Appendix – Definitions and GAAP Reconciliation
Debt-to-Equity
Definition: Borrowings outstanding on repurchase facilities, securitized debt obligations, asset-specific financings, convertible senior notes and senior secured term loan facilities, less cash, divided by our Nominating and Corporate Governance Committee and nominated by our Board. Except as described below, there were no arrangements or understandings between any director nominee and any other person pursuant to which they were selected as a director nominee. There are no family relationships between any director nominee and our executive officers. If elected, it is expected that each of the director nominees will be able to serve, but if any such nominee is unable serve or for good cause will not serve, the proxies reserve discretion to vote or refrain from voting for a substitute nominee or nominees.total stockholders’ equity.
We believe that each of the director nominees displays personal and professional integrity; satisfactory levels of education and/or business experience; business acumen; an appropriate level of understanding of our business and its industry and other industries relevant to our business; the ability and willingness to devote adequate time to the work of our Board and its Committees; a fit of skills and personality with those of our other directors that helps build a board that is effective and responsive to the needs of our Company; strategic thinking and a willingness to express ideas; a diversity of experiences, expertise and background; and the ability to represent the interests of our stockholders. The information presented below regarding each director nominee also sets forth specific experience, qualifications, attributes and skills that led our Board to conclude that he or she should be nominated to stand for election to serve as a director.Distributable Earnings
Stephen G. Kasnet is an independent member and the Chairman of our Board. He has served as a director of the Company since its inception. Mr. Kasnet also serves as Chairman of the Board of Directors, chair of the audit committee and a member of the risk oversight committee of Two Harbors Investment Corp., a hybrid mortgage real estate investment trust (NYSE: TWO), or Two Harbors, since 2009, and served as a director of Silver Bay Realty Trust Corp., a real estate investment trust (NYSE: SBY), or Silver Bay, from 2012 to 2017. Mr. Kasnet was also a director of Columbia Laboratories, Inc., a specialty pharmaceuticals company (NASDAQ: CBRX), now Juniper Pharmaceuticals, from August 2004 to June 2015, including as Chairman of the Board from November 2004 to June 2015. From 2007 to 2009, Mr. Kasnet was the Chairman of Dartmouth Street Capital LLC, a private investment firm. He was also the President and Chief Executive Officer of Raymond Property Company LLC, a real estate company, from 2007 through October 2009. From 2000 to 2006, he was President and Chief Executive Officer of Harbor Global Company, Ltd., an asset management, natural resources and real estate investment company, and President of PIOglobal, a RussianDEFINITION AND USE
real estate investment fund. From 1995 to 1999, Mr. Kasnet was a director and member of the Executive Committee of The Bradley Real Estate Trust, a real estate investment trust. He was Chairman of Warren Bank, a state commercial bank, from 1990 to 2003. Mr. Kasnet has also held senior management positions with other financial organizations, including Pioneer Group, Inc., First Winthrop Corporation and Winthrop Financial Associates; and Cabot, Cabot and Forbes, a real estate development firm. He served as Chairman of the Board of Rubicon Ltd., an international investor in forestry related industries (NZX: RBC), from 2004 to 2018, as a director of First Ipswich Bancorp, a holding company for The First National Bank of Ipswich which is owned by Brookline Bancorp, Inc., from 2008 to 2020, and as a director of GoodBulk Ltd., a cargo company, from 2017 to 2019. He served as a director and Chairman of Tenon Ltd., a wood products company, from 2016 to 2018. He is also a trustee of the board of the Governor’s Academy, a private coed boarding high school in Byfield, Massachusetts. Mr. Kasnet received a B.A. from the University of Pennsylvania. Mr. Kasnet was initially appointed to our Board pursuant to a Director Designation Agreement, between us and Two Harbors, entered into in connectionBeginning with our formation transaction and initial public offering, or our IPO. We believe Mr. Kasnet is qualified to serve as a director of the Company because of his broad business background, extensive experience as a director of public companies and his qualification as an audit committee financial expert.
John (“Jack”) A. Taylor is our President and Chief Executive Officer, a member of our Investment Committee and a member of our Board. Mr. Taylor has been a director and executive officer of the Company since its inception. Mr. Taylor has also served as Global Head of Commercial Real Estate of our company’s external manager, Pine River Capital Management L.P., or our Manager, since November 2014. Prior to joining our Manager, Mr. Taylor served as a Managing Director and Head of Global Real Estate Finance for Prudential Real Estate Investors (now known as PGIM Real Estate Company), a commercial real estate investor, from 2009 to November 2014, where he was also a member of the Global Management Committee and chaired the Global Investment Committee for debt and equity. From 2003 to 2007, Mr. Taylor was a partner at Five Mile Capital Partners LLC, an alternative investment and asset management company. Prior to Five Mile Capital Partners, he was co-head of real estate investment banking for the Americas and Europe at UBS Group AG, a Swiss multinational investment bank and financial services company. He previously led the Real Estate Group at PaineWebber & Co., an investment bank and stock brokerage firm, and servedAnnual Report on the firm’s Operating Committee. He was head trader and manager of the CMBS and Principal Commercial Mortgage business for Kidder, Peabody & Co., Inc., a securities firm. Mr. Taylor was a founding governor of the Commercial Mortgage Securities Association (now the Commercial Real Estate Finance Council) and a member of the President’s Council of the Real Estate Roundtable. Mr. Taylor received a J.D. from Yale Law School, a MSc. in international relations from the London School of Economics and Political Science and a B.A. in philosophy from the University of Illinois. We believe Mr. Taylor is qualified to serve as a director of the Company because of his role as the Company’s Chief Executive Officer and his extensive knowledge of, and experience in, the commercial real estate markets in which the Company operates.
Tanuja M. Dehne is an independent member of our Board and has served as a director of the Company since its inception. Ms. Dehne has also served as a director of Advanced Disposal Services, Inc., a solid waste collection company (NYSE: ADSW), since May 2017. Ms. Dehne is currently the President and Chief Executive Officer of the Geraldine R. Dodge Foundation since September 2019. From December 2012 until May 2017, Ms. Dehne served as an independent director of Silver Bay. From October 2014 through April 2016, she was the Executive Vice President, Chief Administrative Officer and Chief of Staff of NRG Energy, Inc., a power generation and retail electricity company (NYSE: NRG). In this role, Ms. Dehne oversaw NRG’s Human Resources, Information Technology, Communications, Corporate Marketing and Sustainability Departments, including the company’s charitable giving program, mergers and acquisition integrations and Big Data Analytics. Prior to these positions, she was the Senior Vice President, Human Resources of NRG since 2011, where she led NRG’s Human Resources department, which handled all HR functions for more than 8,000 employees. From 2004 to 2011, Ms. Dehne served as the Corporate Secretary of NRG, leading corporate governance and corporate transactions, including financing, mergers and acquisitions, public and private securities offerings, securities and stock exchange matters and reporting compliance. Prior to joining NRG, from 1998 to 2004, Ms. Dehne practiced corporate law as a member of the business department of Saul Ewing Arnstien & Lehr, LLP. She received a J.D. from Syracuse University, an M.A. from the University of Pennsylvania in political science and a B.A. from Lafayette College. We believe Ms. Dehne is qualified to serve as a director of the Company because of her knowledge of corporate governance, background serving in various executive management roles and prior public company experience.
Martin A. Kamarck is an independent member of our Board and has served as a director of the Company since its inception. Mr. Kamarck has over 45 years of experience in business and law in both the public and private sectors. He was a partner at Elanus Capital Management, LLC, an alternative asset manager, from 2011 to 2018. Prior to that time, from 1999 to 2005, he was the President of Radian Asset Assurance Inc., the financial guaranty arm of Radian Group Inc., a mortgage insurance company (NYSE: RDN). Prior to Radian, Mr. Kamarck served as Chairman of the Export-Import Bank of the United States from 1996 to 1997, and Co-Head of Structured Credit and General Counsel at Financial Guarantee Insurance Company, a monoline bond insurer, from 1989 to 1993. Mr. Kamarck began his professional career as an attorney with Morrison & Foerster LLP, at which he ultimately became a Partner and head of the securitization practice. He received a J.D. from Stanford Law School and a B.A. in English Literature from Haverford College. We believe Mr. Kamarck is qualified to serve as a director of the Company because of his extensive background in the financial services industry and experience serving in executive management and leadership roles.
