UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
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Preliminary Proxy Statement | ||
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Definitive Proxy Statement | ||
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ANNALY CAPITAL MANAGEMENT, INC.Annaly Capital Management, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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May 22, 2019 |
9:00 a.m. (Eastern Time) |
www.virtualshareholdermeeting.com/NLY2019 |
Notice of 2018Annual Meeting of Stockholdersand Proxy Statement
May 23, 20189:00 a.m. (Eastern Time)www.virtualshareholdermeeting.com/NLY2018
Message from our Chairman, CEO and President
Dear Fellow Shareholders,
20172018 was a year of realizationtransformation for Annaly. We entersuccessfully delivered on many of the key corporate goals we communicated to you last year, and despite a difficult macro environment, reached a number of significant strategic milestones made possible by the institutionalization and diversification of Annaly over the past five years. The progress made in 2018 havingfurther establishes Annaly as a market and governance leader and positions the Company to continue executing upon the most integral components of our platform and strategy, which are outlined in the themes below.
Operating & Investment Platform
Diversified Shared Capital Model
The most important theme of 2018 was diversification. Annaly has transformed into a diversified operating company built to capitalize on numerous strategic opportunities across multiple complementary businesses. Since our diversification strategy began in 2014, Annaly has broadly invested in over $10 billion of credit assets through continued development of our platform, expanded institutional partnerships and corporate acquisitions.(1)As a result, today each of our three credit businesses would rank among the top ten industry leaders in their respective industry sectors by size on a standalone basis.
Financing, Capital & Liquidity
Diversification in the ways we access capital and the broadening of our financing alternatives are equally important in driving our outperformance and capital efficiency. Since the beginning of 2016, we have increased our capital base by $6.5 billion, more than half of which was sourced from avenues besides common equity offerings, further illustrating our leadership in the capital markets.(2)
We continue to enhance our capital efficiency through non-recourse, dedicated financing structures for each of our credit businesses – improving terms of existing arrangements, increasing financing capacity and establishing new counterparty relationships. Specifically, since the beginning of 2018, we have added $2.4 billion of additional borrowing capacity across our three credit businesses and expanded our financing diversification by establishing Annaly as a repeat issuer in the residential and commercial securitization markets.(3)
Operational Efficiency
Continuing to scale our differentiated operating platform has provided a foundation for growth, diversification and efficiency that is unmatched in the industry. Since 2014, we have made significant progressinvestments across our four businesses, adding expertise and depth to our investment teams and best-in-class infrastructure to support our strategies. Notably, we have grown our total number of IT professionals by over 40% during this time period. Our expanded in-house technology capabilities have led to the development of proprietary portfolio analytics, financial and capital allocation models, risk testing and accounting software, providing Annaly with distinct competitive advantages and cost savings.
Growth Strategies & Performance
Growth & Income
We have demonstrated, and the market has clearly validated, that size and scale drive performance. 2018 marked another successful year for Annaly and the execution of our long-term growth strategy. We capitalized on a number of key goalsopportunities that continue to solidify Annaly’s brand as a market and initiatives further strengthening Annaly’sgovernance leader. Since 2016, amidst a market leadership.backdrop with the Fed raising rates eight times and the yield curve flattening by 86%, Annaly has grown its market capitalization 64%, while delivering an additional $4.2 billion in cumulative dividends to shareholders.
Note: For footnoted information, please refer to “Message from our Chairman, CEO and President” in Endnotes section. | |
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Annaly Capital Management Inc. | ||
After 20 years as a publicly-traded company,Organically, we have provencontinued to grow each of our longevityfour business platforms by expanding our internal investment options and delivered consistent outperformance while transformingcontinuing to broaden our proprietary partnerships. Today, Annaly into anhas established over 20 strategic relationships with industry leading, diversified “Yield Manufacturer”. Our continuous reflectiondedicated partners across our four businesses, which have resulted in improved efficiencies and increased origination capabilities. In addition to our organic growth, expansion of partnerships and superior capital markets access, Annaly remains well-positioned to continue to gain market share through further consolidation, as demonstrated by our acquisition of Hatteras Financial Corp. in 2016 and most recently of MTGE Investment Corp. in 2018.
