluation of individual performance. The following table sets forth the quantitative corporate performance measure hurdles and corresponding incentive compensation payouts for each of the NEOs under the quantitative component of the incentive plan:
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Corporate Performance Objectives | | Weighting | | Quantitative Company Performance Hurdle (1) | | Payout as a % of Target Upon Achievement of Hurdle (1) | | Actual Performance |
2020 Distributable Earnings / share | | 75% | | $1.34 - $1.45 | | 50% | | |
| | | | $1.45 | | 100% | | $1.55 |
| | | | $1.45 - $1.52 | | 200% | | |
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2020 Distributable ROE | | 25% | | 9.5% - 10.0% | | 50% | | |
| | | | 10.0% | | 100% | | 10.7% |
| | | | 10.0%-10.5% | | 200% | | |
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(1) Actual results were interpolated between these values.
The calculated achievement of corporate goals was 200%, which, when combined with qualitative measures, resulted in our NEOs receiving an average of 135%170% of their targeted bonus. In accordance with the 20182020 Bonus Awards, our NEOs received the following amounts of total incentive compensation for 20182020 that was paid or granted in 2019:2021:
| | Name | | Total Incentive Compensation Earned in 2018 ($) | | % of Incentive Compensation Paid in Cash | | % of Incentive Compensation Paid in Restricted Stock (1) | Name | | Total Incentive Compensation Earned in 2020 ($) | | % of Incentive Compensation Paid in Cash | | % of Incentive Compensation Paid in LTIP Units or Restricted Stock (1) |
Jeffrey W. Eckel | | 1,421,289 | | 100 | | — | Jeffrey W. Eckel | | 2,608,564 | | 50 | | 50 |
Jeffrey A. Lipson | | Jeffrey A. Lipson | | 1,165,413 | | 50 | | 50 |
J. Brendan Herron | | 830,440 | | 75 | | 25 | J. Brendan Herron | | 1,206,579 | | 50 | | 50 |
Nathaniel J. Rose | | 669,985 | | 100 | | — | Nathaniel J. Rose | | 1,363,565 | | 50 | | 50 |
Steven L. Chuslo | | 589,500 | | 100 | | — | Steven L. Chuslo | | 1,078,032 | | 50 | | 50 |
Daniel K. McMahon | | 561,094 | | 100 | | — | Daniel K. McMahon | | 1,063,468 | | 50 | | 50 |
M. Rhem Wooten Jr. (2) | | — | | — | | — | |
We believe that growth in stockholder return is important to investors and is an appropriate measure of our long-term success. The use of stockholder return was based upon an analysis of the measures used by the other companies in our peer group. The Compensation Committee allocated the remaining portion of the annual award in the form of time-vested restricted Common Stock.Stock or, at the election of the officer, time-restricted LTIP units. This allocation satisfies the need for a useful retention tool, given that in our market there is a demand for experienced executive talent. The service-based award furthers our goal of aligning the long-term interests of our NEOs with those of our stockholders as it subjects our NEOs to the downside risk of a decrease in compensation if the price of our Common Stock declines.