W. Reid Sanders is an independent member of our Board and has served as a director of the Company since its inception. He currently serves as the President of Sanders Properties, Inc., a real estate company, since 2004, and is a director and a member of the audit, compensation and risk oversight committees of Two Harbors since 2009. He also serves as a director and member of the audit and investment committees of Mid-America Apartment Communities, Inc., a real estate investment trust that owns and operates apartment complexes (NYSE: MAA), since 2010. Mr. Sanders is a member of the board and executive and compensation committees of Independent Bank, a bank holding company, since 2004, serves on the investment committee at Cypress Realty, a commercial real estate company, since 2002, and is on the advisory board of SSM Venture Partners III, L.P., a private venture capital firm, since 2000. He was the chairman of the board of Two Rivers Capital Management, a financial planning and investments firm, from 2004 to 2007, and his former directorships include Harbor Global Company Ltd., an asset management, natural resources and real estate investment company, from 2001 to 2006, Silver Bay from 2015 to 2016, PioGlobal Asset Management, a private investment management company, from 2001 to 2006, The Pioneer Group Inc., a global investment management firm, from 1999 to 2000, and TBA Entertainment Corporation, a strategic communications and entertainment marketing company, from 2000 to 2004. He was co-founder and Executive Vice President of Southeastern Asset Management, Inc., a global investment management firm, and former President of Longleaf Partners Mutual Funds, from 1975 to 2000. He served as an Investment Officer at First Tennessee Investment Management, the investment management division of First Horizon National Corporation, a bank holding company, from 1973 to 1975. Mr. Sanders is chairman of the Hugo Dixon Foundation and a trustee of the Dixon Gallery and Gardens, the Hutchison School, Rhodes College and the Tennessee Shakespeare Company, and is a former trustee of The Jefferson Scholars Foundation and the Campbell Clinic Foundation. Mr. Sanders was initially appointed to our Board pursuant to a Director Designation Agreement, between us and Two Harbors, entered into in connection with our formation transaction and IPO. We believe Mr. Sanders is qualified to serve as a director of the Company because of his extensive background in the financial services and real estate businesses and his experience serving as a director and audit committee member of public companies.
Hope B. Woodhouse is an independent member of our Board and has served as a director of the Company since its inception. Ms. Woodhouse has over 25 years of experience in the financial services industry at top-ranked, global alternative asset management firms and broker dealers. Ms. Woodhouse has served as a director of Two Harbors since May 2012, and is currently chair of its risk oversight committee and a member of its audit committee. From 2005 to 2009, she served as Chief Operating Officer and as a member of the management committee for Bridgewater Associates, LP, an investment management firm. Between 2003 and 2005, Ms. Woodhouse was President and Chief Operating Officer of Auspex Group LP, an investment management firm, and was Chief Operating Officer and a member of the management committee of Soros Fund Management, LLC, an investment management firm, from 2000 to 2003. Prior to that, she held various executive leadership positions, including Treasurer of Funds at Tiger Management Corp., a hedge fund, from 1998 to 2000, and Managing Director of the Global Finance Department at Salomon Brothers Inc., an investment bank, from 1983 to 1998. She served as a director of Piper Jaffray Companies, a multinational independent investment bank and financial services company (NYSE: PJC), and as a member of its audit and compensation committees from 2011 to 2014, Seoul Securities Co. Ltd., a brokerage firm, from 2001 to 2003, and The Bond Market Association, an international trade association, from 1997 to 1998. Ms. Woodhouse also serves on the boards of the Kindergarten Reading Collaborative, Children’s Services Advisory Committee and the John’s Island Community Service League, and is a trustee of the Tiger Foundation. Ms. Woodhouse received an M.B.A. from Harvard Business School and an A.B. degree in Economics from Georgetown University. Ms. Woodhouse was initially appointed to our Board pursuant to a Director Designation Agreement, between us and Two Harbors, entered into in connection with our formation transaction and IPO. We believe Ms. Woodhouse is qualified to serve as a director of the Company because of her background in the financial services industry, her experience as a director of public companies and her qualification as an audit committee financial expert.
VOTING RECOMMENDATION
OUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF EACH OF THE DIRECTOR NOMINEES NAMED ABOVE.
CORPORATE GOVERNANCE AND BOARD OF DIRECTORS
Our Board is committed to maintaining the highest standards of business conduct and corporate governance. As described more fully below, we have adopted a Code of Business Conduct and Ethics applicable to the conduct of our officers and directors, as well as to the employees of our Manager and its affiliates. We have also adopted Corporate Governance Guidelines, which, in conjunction with our Charter, Bylaws and our board committee charters, provide the framework for our corporate governance practices.
You can access our Code of Business Conduct and Ethics, our Corporate Governance Guidelines, the charters for our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee and certain other policies under “Corporate Governance” in the Investor Relations section of our website at www.gpmtreit.com or by writing to our Investor Relations department at Granite Point Mortgage Trust Inc., 3 Bryant Park, Suite 2400A, New York, New York 10036.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics that applies to our officers and directors and to the officers, directors and employees of our Manager and its affiliates when such individuals are acting for us or on our behalf. Among other matters, our Code of Business Conduct and Ethics is designed to detect and deter wrongdoing and to promote:
honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
full, fair, accurate, timely and understandable disclosure in our SEC reports and other public communications;
compliance with applicable governmental laws, rules and regulations;
prompt internal reporting of violations of the Code of Business Conduct and Ethics to appropriate persons identified in the Code; and
accountability for adherence to the Code of Business Conduct and Ethics.
Any waiver of the Code of Business Conduct and Ethics for our executive officers or directors may be made only by our Board, or a committee thereof, and will be promptly disclosed as required by law or stock exchange listing standards. The Code of Business Conduct and Ethics was adopted by the Board on June 14, 2017 and updated on March 18, 2020.
Director Independence
NYSE listing standards require that a majority of a company’s board of directors be composed of “independent directors,” which is defined generally as a person other than an executive officer or employee of the company, or its subsidiaries, or any other individual having a relationship which, in the opinion of the company’s board of directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Consistent with these considerations, our Board has affirmatively determined, upon the review and recommendation of our Nominating and Corporate Governance Committee, that each of the following directors and director nominees meets the qualifications of an independent director: Tanuja M. Dehne, Martin A. Kamarck, Stephen G. Kasnet, W. Reid Sanders and Hope B. Woodhouse.
Board Leadership Structure
Our Board is led by a Chair who is appointed by the directors. Both independent and non-independent directors are eligible for appointment as the Chair. The Chair presides at all meetings of our stockholders and of our Board. The Chair performs such other duties and exercises such powers as from time to time shall be prescribed in our Bylaws or by our Board. Our Board has appointed Mr. Kasnet, who qualifies as an independent director, to serve as our Chair.
Our Board consists of a majority of independent directors and exercises a strong, independent oversight function. All of the committees of our Board are comprised entirely of independent directors. A number of board committee processes and procedures, including regular executive sessions of independent directors and a regular review of the performance of our Manager, provide substantial independent oversight of our management’s performance. Under our Bylaws and Corporate Governance Guidelines, our Board has the ability to change its structure if it determines that such a change is appropriate and in the best interest of our Company. Our Board believes that these factors provide the appropriate balance between the authority of those who oversee our Company and those who manage it on a day-to-day basis.
We currently separate the roles of Chair and Chief Executive Officer.
Board Committees
Our Board has formed three standing committees, including our Audit, Compensation and Nominating and Corporate Governance Committees, and has adopted charters for each of these committees. Each committee is composed exclusively of directors who meet the independence and other requirements established by the rules and regulations of the SEC and the NYSE listing standards. Additionally, the Compensation Committee is composed exclusively of individuals intended to be, to the extent required by Rule 16b-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, non-employee directors.
The following table summarizes the current membership of each of our standing committees.