Risk-Adjusted Returns
The diversification and size of Annaly’s lower-levered capital base and investment businesses, along with our prudent risk management processes, continue to drive outperformance of Annaly’s total return. Since 2014, our total shareholder return of 83% is 1.2x higher than mREITs, 1.3x higher than the past, self-assessment ofS&P 500 and 2.3x higher than the present and strategic planning for the future enables usYield Sectors.(4)In addition to be opportunistic rather than reactive. It is humbling to remember where Annaly began and to celebrate the ingenuity and dedication it has taken to get Annaly where it is today. Our performance is attributable toour absolute returns, our proprietary model is producing higher cash flow margins than most any other financial services company – our pre-tax margins of approximately 60% are 3x higher than the average for corporations in the Yield Sectors.(5)
Corporate Responsibility and exceptional people. Each businessGovernance
Corporate Governance
Our dedication to corporate responsibility and every strategic movegovernance also sets us apart from the market – and undoubtedly is another contributor to Annaly’s historical outperformance. We believe that continually evaluating the framework of our corporate responsibility and governance practices ensures alignment and transparency, resulting in increased value to our shareholders over the long term. In order to more specifically frame our efforts and illustrate our industry leading commitment to governance, we recently published a comprehensive narrative on our website detailing our commitment to ESG, which others are now, of course, beginning to emulate.
In 2018, we also announced two important governance enhancements: the decision to declassify our Board initiating annual election of all Directors, along with adopting an enhanced Board Refreshment Policy that contains both tenure and age limit provisions. Our commitment to Board refreshment is further demonstrated by the election of four new independent directors since the beginning of 2018, three of whom are women, which will bring the percentage of women on the Board to 45% following the 2019 Annual Meeting of Stockholders(6), which is nearly 2x higher than the average for the S&P 500.
Human Capital
Behind the achievements and successes highlighted in this letter, and in everything we do, is the productdeep and varied expertise of our long developed plan. Our architecture is designedmost important asset – our people. Today we have over 170 talented professionals, the largest number in the Company’s history, who have supported our successful evolution from a mono-line Agency mortgage REIT to capitalize on the numerous opportunitiesIndustry Innovator we are uniquely positionedtoday.(7)We are very proud of how hard we work at the Company each day and how well we treat each other as partners, and in 2018 we recorded the highest level of employee satisfaction since we initiated our annual employee engagement survey in 2015.(8)
We continue to realizeexpand our initiatives focused on advancing diversity throughout the Firm, which remains a key business priority. In 2018, 47% of new hires identified as racially diverse, increasing overall firm diversity to 32%, which is 60% higher than our industry based on Bureau of Labor Statistics data.(9)Additionally, nearly 40% of new hires in the years ahead.2018, 40% of Managing Director promotions and 50% of additions to Annaly’s Operating Committee since 2015 have been women.
I thankNote: For footnoted information, please refer to “Message from our investors for their supportChairman, CEO and trust, our Board for its guidance and each one of our employees for their deep commitment to Annaly and its shareholders.President” in Endnotes section.
Finally, this year we are excited to hold our Annual Shareholder Meeting online for the first time via live webcast. The more interactive online format also enables us to open our Annual Meeting to shareholders from locations around the world. We look forward to speaking to you then.
Sincerely,Kevin KeyesChairman, Chief Executive Officer & PresidentApril 10, 2018
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Annaly Capital Management Inc. | ||
Responsible Investments
Finally, our dedication to ESG principles, as well as our deep investment capabilities, uniquely positions us to support the vitality of local communities and the economy. This past year, we collaborated once again with Capital Impact Partners, a national mission-driven non-profit community development financial institution, to launch our second social impact joint venture, which is specifically aimed at supporting affordable housing and other community development projects in Washington, D.C.