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Director | | Audit | Compensation | Nominating and
Corporate Governance
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Tanuja M. Dehne | | | x | Chair |
Martin A. Kamarck | | | Chair | x |
Stephen G. Kasnet | | Chair | | |
W. Reid Sanders | | x | x | |
Hope B. Woodhouse | | x | | x |
In addition, in 2019, the Board formed an ad hoc committee, the Independent Committee, composed exclusively of our five independent directors. On March 2, 2020, we announced that we have agreed to a process with our Manager to internalize the Company’s management function and that the Independent Committee has been negotiating the internalization on our behalf.
Audit Committee
Our Audit Committee is responsible for engaging our independent registered public accounting firm, preparing Audit Committee reports, reviewing with the independent registered public accounting firm the plans and results of the audit engagement, approving professional services provided by the independent registered public accounting firm, reviewing the independence of the independent registered public accounting firm, considering the range of audit and non-audit fees and reviewing the adequacy of our internal accounting controls.
Our Audit Committee is, and will at all times be, composed exclusively of “independent directors,” as defined under the NYSE listing standards and who otherwise meet the NYSE listing standards. Each member of our Audit Committee is also financially literate, in that they are able to read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash flow statement.
In addition, as a listed company, we must certify that our Audit Committee has, and will continue to have, at least one member who is financially sophisticated in that he or she has past employment experience in finance or accounting, requisite professional certification in accounting or other comparable experience or background that results in the individual’s financial sophistication. Our Board has determined that each of Mr. Kasnet and Ms. Woodhouse satisfies the definition of financial sophistication and also qualifies as an “audit committee financial expert,” as defined under rules and regulations of the SEC.
Our Audit Committee’s purpose and responsibilities are more fully set forth in its charter.
Compensation Committee
The principal functions of our Compensation Committee are to:
evaluate the performance of our executive officers;
in consultation with senior management, establish the Company’s general compensation philosophy and review the compensation philosophy of our Manager;
evaluate the performance of our Manager;
review the compensation and fees payable to our Manager under the Management Agreement between us and our Manager dated June 28, 2017, or the Management Agreement;
review the compensation and fees payable to any affiliates of our Manager or any other related party;
prepare Compensation Committee reports;
make recommendations to our Board with respect to our Company’s incentive compensation plans and equity-based plans; and
administer any equity incentive plan, including the issuance of any common stock or other equity awards thereunder to employees of our Manager or its affiliates who provide services to us under the Management Agreement.
Our Compensation Committee is responsible for reviewing and making recommendations to our Board regarding the compensation of our Company’s independent directors. In doing so, our Compensation Committee will work with our independent compensation consultant and consider, among other things, the following:
the compensation that is paid to directors of other companies that are comparable to us;
the amount of time directors are expected to devote to preparing for and attending meetings of our Board and the committees on which they serve;
the success of our Company;
whether a director is a lead independent director or chair of our Board or one of the committees of our Board and the time commitment related thereto;
if a committee on which a director serves undertakes a special assignment, the importance of that special assignment to our Company and its stockholders; and
the risks involved in serving as a director on our Board or a member of its committees.
Other than our Chief Executive Officer, who serves as a non-independent director, none of our executive officers are involved in determining independent director compensation levels, although our management team may provide support to the Compensation Committee and its independent compensation consultant, including certain information, data and other resources in connection with its compensation recommendations to our Board.
Our Compensation Committee may delegate all or a portion of its duties and responsibilities to a subcommittee of the Compensation Committee. Our Compensation Committee’s purpose and responsibilities are more fully set forth in the Compensation Committee’s charter.
Nominating and Corporate Governance Committee
Our Nominating and Corporate Governance Committee is responsible for seeking, considering and recommending to our Board qualified candidates for election as directors and approves and recommends to the full Board the appointment of each of our executive officers. It also periodically prepares and submits to our Board for adoption its selection criteria for director nominees. It reviews and makes recommendations on matters involving the general operation of our Board and our corporate governance, and annually recommends to our Board nominees for each committee of our Board. In addition, our Nominating and Corporate Governance Committee annually facilitates the assessment of our Board’s performance and report thereon to our Board.
Our Nominating and Corporate Governance Committee considers the following factors in making its recommendations to the Board: background experience, skills, expertise, accessibility and availability to serve effectively on the Board. Our Nominating and Corporate Governance Committee also conducts inquiries into the background and qualifications of potential candidates.
Our Nominating and Corporate Governance Committee’s purpose and responsibilities are more fully set forth in its charter.
Role of Our Board in Risk Oversight
Our management team is responsible for assessing and managing the risks faced by our Company, subject to the oversight of our Board. Our Board exercises its oversight of our Company’s risks, including through the review of our business plans, capital structure, financial results and infrastructure. Our Board has also established investment guidelines, which set parameters for the type and size of investments we can make without further Board approval. Additionally, our Board relies upon our Audit Committee to oversee risks related to the quality and integrity of our financial reports, the performance and independence of our external auditor, the performance of our internal audit function, our policies regarding accounting, financial matters and internal controls, performance of our information technology and data security function, including as it relates to cybersecurity, and compliance with legal and regulatory requirements. Our Audit Committee also discusses and reviews policies with respect to our risk assessment and risk management, including, but not limited to, the adequacy of our insurance coverage, our interest rate risk management, our counter-party and credit risks, our capital availability and refinancing risks.
Our Board relies upon our Compensation Committee to oversee and evaluate risks related to our Company’s compensation programs, including the formulation, administration and regulatory compliance with respect to compensation matters. The Compensation Committee also considers, and discusses with management, whether any risks arising from those compensation policies the Company oversees are reasonably likely to have a material adverse effect on our Company. Our Nominating and Corporate Governance Committee oversees and evaluates programs and risks associated with the Board and its committees’ membership and structure, succession planning and corporate governance.
Management routinely informs the Board and its committees of developments that could affect our risk profile or other aspects of our business.
Cyber Security
Our Manager currently provides our Company with personnel, including its Chief Information Security Officer, to help manage the growing complexity of cyber risks. Our Manager’s Chief Information Security Officer reports to our Board and/or our Audit Committee on a regular basis regarding our Company’s exposure to cyber risk, including with respect to our cyber security infrastructure, the development and implementation of policies, procedures, standards and technical measures to create an environment that is designed to minimize exposure to cyber threats and recovery from adverse events, if any.
Board and Committee Meetings
Our Board held nine meetings during 2019. During five of the meetings of our Board, the independent directors also met separately in executive sessions, without management present, to discuss various matters. The Chair of the Board presided at such executive sessions. During 2019, our Audit Committee held seven meetings, our Compensation Committee held seven meetings and our Nominating and Corporate Governance Committee held one meeting. Each of our directors attended at least 75% of the aggregate total number of meetings held by the Board and all committees on which he or she served during 2019. Although we do not have a policy on director attendance at our annual meetings of stockholders, directors are encouraged to attend all annual meetings. Each of our then-current directors attended our annual meeting of stockholders held in May 2019.
Director Nomination Process
Our Corporate Governance Guidelines provide the following minimum qualifications for directors in order to be considered for a position on our Board:
possession of the highest personal and professional ethics, integrity and values;
the ability to exercise good business judgment and be committed to representing the long-term interests of the Company and its stockholders;
having an inquisitive and objective perspective, practical wisdom and mature judgment; and
the willingness to devote the sufficient time and effort to carrying out Board duties and responsibilities effectively, including preparing for and attending meetings of the Board and its committees.
In considering candidates for nomination as a director, the Nominating and Corporate Governance Committee generally assembles all information regarding a candidate’s background and qualifications, evaluates a candidate’s mix of skills and qualifications and determines the contribution that the candidate could be expected to make to the overall functioning of our Board.
Although we do not have a formal policy on diversity, our Corporate Governance Guidelines provide that our Company shall endeavor to have a Board representing a diverse education and experience that provides knowledge of business, financial, governmental or legal matters that are relevant to our business and to our status as a publicly owned company. With respect to the re-nomination of current directors, the Committee considers the foregoing factors, as well as past participation in, and contributions to, the activities of our Board and its committees.
Our Nominating and Corporate Governance Committee will consider candidates recommended for nomination to our Board by our stockholders. Stockholder recommendations for nominees to the Board should be submitted in writing to our Secretary. The manner in which such Committee evaluates candidates recommended by stockholders is generally the same as any other candidate, including customary diligence, interviews and background checks. However, the Committee will also seek and consider information concerning any relationship between a stockholder recommending a candidate and the candidate to determine if the candidate can represent the interests of all of the stockholders. The Committee will not evaluate a candidate recommended by a stockholder unless the stockholder’s proposal provides a certification that the potential candidate consents to being named in our proxy statement and will serve as a director if elected.
Majority Voting for Directors and Director Resignation Policy
Our Bylaws provide that a director nominee will be elected by receiving the affirmative vote of a majority of the votes cast on the election of such nominee on a per nominee basis in an uncontested election (which occurs when the number of director nominees is the same as the number of directors to be elected). If a director nominee who is an incumbent director receives a greater number of votes “against” than votes “for” his or her election and with respect to whom no successor has been elected, such incumbent director shall promptly tender his or her offer to resign to our Board for its consideration following certification of the stockholder vote. Within 90 days following certification of the stockholder vote, our Nominating and Corporate Governance Committee shall consider the tendered resignation offer and make a recommendation to our Board whether or not to accept such offer, and our Board shall act on our Nominating and Corporate Governance Committee’s recommendation. In determining whether to accept the resignation offer, our Nominating and Corporate Governance Committee and Board may consider any factors they deem relevant in deciding whether to accept a director’s resignation offer, including, among other things, whether accepting the resignation of such director would cause our Company to fail to meet any applicable SEC or stock exchange rules or requirements. Thereafter, our Board shall promptly and publicly disclose its decision-making process regarding whether to accept the director’s resignation offer or the reasons for rejecting the resignation offer, if applicable, in a Form 8-K furnished to the SEC. Any director who tenders his or her resignation offer will not participate in our Nominating and Corporate Governance Committee’s recommendation or our Board’s action regarding whether to accept the resignation offer. If our Board does not accept the director’s resignation offer, such director will continue to serve until the next annual meeting of stockholders and until such director’s successor is duly elected and qualified or until the director’s earlier resignation or removal.
In a contested election, the director nominees who receive a plurality of all the votes cast at a meeting of stockholders duly called and at which a quorum is present will be elected as directors. Under the plurality standard, the number of nominees equal to the number of vacancies to be filled who receive more votes than other nominees are elected to our Board, regardless of whether they receive a majority of votes cast.
Communications with our Board
We provide the opportunity for our stockholders and all other interested parties to communicate with members of our Board. Stockholders and all other interested parties may communicate with the independent directors or the chair of any of the committees of the Board by email or regular mail. All communications should be sent to the Company’s Secretary, Rebecca B. Sandberg, by email to secretary@gpmortgagetrust.com or by regular mail to the attention of the independent directors, the Chair of the Audit Committee, the Chair of the Compensation Committee or the Chair of the Nominating and Corporate Governance Committee, as the case may be, in each instance in care of the Secretary at the Company’s office at 3 Bryant Park, Suite 2400A, New York, New York 10036.
Our Secretary will review each communication received in accordance with this process to determine whether the communication requires immediate action. Our Secretary will forward all appropriate communications received, or a summary of such communications, to the appropriate member(s) of our Board. However, we reserve the right to disregard any communication that we determine is unduly hostile, threatening or illegal, does not reasonably relate to us or our business or is similarly inappropriate. Our Secretary has the authority to disregard any inappropriate communications or to take other appropriate actions with respect to any such inappropriate communications.
Stockholder proposals must be made in accordance with the procedures set forth in our current Bylaws or the procedures set forth in Rule 14a-8 of the Exchange Act and not the procedures set forth in the preceding paragraph or the procedures set forth
in “Corporate Governance and Board of Directors - Director Nomination Process.” Nominations for the Board may only be made in accordance with the procedures set forth in our Bylaws. Certain matters set forth in our Bylaws for stockholder proposals, including nominations for our Board, as well as certain matters set forth in Rule 14a-8 for stockholder proposals, are described in “Other Matters - Stockholder Proposals and Director Nominations for 2021 Annual Meeting.”
Director Compensation
We compensate the independent members of our Board for their service. It is our belief that director compensation should:
align the interests of our directors and our stockholders;
ensure our Company can attract and retain outstanding director candidates who meet the selection criteria set forth in our Corporate Governance Guidelines and Nominating and Corporate Governance Committee Charter; and
reflect the substantial time commitment of our directors necessary to oversee our business.
Generally, it has been our practice to compensate our independent directors with a mix of cash and common stock awards. We do not pay any compensation to the non-independent directors for their service on our Board. However, all members of our Board are reimbursed for their costs and expenses of serving on the Board, including costs and expenses of attending all meetings of our Board and its committees. As discussed above, the Compensation Committee Charter provides that the Compensation Committee has the primary responsibility for reviewing and recommending any changes to director compensation. Our Board reviews the Compensation Committee’s recommendations and determines the amount and manner of independent director compensation.
Independent Director Compensation for 2019
For the one-year term commencing immediately following the 2019 annual meeting of stockholders and ending at the Annual Meeting, our independent directors, which includes the individuals listed below, earned the following fees for their service:
for each independent director, an annual fee of $125,000, paid half in cash and half in restricted shares of our common stock;
for the Audit Committee Chair, an additional fee of $15,000, paid half in cash and half in restricted shares of our common stock;
for each of the Compensation Committee Chair and the Nominating and Corporate Governance Committee Chair, an additional fee of $5,000, paid half in cash and half in restricted shares of our common stock; and
for the independent Chair of the Board, an additional fee of $50,000, paid half in cash and half in restricted shares of our common stock.
The cash portion of the annual fee is paid in four equal quarterly installments over the course of the service term. The restricted stock portion of the annual fee is granted under our 2017 Equity Incentive Plan, or the Equity Incentive Plan, which generally occurs on the date of the annual meeting of stockholders at which such director is elected. The number of shares of restricted stock subject to issuance is determined using the fair market value of our common stock on the grant date, which is based on the closing market price of our common stock on the NYSE on the grant date. The restricted stock granted to the independent directors under our Equity Incentive Plan as part of the director fee noted above fully vests on the one-year anniversary of the grant date, so long as such director has complied with the terms and conditions of the applicable award agreement.
The following table shows the compensation of our independent directors for services in all capacities provided to us10-K for the year ended December 31, 2019:
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| Name | | Fees Paid in Cash(1) | | Stock Awards(2)(3) | | Total |
| Tanuja M. Dehne | | $65,000 | | $64,993 | | $129,993 |
| Martin A. Kamarck | | $65,000 | | $64,993 | | $129,993 |
| Stephen G. Kasnet | | $91,250 | | $94,988 | | $186,238 |
| W. Reid Sanders | | $62,500 | | $62,492 | | $124,992 |
| Hope B. Woodhouse | | $62,500 | | $62,492 | | $124,992 |
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(1) | This column sets forth the cash fees paid by us during the year ended December 31, 2019. The current term of each of the independent directors expires on the date of the Annual Meeting. |
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(2) | The values in this column were computed in accordance with FASB ASC Topic 718 and are based on the closing market price of our common stock on the NYSE on the grant date of the stock award. |
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(3) | As of December 31, 2019, the following directors had the following amounts of shares of outstanding unvested restricted common stock: Ms. Dehne, 3,378; Mr. Kamarck, 3,378; Mr. Kasnet, 4,937; Mr. Sanders, 3,248; and Ms. Woodhouse, 3,248. |
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Compensation Committee Interlocks2020, and Insider Participation
None of the members of our Compensation Committee is,for all subsequent reporting periods ending on or has been, employed by us. None of our executive officers currently serves as a member of the board of directors or compensation committee of another entity that has one or more executive officers serving on our Board or our Compensation Committee. In 2019, two of our directors, Messrs. Siering and William M. Roth, each of whom was a partner of our Manager during that time, participated in making compensation decisions for our executive officers and employees of our Manager and its affiliates who provide services to our Company. Mr. Roth retired from our Board effectiveafter December 31, 2019.