As we look ahead, we will continue our diversified and complementary growth strategies and reward our shareholders by taking advantage of opportunities in the market that are unique to Annaly. We are more prepared than ever to benefit from our size, liquidity, optionality and operational efficiency. I am grateful for the confidence of our Board, which has empowered us to be the industry leader we have become. I want to thank my fellow shareholders for their steadfast commitment, support and trust of this management team. And, to each Annaly employee, I sincerely appreciate all of the hard work and dedication, every day. We have so much opportunity in front of us.
Finally, this year we are excited to once again virtually “host” investors from around the world at our Annual Shareholder Meeting. The meeting will be conducted online via live webcast for the second consecutive year and we look forward to engaging with you then.
Note: For footnoted information, please refer to “Message from our Chairman, CEO and President” in Endnotes section.
Annaly Capital Management Inc. 2019 Proxy Statement | iii | |
Notice of Annual Meeting of Stockholders
To the Stockholders of Annaly Capital Management, Inc.:
Annaly Capital Management, Inc., a Maryland corporation (“Annaly” or the “Company”), will hold its annual meeting of stockholders (the “Annual Meeting”) on May 23, 2018,22, 2019, at 9:00 a.m. (Eastern Time) online at www.virtualshareholdermeeting.com/NLY2018, to:NLY2019, to consider and vote upon:
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4. | Ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for |
The Company will also transact any other business as may properly come before the Annual Meeting or any postponement or adjournment thereof. Only common stockholders of record at the close of business on March 26, 2018,25, 2019, the record date for the Annual Meeting, may vote at the Annual Meeting and any postponements or adjournments thereof.
Your vote is very important. Please exercise your right to vote.
The Company’s Board of Directors (“Board”) is soliciting proxies in connection with the Annual Meeting. The Company is sending the Notice of Internet Availability of Proxy Materials (“Notice”), or a printed copy of the proxy materials, as applicable, commencing on or about April 10, 2018.[__], 2019.
To view the Proxy Statement and other materials about the Annual Meeting, go to www.annalyannualmeeting.com or www.proxyvote.com.
All stockholders are cordially invited to attend the Annual Meeting, which will be conducted via a live webcast.webcast for a second consecutive year. The Company is excited to embrace the environmentally-friendly virtual meeting format, which it believes will enablesaw increased stockholder attendance and participation.participation at its first virtual stockholder meeting in 2018 and is confident that this format will once again allow enhanced interaction with our global stockholder base. During thisthe upcoming virtual meeting, you may ask questions and will be able to vote your shares electronically.electronically from your home or any remote location with Internet connectivity. You may also submit questions in advance of the Annual Meeting by visiting www.proxyvote.com. The Company will respond to as many inquiries at the Annual Meeting as time allows.
An audio broadcast of the Annual Meeting will also be available to stockholders by telephone toll-free at 1-877-328-2502. If you plan to attend the Annual Meeting online or listen to the telephonic audio broadcast, you will need the 16-digit control number included in your Notice, on your proxy card or on the instructions that accompany your proxy materials. Please note that listening to the audio broadcast will not be deemed to be attending the Annual Meeting, and you cannot ask questions or vote from such audio broadcast. The Annual Meeting will begin promptly at 9:00 a.m. (Eastern Time). Online check-in will begin at 8:30 a.m. (Eastern Time), and you should allow ample time for the online check-in procedures.
If you wish to watchview the webcast at a location provided by the Company, the Company’s Maryland counsel, Venable LLP, will air the webcast at its offices located at 750 E. Pratt Street, Suite 900, Baltimore, MD 21202. Please note that no members of management or the Board will be in attendance at this location. If you would like to view the Annual Meeting webcast at Venable LLP’s office, please follow the directions for doing so set forth in the “Questions and Answers about the Annual Meeting” section in this Proxy Statement.