Transactions with Related Persons
Management Agreement with our Manager
We are currently party2021, we have elected to present Distributable Earnings, a Management Agreement with our Manager pursuant to which our Manager provides the day-to-day management of our business, including providing us with our executive officers and all other personnel necessary to support our operations. The Management Agreement requires our Manager to manage our business in conformity with the policies and the investment guidelinesmeasure that are approved and monitored by our Board. The Management Agreement has an initial three-year term, which expires on June 28, 2020, and renews automatically for successive one-year terms unless earlier terminated by either us or our Manageris not prepared in accordance with GAAP, as a supplemental method of evaluating our operating performance. Distributable Earnings replaces our prior presentation of Core Earnings with no changes to the terms thereof. Our Manager is entitleddefinition. In order to receivemaintain our status as a termination fee from us under certain circumstances. In exchange for its services,REIT, we are obligatedrequired to distribute at least 90% of our taxable income as dividends. Distributable Earnings is intended to serve as a general, though imperfect, proxy for our taxable income. As such, Distributable Earnings is considered a key indicator of our ability to generate sufficient income to pay our Manager an annual management fee comprisedcommon dividends, which is the primary focus of income-oriented investors who comprise a base fee and an incentive fee, as well as reimburse it for certain expenses incurred by it and its affiliates in rendering management services to us. Mr. Siering, a membermeaningful segment of our Board,stockholder base. We believe providing Distributable Earnings on a supplemental basis to our net income (loss) and cash flow from operating activities, as determined in accordance with GAAP, is a partnerhelpful to stockholders in assessing the overall run-rate operating performance of our Manager. Mr. Taylor, a memberbusiness.
We use Distributable Earnings to evaluate our performance, excluding the effects of certain transactions and GAAP adjustments we believe are not necessarily indicative of our Boardcurrent loan portfolio and our President and Chief Executive Officer, Marcin Urbaszek, our Chief Financial Officer and Treasurer, Stephen Alpart, our Chief Investment Officer, Steven Plust, our Chief Operations Officer, Rebecca B. Sandberg, our Secretary, and Michael J. Karber, our General Counsel and Assistant Secretary, are each employees of an affiliate of our Manager.
We incurred charges of $26.8 million for fiscal year 2019 related to the Management Agreement, of which $14.9 million represented the base management fee, $0.2 million represented incentive fees and $11.7 million represented expense reimbursements for general and administrative expenses incurred on behalf of the Company in the normal course of its operations and certain compensation expenses incurred by our Manager,operations. For reporting purposes, we define Distributable Earnings as described in greater detail below.
Under the Management Agreement, we pay our Manager a base management fee equal to 1.5% of equity on an annualized basis. For purposes of calculating the management fee, “equity” means the sum of the net proceeds from all issuances of our equity securities, plus cumulative “core earnings” at the end of the most recently completed calendar quarter, less any distributions to stockholders, any amount paid to repurchase stock and any incentive fees earned by our Manager, but excluding the incentive
fee earned in the current quarter. In addition, if earned, we pay our Manager an incentive fee equal to the excess of (1) the product of (a) 20% and (b) the result of (i) “core earnings” for the previous 12-month period, minus (ii) the product of (A) equity in the previous 12-month period, and (B) 8% per annum, less (2) the sum of any incentive fees paid to our Manager with respect to the first three calendar quarters of such previous 12-month period; provided, however, that no incentive fees are payable with respect to any calendar quarter unless “core earnings” for the 12 most recently completed calendar quarters in the aggregate is greater than zero.
For purpose of calculating the base management and incentive fees, “core earnings” means net income (loss) attributable to commonour stockholders, excludingcomputed in accordance with GAAP, excluding: (i) non-cash equity compensation expense, incentive fees earned by our Manager,expenses; (ii) depreciation and amortization,amortization; (iii) any unrealized gains or losses(losses) or other similar non-cash items that are included in net income for the applicable reporting period (regardless of whether such items are included in other comprehensive income or loss(loss) or in net income)income for such period); and (iv) certain non-cash items and one-time expenses. Distributable Earnings may also be adjusted from time to time for reporting purposes to exclude one-time events pursuant to changes in U.S. GAAP and certain other material non-cash income or expense items in each case after discussions between our Manager and the independent members of our Board and approved by a majority of our independent directors.
In 2019, we reimbursed our Manager for a share The exclusion of depreciation and amortization from the compensation expenses paid by our Manager’s affiliatecalculation of Distributable Earnings only applies to its employees providing services to us, including a total of approximately $2.1 million for compensation paid to employees of our Manager’s affiliate serving as our Chief Financial Officer, Chief Operating Officer and General Counsel. We did not reimburse our Manager for any expensesdebt investments related to the compensation of our Chief Executive Officer or Chief Investment Officer.
As noted above, we recently announced that we have agreed to a process with our Manager to internalize the Company’s management function. If the internalization is completed, the Management Agreement will be terminated and, thereafter, we will no longer be obligated to pay our Manager base management or incentive fees or reimburse our Manager for expenses as described above. There can be no assurance that the internalization will be consummated.
Indemnification Agreements with Directors and Officers
We have entered into customary indemnification agreements with each of our directors and officers that require us to indemnify them to the maximum extent permitted by Maryland law, and our Articles of Amendment and Restatement, against any claim or liability that may arise by reason of their service to us. The agreements also require us to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified. In addition, each agreement provides for procedures for the determination of entitlement to indemnification, including requiring that such determination be made by independent counsel after a change in control of us.
Related Person Transaction Policies
Our Audit Committee Charter requires our Audit Committee to review, approve and oversee any related party transactions involving our Company and also authorizes such Committee to develop policies and procedures for its approval of related party transactions.
Our Management Agreement places restrictions on our Manager from entering into transactions with its related parties or providing services under the Management Agreement on terms that are no more favorable to our Manager or its affiliates than would be obtained from a third party on an arm’s-length basis, in any event unless approved by a majority of our independent directors.
STOCK OWNERSHIP
Beneficial Ownership of Directors, Director Nominees and Named Executive Officers
Our common stock is listed on the NYSE under the symbol “GPMT.” The following table sets forth information regarding the beneficial ownership of our common stock as of April 3, 2020 (unless otherwise indicated) by each of our “named executive officers,” as such term is defined in Item 402(a) of Regulation S-K of the Exchange Act, or our Named Executive Officers, current directors and director nominees and by all of the current directors, director nominees and executive officers as a group.
Beneficial ownership is determined in accordance with Rule 13d-3 of the Exchange Act. A person is deemed to be the beneficial owner of any shares of common stock if that person has or shares voting power or investment power with respect to those shares or has the right to acquire beneficial ownership at any time within 60 days of April 3, 2020. “Voting power” is the power to vote or direct the voting of shares and “investment power” is the power to dispose or direct the disposition of shares.
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Name and Address of Beneficial Owner(1) | | Number of Shares Beneficially Owned(2) | | Percent of Class(2) |
| Directors and Director Nominees: | | | | |
| | | | | |
| Tanuja M. Dehne | | 10,581 | | * |
| Martin A. Kamarck | | 9,581 | | * |
| Stephen G. Kasnet | | 27,155 | | * |
| W. Reid Sanders | | 77,175 | | * |
| Thomas E. Siering | | 185,482 | | * |
| John (“Jack”) A. Taylor | | 278,862 | | * |
| Hope B. Woodhouse | | 19,674 | | * |
| Named Executive Officers: | | | | |
| Stephen Alpart | | 147,112 | | * |
| Steven Plust | | 174,502 | | * |
Marcin Urbaszek(3) | | 59,146 | | * |
| Rebecca B. Sandberg | | 33,330 | | * |
All director nominees and executive officers as a group (12 individuals) (2) | | 1,044,309 | | 1.89% |
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*Represents ownership of less than 1.0% of our outstanding common stock as of April 3, 2020.