By Order of the Board of Directors,
Anthony C. Green
Chief Corporate Officer, Chief Legal Officer and Secretary
April 10, 2018[__], 2019
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to be Held on May 22, 2019. |
The Company’s Proxy Statement and |
Annaly Capital Management Inc. | ||
This summary contains highlights about the Company and the Annual Meeting. This summary does not contain all of the information that you should consider in advance of the Annual Meeting, and the Company encourages you to read the entire Proxy Statement and the Company’s 20172018 Annual Report on Form 10-K carefully before voting.
Wednesday, May | |||
www.virtualshareholdermeeting.com/ | |||
Close of business on March | |||
Stockholders are able to vote by Internet at www.proxyvote.com; telephone at 1-800-690-6903; by completing and returning their proxy card; or online at the Annual Meeting |
VOTING MATTERS
Voting Matters |
Board Vote Recommendation | Page Number | |||
Proposal No. 1:Election of Directors | FOR each Director nominee | |||
Proposal No. 2:Approval, on an advisory basis, of the Company’s executive compensation | FOR | |||
Proposal No. 3:Approval of an amendment to the Company’s charter to increase the number of authorized shares of capital stock to 3,000,000,000 shares | FOR | 46 | ||
Proposal No. 4:Ratification of the appointment of Ernst & Young LLP for the year ending December 31, 2019 | FOR |
PARTICIPATE IN THE ANNUAL MEETINGParticipate in the Annual Meeting
Voting Stockholders may | ||
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Online Information |
After years of declining attendance by stockholders at Annaly’s in-person annual meetings and marked growth of our international stockholder base over the same time period, the Company is moving to an online format for this year’s Annual Meeting. By hosting the Annual Meeting virtually, Annaly is able to communicate more effectively with its stockholders, enablesaw increased stockholder attendance and participation from locations aroundat its first virtual annual meeting in 2018. The Company is excited to once againembrace the worldvirtual meeting format for the 2019 Annual Meeting. This environmentally-friendly approach also aligns with the Company’s broader sustainability goals and reducereduces costs for both the Company and its stockholders. This approach also aligns with the Company’s broader sustainability goals. The virtual meeting will be available to stockholders across the globe via any Internet-connected device and has been designed to provide the same rights to participate as you would have at an in-person meeting, including providing opportunities to make statements and ask questions.
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You are entitled to participate and vote at the Annual Meeting by visiting www.virtualshareholdermeeting.com/NLY2018.NLY2019. An audio broadcast of the Annual Meeting will also be available to stockholders by telephone toll-free at 1-877-328-2502. If you plan to attend the Annual Meeting online or listen to the telephonic audio broadcast, you will need the 16-digit control number included in your Notice, on your proxy card or on the instructions that accompany your proxy materials. Please note that listening to the audio broadcast will not be deemed to be attending the Annual Meeting and you cannot vote from such audio broadcast. Stockholders can access Annaly’s interactive pre-meeting forum, where you can submit questions in advance of the Annual Meeting and view copies of the Company’s proxy materials, by visiting www.proxyvote.com.
If you wish to watchview the webcast at a location provided by the Company, the Company’s Maryland counsel, Venable LLP, will air the webcast at its offices located at 750 E. Pratt Street, Suite 900, Baltimore, MD 2102.21202. Please note that no members of management or the Board will be in attendance at this location. If you wish to view the Annual Meeting via webcast at Venable LLP’s office, please complete theReservation Request Form found at the end of this Proxy Statement. For additional information on the Annual Meeting, and for copies of the Company’s Proxy Statement and 2017 Annual Report, please visit Annaly’s Annual Meeting informational website at www.annalyannualmeeting.com.