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(1) | The business address of each of the individuals is 3 Bryant Park, Suite 2400A, New York, New York 10036. |
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(2) | Based on 55,136,885 shares of common stock outstanding as of April 3, 2020. Under our Insider Trading Policy, our directors, Named Executive Officers and employees are prohibited from hedging or pledging shares of our stock in any manner, whether as collateral for a loan, in a margin account held at a broker or otherwise. |
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(3) | Includes 94 shares of common stock held by Mr. Urbaszek’s mother. |
Beneficial Owners of More than Five Percent of Our Common Stock
Based on their filings made under Section 13(g) of the Exchange Act, the persons known by us to be beneficial owners of five percent (5%) or more of our common stock are as follows:
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| Name and Address of Beneficial Owner | | Number of Shares Beneficially Owned | | Percent of Class(1) |
BlackRock, Inc.(2) 55 East 52nd Street New York, NY 10055 | | 9,658,833 | | | 17.52% |
The Vanguard Group(3) 100 Vanguard Blvd. Malvern, PA 19355 | | 5,663,346 | | | 10.27% |
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(1) | Based on 55,136,885 shares of our common stock outstanding as of April 9, 2020. |
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(2) | Based on a Schedule 13G/A filed with the SEC on February 4, 2020, by BlackRock, Inc. reporting that it has sole voting power with respect to 9,516,084 shares and sole dispositive power with respect to all shares reported. |
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(3) | Based on a Schedule 13G/A filed with the SEC on April 9, 2020, by The Vanguard Group reporting that it has sole voting power with respect to 0 shares, shared voting power with respect to 58,589 shares, sole dispositive power with respect to 5,565,788 shares and shared dispositive power with respect to 97,558 shares. |
Hedging and Other Transactions Prohibited
The Board has adopted, as part of our insider trading policy, prohibitions against our officers, directors, employees and consultants, and all employees, partners and consultants of our Manager, engaging in transactions designed to profit from fluctuations in the price of our securities, such as short sales or purchasing our securities on margin. In addition, such persons are prohibited from purchasing or selling puts or calls or other derivative securities on our securities, pledging our securities as collateral for a loan or entering into hedging or monetization transactions or similar arrangements with respect to our securities.
Director Stock Ownership Guidelines
Our directors are encouraged to own shares of our common stock in order to better align their personal interests with the interests of our stockholders. In furtherance of this objective, our director stock ownership guidelines require each director to own at least $200,000 in shares of our common stock within five years of being elected to our Board and thereafter so long as such person continues to serve as a director. Common stock granted in respect of annual director fees is counted toward achieving these stock ownership guidelines. Under our Insider Trading Policy, our directors are prohibited from hedging or pledging shares of our common stock in any manner, whether as collateral for a loan, in a margin account held at a broker or otherwise.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following sets forth the positions, ages and selected biographical information for our executive officers as of April 23, 2020. Mr. Taylor’s biographical information is provided in the section of this Proxy Statement entitled “Proposal 1: Election of Directors.” There are no arrangements or understandings between any executive officer and any other person pursuant to which they were selected as an executive officer.
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| Name | | Age | | Office or Position Held |
| John (“Jack”) A. Taylor | | 64 | | President, Chief Executive Officer and Director |
| Stephen Alpart | | 56 | | Vice President and Chief Investment Officer |
| Steven Plust | | 61 | | Vice President and Chief Operating Officer |
| Marcin Urbaszek | | 44 | | Vice President, Chief Financial Officer and Treasurer |
| Rebecca B. Sandberg | | 48 | | Vice President and Secretary |
| Michael J. Karber | | 40 | | Vice President, General Counsel and Assistant Secretary |
Stephen Alpart is our Vice President and Chief Investment Officer and has served in that role since the Company’s inception. Mr. Alpart is also a member of our Investment Committee. Before joining our Manager, he was Managing Director in the Prudential Financial, Inc., an insurance, investment management and financial products company, Global Real Estate Finance Group, focused on the United States from 2009 to 2014. Previously, he was a Managing Director in the Real Estate Group at GMAC Commercial Mortgage and Capmark Investments where he focused on originating, underwriting and closing large structured commercial real estate loans for private equity firms and private owner/operators. Prior to that, he was a Managing Director in the Real Estate Group at PaineWebber & Co., an investment bank and stock brokerage firm, and later an Executive Director in the Real Estate Group of UBS Group AG, a Swiss multinational investment bank and financial services company, where he focused on originating, underwriting and closing large structured commercial real estate loans for private equity firms and owner/operators. He has worked in real estate finance and debt investing for over 25 years in a variety of functions, including third-party funds management, proprietary on-book lending, transaction advisory business, loan syndications, loan sales and workouts/restructurings. Mr. Alpart received a Masters in Business Administration, Finance and Real Estate, from New York University and a B.S. in Business Administration, Accounting and Economics, from Washington University.
Steven Plust is our Vice President and Chief Operating Officer and has served in that role since the Company’s inception. Mr. Plust is also a member of our Investment Committee. Prior to joining our Manager, Mr. Plust was a Managing Director in the Prudential Financial, Inc., an insurance, investment management and financial products company, Global Real Estate Finance Group from 2009 to 2014. He has over 25 years of experience in real estate finance and capital markets, and was an advisor to the Resolution Trust Corporation in the development and implementation of its securitization programs. Mr. Plust has worked for over 20 years in principal investing platforms on Wall Street and in investment management, where he has been primarily responsible for transaction pricing and structuring, credit risk assessment and analysis of complex transactions and multi-asset portfolios. He received a Masters in Business Administration from Columbia University and a B.S. in Chemistry from Rensselaer Polytechnic Institute.
Marcin Urbaszek is our Vice President, Chief Financial Officer and Treasurer and has served in those roles since the Company’s inception. He joined our Manager in May 2013 and, until the formation of the Company, served as a Managing Director of Two Harbors focusing on strategy, corporate development and capital markets activities. Prior to joining our Manager, Mr. Urbaszek worked at Credit Suisse Group AG, a Swiss multinational investment bank and financial services company, in the Financial Institutions Group, Investment Banking, serving in various capacities from 2006 to April 2013, most recently as a team lead and partner on coverage and strategic transaction execution for residential and commercial mortgage companies, banks and other specialty consumer and commercial lenders. He has over 19 years of experience in various areas of finance including corporate finance, capital markets and equity research, with the last 15 years dedicated to financial institutions. Over the course of his career, Mr. Urbaszek has been primarily responsible for transaction advisory, structuring, negotiation and execution, as well as financial planning and analysis. Mr. Urbaszek received a Bachelor of Business Administration in Finance, with a Minor focused on Financial Accounting and Economics, from Zicklin School of Business, Bernard M. Baruch College, CUNY. Mr. Urbaszek is a Chartered Financial Analyst (CFA) Charterholder.
Rebecca B. Sandberg is our Vice President and Secretary and has served in that role since the Company’s inception. From the Company’s inception to December 31, 2019, Ms. Sandberg also served as our General Counsel. In addition, she serves as the General Counsel, Chief Compliance Officer and Secretary of Two Harbors, a position she has held since March 2013. Ms. Sandberg served as Deputy General Counsel and Secretary of Two Harbors beginning in May 2012, and from 2010 to May 2012 she served as Senior Counsel to Two Harbors. Prior to joining Two Harbors in 2010, Ms. Sandberg was in the private practice of law where
she advised clients of all sizes primarily in the areas of federal and state securities laws, mergers and acquisitions, public and private capital markets transactions, corporate governance and general corporate law. She received a Bachelor of Arts from the University of Minnesota and a Juris Doctorate from William Mitchell College of Law.
Michael J. Karber is our Vice President, General Counsel and Assistant Secretary and has served in that role since January 1, 2020. He has been with the Company since its inception, previously serving as our Deputy General Counsel and Assistant Secretary from 2018 to 2019. Prior to joining the Company, he was Lead Counsel - Business Operations at Two Harbors beginning in 2014. Prior to joining Two Harbors, he was a Portfolio Manager at Presidium Asset Solutions, an asset management and loan servicing company, from 2010 to 2014, and from 2007 to 2009 he was an Associate at Pircher, Nicols & Meeks LLP. Prior to that, Mr. Karber was an Associate at Dykema Gossett PLLC. Mr. Karber received a B.A. in Political Science and Psychology from the University of Michigan and a J.D. from Northwestern University, Pritzker School of Law.