Annaly Capital Management Inc. | ||
Proxy Summary
NLY |
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The Company has been externally-managed by Annaly Management Company LLC (the “Manager”) since July 2013. The Manager is responsible for managing the Company’s affairs pursuant to a management agreement. The Manager pays allagreement and, as of December 31, 2018, directly employed 95% of the compensation, including benefits,individuals who provide services to its employees (which include the named executive officers (“NEOs”) other than Mr. Keyes, who receives no compensation for his services as the Company’s Chief Executive Officer (“CEO”), but has an interest in the management fee as an indirect equityholder of the Manager).Company. Although certain personnel (but none of the NEOs) are employed by subsidiaries of the Company for regulatory or corporate efficiency reasons, all compensation and benefits paid to such personnel by these subsidiaries reduce, on a dollar-for-dollar basis, the management fee the Company pays to the Manager. As of December 31, 2017, the Manager had 146 employees and Annaly’s subsidiaries collectively had six employees. Forfor ease of reference, throughout this Proxy Statement, the NEOsNamed Executive Officers (“NEOs”) and the other employees of the Manager, together with employees of Annaly’s subsidiaries, are sometimes referred to as Annaly’s employees.
Performance | Capital Raising | Dividends | ||
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Proxy Summary
ANNALY’S DIVERSIFIED INVESTMENT STRATEGYAnnaly's Diversified Shared Capital Model
Diversification is a key component of the Annaly strategy.strategy, which has four distinct investment groups. Since 2014, Annaly has diversified its business model by investing in credit assets, which complement the Company’s primary portfolio of interest rate sensitivefixed-rate investments. This strategy is designed to achieve stable risk-adjusted earningsreturns and book value performance over various interest rate and economic cycles by pairing shorter duration floating-rate credit loans and securities with the Company’s longer duration, fixed-rate agency portfolio. Annaly now
The Company has 37 investment options across its four distinct investment groups, which provide access to over 36 investmentis nearly three times more than in 2013 and up from 26 options and structures.at the end of 2015. While managing investment decisions, the Company combines a robust capital allocation process with careful risk management. This process enables Annaly to take advantage of market fluctuations and inefficiencies and rotate into credit markets when dislocations occur and pricing is attractive on a risk-adjusted, relative value basis.
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Proxy Summary
The Company has 36 investment options across its four investment groups, which is nearly three times more than in 2013 and up from 26 options at the end of 2015.
Number of Available Investment Options |
DIVIDENDSNote: For footnoted information, please refer to “Annaly’s Diversified Shared Capital Model” in Endnotes section.
4 | Annaly Capital Management Inc. 2019 Proxy Statement | |
From Annaly’s IPO in 1997 through December 31, 2017, the Company has declared over $16 billion in commonTable of Contents
Proxy Summary
Growth and preferred dividends to its stockholders. In 2017, Annaly declared over $1.4 billion in common and preferred dividends.Income
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Since January 2016, Annaly has grown its market cap by $5.7 billion, or 64%, and declared over $4.2 billion in cumulative dividends to stockholders amidst a challenging market backdrop, where the Federal Reserve has raised rates 8 times and the Treasury curve has flattened by 86%.
Note: For footnoted information, please refer to “Growth and Income” in Endnotes section.
Annaly Capital Management Inc. | ||
Proxy Summary
DELIVERING SIGNIFICANT VALUE FOR STOCKHOLDERSDelivering Significant Value For Stockholders
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Since 2014 (the first full year the Company was externally-managed, as more fully described in “Management Structure”“Management Structure” on page38) 34), Annaly has performed well against relevant benchmarks. As illustrated by the graphs below, shares of the Company’s common stock (including reinvestment of dividends) have returned significant value to stockholders over the long term relative to both the Company’s mREIT peers and other yield-focused investments.
Total Shareholder Return since 2014 |
Note: For footnoted information, please refer to “Delivering Significant Value for Stockholders” in Endnotes section. |
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Annaly Capital Management Inc. | ||
Proxy Summary
STOCKHOLDER OUTREACH AND RESULTS OF 2017 SAY-ON-PAY VOTEStockholder Outreach and Results of 2018 Say-on-Pay Vote
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The Company is committed to ongoing engagement with both retail and institutional stockholders through a wide range of mediums. These engagement efforts have yielded meaningful feedback on a variety of topics, including the Company’s diversified investment strategymediums, including: in-person meetings, conferences, phone calls and its corporate governance, compensation and management structures.
electronic communication. Following the results of Annaly’s 20172018 advisory resolution on executive compensation (commonly known as a “Say-on-Pay” vote), which received strong support from 69%over 94% of votes cast, the Company has continued its multi-pronged stockholder outreach campaign to solicit feedback from key stakeholders on a number of issues, including (i) the Manager’s executive compensation program and proposed compensationrelated disclosure, for 2018, board(ii) the structure, composition and refreshment of the Board, and corporate social responsibility(iii) the Company’s Corporate Responsibility and Environmental, Social and Governance (“ESG”) initiatives.
2018–2019 Stockholder Engagement Efforts |
Outreach included approximately | Outreach included approximately | Management hosted meetings with investors representing | ||||
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TheseAnnaly’s stockholder engagement efforts generated significant feedback for both the Board and management and have resulted in a number of enhancements to corporate governance and compensation practices and disclosures.disclosures over the last few years. Annaly’s stockholders have been extremely instrumental to, and supportive of, these governance and disclosure enhancements and the Company looks forward to continuing to find innovative ways to engage over the course of 20182019 and beyond.
■ | Analysis of market governance and compensation practices at peer companies |
■ | Advice from external advisors, including governance and compensation consultants, Board search firms and proxy solicitors |
■ | Attendance at investor conferences |
■ | Discussions with proxy advisory services and corporate governance research firms |
Annaly Capital Management Inc. | ||
Proxy Summary
STOCKHOLDER ENGAGEMENTStockholder Engagement
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Review Classified | Board Structure | ■ ■Following this review, in December 2018, the ■The amended bylaws provide that Directors will be nominated for one-year terms beginning with the 2019 Annual Meeting of |
Focus on Board | Diversity | ■ |
–Focus areas of the evaluation included Board and Committee skills, structure, dynamics, processes, leadership and refreshment ■ ■ | ||
Enhance Board | Refreshment Policy | ■The Nominating/Corporate Governance (“NCG”) Committee Chair, in conjunction with an outside governance expert, led a full review of options to facilitate Board ■Following this review, in October 2018, the Board |
Deepen Corporate | ■ ■ ■Partnered with Capital Impact Partners to launch a ■ | |
Note: For footnoted information, please refer to “Stockholder Engagement” in Endnotes section.
Annaly Capital Management Inc. | ||
Proxy Summary
ENHANCED DISCLOSURE ON THE MANAGER’S EXECUTIVE COMPENSATION PROGRAMCorporate Responsibility
OverAs responsible stewards of capital, Annaly takes into account ESG factors that contribute to our ability to drive positive impacts and deliver attractive risk-adjusted returns over the last two years,long term. Annaly’s Corporate Responsibility efforts were institutionalized by the Company has engagedestablishment of a dedicated Corporate Responsibility team in extensive outreach2018, which is led by Tanya Rakpraja as Annaly’s Head of Corporate Responsibility and Government Relations. The Corporate Responsibility team collaborates across business areas to understand the information stockholders need in order to fully evaluate the Manager’s executive compensation program for purposes of making an informed Say-on-Pay vote. In response to this feedback, the Manager has provided the information below about the compensation it paiddevelop initiatives, monitor progress and manage reporting, and provides routine updates to the NEOs for 2017.Corporate Responsibility Committee(1) of the Board (and, as appropriate, to the full Board). The Company provides extensive disclosure on its ESG efforts on the “Corporate Responsibility” section of Annaly’s corporate website at www.annaly.com/corporate-responsibility.
The Manager and The Management Agreement
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In 2019, the Manager reduced | Annaly’s management fee is | Approximate compensation |
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For additional information about the Manager, the management agreement and executive compensation, see “Certain Relationships and Related Party Transactions,” “Management Structure”, “Compensation Paid by the Manager to the Named Executive Officers” and “Compensation Discussion and Analysis.”