COMPENSATION COMMITTEE REPORT
Our Compensation Committee has furnished the following report. The information contained in this “Compensation Committee Report” is not to be deemed “soliciting material” or to be “filed” with the SEC, nor is such information to be incorporated by reference into any future filings under the Securities Act of 1933, as amended, or the Exchange Act except to the extent that we specifically incorporate it by reference intoforeclose upon the property or properties underlying such filings.debt investments.
Our Compensation Committee has reviewed and discussedWhile Distributable Earnings excludes the “Compensation Discussion and Analysis” required by Item 402(b) of Regulation S-Kimpact of the Exchange Act with management.unrealized non-cash current provision for credit losses, we expect to only recognize such potential credit losses in Distributable Earnings if and when such amounts are deemed non-recoverable. This is generally at the time a loan is repaid, or in the case of foreclosure, when the underlying asset is sold, but non-recoverability may also be concluded if, in our determination, it is nearly certain that all amounts due will not be collected. The realized loss amount reflected in Distributable Earnings will equal the difference between the cash received, or expected to be received, and the carrying value of the asset, and is reflective of our economic experience as it relates to the ultimate realization of the loan.
Based on such review and discussions, our Compensation Committee recommended to our Board thatDuring the “Compensation Discussion and Analysis” be included in this proxy statement.
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Submitted by the Compensation Committee of the Company’s Board: |
Martin A. Kamarck (Chair)
Tanuja M. Dehne
W. Reid Sanders
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Our Compensation Discussion and Analysis describes our compensation program, objectives and policies for our Named Executive Officers for our fiscal year ended December 31, 2019, or fiscal 2019.
Our Named Executive Officers2022, we recorded provision for fiscal 2019 were:
John (“Jack”) A. Taylor, our President, Chief Executive Officercredit losses of $(69.3) million, of which $(44.2) million has been excluded from Distributable Earnings consistent with other unrealized gains (losses) and Director;
Stephen Alpart, our Vice President and Chief Investment Officer;
Steven Plust, our Vice President and Chief Operating Officer;
Marcin Urbaszek, our Vice President, Chief Financial Officer and Treasurer; and
Rebecca B. Sandberg, our Vice President, Secretary and former General Counsel.
Michael J. Karber was appointed as our Vice President, General Counsel and Assistant Secretary effective as of January 1, 2020 following the resignation of Ms. Sandberg as our General Counsel.
Overview of Compensation Program and Philosophy
We do not currently have any employees and we are currently managed by our Manager pursuant to the Management Agreement. As a result, none of our Named Executive Officers are employees of our Company and none of our Named Executive Officers receive cash compensation from us.
Our Manager currently provides the day-to-day management of our Company’s operations. All of our Named Executive Officers are currently employees of an affiliate of our Manager, who makes them available to our Manager who, in turn, provides them to us under the terms of the Management Agreement. Because the Management Agreement provides that our Manager is responsible for managing our affairs, our Named Executive Officers do not currently receive any cash compensation from us or any of our subsidiaries for serving as our executive officers and we do not reimburse our Manager for any cash compensation paid by it to our Chief Executive Officer or Chief Investment Officer. In addition, the Management Agreement does not require our Named Executive Officers to dedicate a specific amount of time to fulfilling our Manager’s obligations to us under the Management Agreement. Our Management Agreement also does not require that any specified amount or percentage of the base management fees and incentive fees we pay to our Manager be allocated to our Named Executive Officers. However, we estimate that the aggregate cash compensation paid to our Named Executive Officers that may reasonably be associated with their management of our Company totaled approximately $4.6 million for fiscal 2019. This aggregate amount represents approximately 17.2% of the $26.8 million in total base management fees, incentive fees and expense reimbursements paid by us to our Manager for fiscal 2019.
Of the aggregate cash compensation paid by our Manager to our Named Executive Officers in 2019 that was reasonably associated with their management of our Company, we estimate that approximately 52.0% represented fixed compensation (e.g., salaries) and 48.0% represented variable compensation (e.g., performance-based bonuses and profit sharing). We understand that our Manager takes into account a number of factors in determining the amount of variable compensation it pays to each of our Named Executive Officers; for example, based on the individual’s position, factors may include our Company’s net equity, financial results and overall performance, total stockholder return, market practices and the recommendations of our Compensation Committee and its independent compensation consultant.
Our Manager and its affiliates also determine whether, and to what extent, our Named Executive Officers will be provided with employee benefit plans. We do not currently have employment agreements with our Named Executive Officers and we do not currently provide pension or retirement benefits, perquisites or other personal benefits to our Named Executive Officers.
While we may not currently pay our Named Executive Officers any cash compensation, we currently pay our Manager the base management and incentive fees and reimburse our Manager for certain expenses it incurs in the course of rendering services to us under the Management Agreement, as described in more detail in “Certain Relationships and Related Party Transactions - Transactions With Related Persons - Management Agreement.” Additionally, in the discretion of the Compensation Committee of our Board, as ratified by our Board, we may also grant our Named Executive Officers equity awards that vest annually over a three-year periodnon-cash items pursuant to our Equity Incentive Plan, or equity awards, as described in more detail in “Executive Compensation - Compensation Discussion and Analysis - Equity Awards.” We believe that our use of equity awards and the long-term nature of the vesting of those equity awards serve to further align the interests of our Named Executive Officers with those of our stockholders
and mitigate the possibility of excessive risk taking. For fiscal 2019, we incurred $14.9 million in base management fees, $0.2 million in incentive fees and $11.7 million in expense reimbursementsexisting policy for reporting Distributable Earnings referenced above. Pursuant to our Manager under the Management Agreement.
Our Corporate Governance Guidelines and our committee charters require our Board and certain of its committees to oversee our relationship with, and compensation paid to, our Manager. The base management and incentive fees cannot be increased or revised without the approval of our independent directors. See “Certain Relationships and Related Party Transactions - Transactions with Related Persons - Management Agreement”existing policy for further discussion of the terms of the Management Agreement, including the base management and incentive fees payable to our Manager and our expense reimbursement obligations to our Manager thereunder.
As notedreporting Distributable Earnings referenced above, we recently announced that we have agreed to a process with our Manager to internalize the Company’s management function. In connection with the completion of the internalization, we expect to continue to be managed by our strong senior management team along with other personnel providing services to us, who are currently employed by our Manager, and to whom the Independent Committee expects to extend offers of employment. If the internalization is completed, the Management Agreement will be terminated and, thereafter, we will no longer be obligated to pay our Manager base management or incentive fees or reimburse our Manager for expenses. There can be no assurance that the internalization will be consummated.
Role of Compensation Committee
Currently, we do not have any employees and our Named Executive Officers, each of whom is an employee of an affiliate of our Manager, do not receive any cash compensation from us or any of our subsidiaries for serving as executive officers. While our Compensation Committee consults with our Manager regarding cash compensation it pays to our Named Executive Officers, our Manager is responsible for paying such cash compensation and making all decisions relating thereto based on such factors as it determines appropriate. Our Compensation Committee reviews and approves the equity awards to be paid or made by us to our Named Executive Officers based on recommendations from our Company’s Chief Executive Officer, other than with respect to himself, and its independent compensation consultant.
Role of Compensation Consultant
From January through July 2019, our Compensation Committee engaged Pay Governance, LLC, or Pay Governance, as its independent compensation consultant. Beginning in August 2019, our Compensation Committee engaged Semler Brossy Consulting Group LLC, or Semler Brossy, as its independent compensation consultant. Our Compensation Committee considered advice and recommendations received from Pay Governance and Semler Brossy regarding compensation matters, including decisions made with respect to director compensation and equity awards. Neither Pay Governance nor Semler Brossy provided services to our Company other than the advice provided to our Compensation Committee, and each of Pay Governance and Semler Brossy has advised our Compensation Committee that the payments for fees and direct expense reimbursements it received from us during 2019 were immaterial as a percentage of their income for the period. Each of Pay Governance and Semler Brossy has also advised us that neither it nor, to its knowledge, any member of its consulting team who provides services to our Compensation Committee owns any shares of our common stock. After considering the foregoing, as well as the conflict of interest policies and procedures of each of Pay Governance and Semler Brossy and the lack of known business and personal relationships between each of Pay Governance and Semler Brossy, its team members providing services to our Compensation Committee and its members and our Named Executive Officers, our Compensation Committee concluded that the provision of services to the Committee by each of Pay Governance and Semler Brossy did not raise any conflict of interest concerns pursuant to the SEC and NYSE rules.