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Proxy Summary
THE MANAGER AND THE MANAGEMENT AGREEMENT
All of the NEOs are indirect owners and/or employees of the Manager | |
■ | With the exception of Mr. Keyes, each of the other NEOs receives compensation paid by the Manager. Mr. Keyes receives no compensation for his services as |
■ | The Manager is responsible for the compensation of |
■ | The Manager |
■ | For |
■ | In March 2019, the Manager and the Company amended the Management Agreement solely to reduce the management fee on Incremental Stockholders’ Equity. Pursuant to this amendment, which recognizes the efficiencies that have been gained with scale, the Company pays the Manager a monthly management fee equal to 1/12th of the sum of: (i) 1.05% of Base Stockholders’ Equity(5), and (ii) 0.75% of Incremental Stockholders’ Equity(2) |
Note: For footnoted information, please refer to “Corporate Responsibility & The Manager and the Management Agreement”
in Endnotes section.
Annaly Capital Management Inc. 2019 Proxy Statement | 9 | |
Proxy Summary
The Manager’s Executive Compensation Program
90.5% | 9.5% | 16.8% | ||
of NEO compensation was variable and paid in the form of performance-based incentive bonuses | of NEO compensation was paid in the form of fixed base salaries | of aggregate management fees and expense reimbursements paid to the Manager were allocated by the Manager as NEO compensation |
Although Annaly neither employs nor compensates the NEOs, the Company is committed to providing its stockholders with information about the Manager’s executive compensation program in order to enable an informed Say-on-Pay vote.
The Manager’s Executive Compensation Philosophy and Process
The key principle of the Manager’s compensation philosophy for all employees, including the NEOs, is to pay for performance. The Manager’s NEO compensation planning process incorporates key areas of evaluation including: external market data, internal benchmarking, and quantitative and qualitative assessments of Company, group and individual performance. Individuals are evaluated based on mid-year and year-end manager reviews and the utilization of a 9-box talent review model, which assesses individual performance and potential. In establishing and reviewing individual NEO compensation packages, the Manager also considers the nature and scope of each NEO’s role and responsibilities, retention considerations and feedback from stakeholders.
Overview of the Manager’s 2018 Executive Compensation Program
■ | With respect to 2018,(1) the NEOs as a group received aggregate salaries of $3.0 million and aggregate performance-based incentive bonuses of $28.7 million from the Manager. These amounts collectively represent 16.8% of the aggregate management fees and reimbursements the Company paid to the Manager for 2018. On an aggregated basis, the NEOs received 9.5% of their total compensation in the form of base salaries and the remaining 90.5% in the form of performance-based incentive bonuses. |
■ | In determining the cash bonuses it paid to the NEOs for 2018, the Manager considered achievement of both rigorous Company performance metrics,(2) including core return on equity, core return on assets and operating expenses as a percentage of average equity and as percentage of average assets, along with group and individual performance objectives. |
Over the past several years,For additional information about the Manager, has made significant investments in personnel corresponding to the diversification of its investment strategy into more people-intensive asset classes (including Residential Credit, Commercial Real Estatemanagement agreement and Middle Market Lending assets), as well as to corporate infrastructure enhancements. These investments include the build out of teams for the Agency, Residential Credit, Commercial Real Estateexecutive compensation, see “Certain Relationships and Middle Market Lending groups, and significant hires in business support functions, such as Risk Management, Legal and Compliance, Finance and Information Technology, among others.
Investment in Annaly’s People | ||
91 | 96% | |
Dedicated staff supporting best-in-class Risk Management, Technology, Legal, Finance and Business Development functions | of employees feel Annaly is committed to exceeding stockholder expectations, compared to the Financial Services average of 88%(3) | |
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Internal development programs in place with 100% employee participation | Management committees with broad representation designed to provide guidance and oversight |
The costs of these personnel expansions and improvements have been paidRelated Party Transactions,” “Management Structure,” “Compensation Paid by the Manager rather than by the Company. Unlike a number of other externally-managed REITs, Annaly does not reimburse the Manager for any portion or subset of employment costs, all of which are borne by the Manager. An increase to these costs does not result in any increase to the management fee, which is a fixed percentageNamed Executive Officers” and “Compensation Discussion and Analysis.”