Role of Executive Officers
Our Compensation Committee is responsible for making all equity award decisions related to our Named Executive Officers. Our Chief Executive Officer annually reviews the financial performance of our Company, current market conditions and the performance of each Named Executive Officer and, based on these reviews, provides a recommendation regarding the appropriate equity awards, if any, other than his own, to be presented to our Compensation Committee for approval.
Say-On-Pay Vote
At our 2019 annual meeting of stockholders, we provided our stockholders with the opportunity to vote to approve, on a non-binding advisory basis, our executive compensation. More than 98% of the votes cast at our 2019 annual meeting of stockholders voted to approve our executive compensation as described in our proxy statement for the 2019 annual meeting of stockholders. Our Compensation Committee will carefully consider future stockholder votes on this matter, along with other expressions of stockholder views it receives on specific policies and desirable actions.
Equity Compensation
Our Compensation Committee may, from time to time pursuant to our Equity Incentive Plan, grant equity awards to our Named Executive Officers. These equity awards generally provide for ratable vesting on an annual basis over a three-year period, with accelerated vesting occurring under certain circumstances, as described in further detail in “Potential Payments Upon Termination or Change in Control.” These awards are designed to align the interests of our Named Executive Officers with those of our stockholders, by allowing our Named Executive Officers to share in the creation of value for our stockholders through capital appreciation and dividends. We also believe that the vesting restrictions are an important retention and risk management device that encourages our Named Executive Officers to focus on sustaining our Company’s long-term performance and delivering total return to our stockholders, rather than encouraging decisions that result in short-term benefits to our Company or excessive risk-taking.
Our Compensation Committee reviews the recommendations from our Chief Executive Officer, other than with respect to himself, and its independent compensation consultant in determining the appropriate size of the equity award for each Named Executive Officer. These recommendations take into account the financial performance of our Company during the prior fiscal year, current market conditions, the performance of each executive officer and the desire to align the interests of each of our executive officers with our stockholders.
In addition, our Compensation Committee considered a number of key factors in determining the size of the equity awards granted to our Named Executive Officers in 2019, including that, in 2018, we executed our first collateralized loan obligation transaction, we established a two-year $75 million short-term financing facility, we raised approximately $130 million of additional investable capital to support further portfolio growth by issuing five-year senior unsecured convertible bonds, we originated forty-four new commercial real estate loans for a total of $1.57 billion during the fiscal year, an increase of 24% in volume and 63% in loan count versus 2017, and we maintained a 100% performing portfolio with no credit impairments recognized, among other things. There was no specific numerical value given to any individual factor and each factor was considered in light of the other factors noted along with any additional information available to our Compensation Committee at the time, including market conditions in general.
Summary Compensation Table
The following table summarizes the equity compensation paid to our Named Executive Officers during the fiscal years ending December 31, 2019, 2018 and 2017 for services rendered to us during the fiscal years presented:
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| | | | | | | |
Name and Principal Position | | Year | Restricted Stock Awards(1)
| | All Other Compensation(2)
| | Total(3)
|
John (“Jack”) A. Taylor,
President and Chief Executive Officer
| | 2019
2018
2017
| $1,199,981
$999,993
$1,516,125
| | $216,317
$170,867
$24,880
| | $1,416,298
$1,170,830
$1,541,005
|
Stephen Alpart,
Vice President and Chief Investment
Officer
| | 2019
2018
2017
| $749,981
$599,999
$390,000
| | $109,363
$67,680
$6,400
| | $859,344
$667,679
$396,400
|
Steven Plust
Vice President and Chief Operating
Officer
| | 2019
2018
2017
| $749,981
$599,999
$390,000
| | $109,363
$67,680
$6,400
| | $859,344
$667,679
$396,400
|
Marcin Urbaszek,
Vice President, Chief Financial
Officer and Treasurer
| | 2019
2018
2017
| $249,987
$199,988
$263,250
| | $42,193
$31,488
$4,320
| | $292,180
$231,476
$267,570
|
Rebecca B. Sandberg,
Vice President and Secretary
| | 2019
2018
2017
| $69,999
$49,997
$195,000
| | $16,604
$16,529
$3,200
| | $86,603
$66,526
$198,200
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(1) | See also “Grants of Plan-Based Awards.” The shares of restricted stock were granted pursuant to our Equity Incentive Plan and vest in three equal annual installments beginning on the first anniversary of the grant date, so long as the Named Executive Officer complies with the terms and conditions of his or her restricted stock agreement. The values in this column represent the grant date fair value of the restricted stock awards, computed in accordance with FASB ASC Topic 718, using the closing market price of our common stock on the NYSE on the date of such grant.
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(2) | The values in this column represent dividends paid on unvested shares of restricted common stock. |
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(3) | Because we do not currently pay cash compensation to our Named Executive Officers, any such compensation paid to our Named Executive Officers by our Manager is not included in this Summary Compensation Table. See “Compensation Discussion and Analysis - Overview of Compensation Program and Philosophy” for further discussion of cash compensation paid by our Manager.
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Grants of Plan-Based Awards in 2019
The following table provides information regarding restricted stock awards granted to our Named Executive Officers under our Equity Incentive Plan during the fiscal year ended December 31, 2019.
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| | | | | | |
| Name | | Grant Date | | All Other Stock Awards: Number of Shares of Stock(1) | | Grant Date Fair Value of Stock Awards(2) |
| John (“Jack”) A. Taylor | | 01/28/2019 | | 62,143 | | $1,199,981 |
| Stephen Alpart | | 01/28/2019 | | 38,839 | | $749,981 |
| Steven Plust | | 01/28/2019 | | 38,839 | | $749,981 |
| Marcin Urbaszek | | 01/28/2019 | | 12,946 | | $249,987 |
| Rebecca B. Sandberg | | 01/28/2019 | | 3,625 | | $69,999 |
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(1) | See also “Summary Compensation Table.” The shares of restricted stock were granted pursuant to our Equity Incentive Plan and vest in three equal annual installments beginning on the first anniversary of the grant date, so long as the Named Executive Officer complies with the terms and conditions of his or her restricted stock award agreement.
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(2) | The values in this column represent the grant date fair value of the restricted stock awards, computed in accordance with FASB ASC Topic 718, using the closing market price of our common stock on the NYSE on the date of such grant. |
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information concerning unvested restricted stock awards for each of the Named Executive Officers as of December 31, 2019.
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| | | | | | |
| | | Stock Awards |
Name | | Grant Date | | Number of Shares of Stock That Have Not Vested(1)
| | Market Value of Shares of Stock That Have Not Vested(2)
|
John (“Jack”) A. Taylor | | 01/28/2019
01/29/2018
06/22/2017
| | 62,143
38,469
25.917
| | $1,142,188
$707,060
$476,354
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Stephen Alpart | | 01/28/2019
01/29/2018
06/22/2017
| | 38,839
23,082
6,667
| | $713,861
$424,247
$122,539
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Steven Plust | | 01/28/2019
01/29/2018
06/22/2017
| | 38,839
23,082
6,667
| | $713,861
$424,247
$122,539
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Marcin Urbaszek | | 01/28/2019
01/29/2018
06/22/2017
| | 12,946
7,694
4,500
| | $237,947
$141,416
$82,710
|
Rebecca B. Sandberg | | 01/28/2019
01/29/2018
06/22/2017
| | 3,625
1,924
3,334
| | $66,627
$35,363
$61,279
|
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(1) | The shares of restricted stock were granted pursuant to our Equity Incentive Plan and vest in three equal annual installments beginning on the first anniversary of the grant date, so long as the Named Executive Officer complies with the terms and conditions of his or her restricted stock award agreement. |
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(2) | The values in this column are based on the $18.38 closing market price of our common stock on the NYSE on December 31, 2019. |
Stock Vested in 2019
The following table sets forth information concerning the shares of restricted stock held by our Named Executive Officers that vested during the year ended December 31, 2019.2022, we recorded a $0.5 million recovery of amounts previously written off in a prior period on
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