Note: For footnoted information, please refer to “Overview of stockholders’ equity as described above.
Despite the costs associated with the diversification of its investment strategy, the Manager has continued to operate the businessManager’s 2018 Executive Compensation Program” in an efficient manner with appropriately scaled operating costs (including the management fee). As illustrated by the table below, Annaly’s average operating expense levels have remained significantly lower than both its internally- and externally-managed mREIT peers over the last six years.Endnotes section.
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Annaly Capital Management Inc. | ||
Proxy Summary
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | Average | |||||||
1.45% | 1.66% | 1.61% | 1.58% | 1.65% | 1.68% | 1.61% | |||||||
Internally-Managed Peers | 2.71% | 3.95% | 3.92% | 3.68% | 2.14% | 2.10% | 3.08% | ||||||
Externally-Managed Peers | 2.38% | 3.06% | 3.55% | 3.82% | 4.36% | 4.00% | 3.53% | ||||||
mREIT Index | 2.33% | 3.30% | 3.62% | 3.80% | 3.53% | 3.25% | 3.30% |
Board Composition, Structure And Refreshment
12 or 73 | 2021 | 45% | ||
Independent Directors may | All Directors will stand for | of Annaly’s Continuing |
The NCG Committee seeks to achieve a balance of knowledge, experience and capability on the Board. Newer Directors offer fresh ideas and perspectives, while deeply experienced Directors bring extensive knowledge of the Company’s complex operations. The table below summarizes key qualifications, skills, and attributes most relevant to the Continuing Directors’(1)service on the Board. For additional information about individual Director’s qualifications and experience, please see the Manager,Director biographies beginning on page 15.
Skill / Experience Summary of Continuing Directors(1) |
The Board annually evaluates its overall composition and rigorously evaluates individual Directors to ensure a continued match of their skill sets and projected tenure against the management agreementneeds of the Company. As a result of this process, the Board elected new Independent Directors, Kathy Hopinkah Hannan and executive compensation, see “Certain RelationshipsThomas Hamilton, effective February 13, 2019 and Related Party Transactions,” “Management Structure”, “Compensation Paid byMarch 6, 2019, respectively. In 2018, the ManagerBoard also underwent a comprehensive third-party facilitated self-evaluation, which included assessments of the full Board, each Board committee and individual Directors. Focus areas of this evaluation included Board and Committee skills, structure, dynamics, processes, leadership and refreshment. Based on the results of its self-evaluation, the Board determined to conduct a follow-up review to further analyze considerations related to Board refreshment, including Director term and tenure. This review, which benefitted from significant stockholder feedback, ultimately led to the Named Executive Officers”adoption of a Board refreshment policy requiring that Independent Directors may not stand for re-election following the earlier of their 12thanniversary of Board service or their 73rdbirthday. In addition, this analysis informed the Board’s unanimous approval and “Compensation Discussion and Analysis.”adoption of a bylaw amendment to declassify the Board over a three-year period beginning with the 2019 Annual Meeting, with all Directors standing for annual election commencing with the 2021 Annual Meeting.
GOVERNANCE TIMELINENote: For footnoted information, please refer to “Board Composition, Structure and Refreshment” in Endnotes section.
Annaly Capital Management Inc. 2019 Proxy Statement | 11 | |
12 | Annaly Capital Management Inc. 2019 Proxy Statement | |
Corporate Governance at Annaly
Annaly Strives for Best-in-Class Governance Practices |
2013 | ■Annaly’s proposal to be externally managed received 83% support from stockholders | ■Added new Independent Director (John H. Schaefer) ■Established Risk Committee | ||
2014 | ■Enhanced financial disclosure, including additional financial metrics | ■Added new Independent Director (Francine J. Bovich) | ||
2015 | ■Robust Lead Independent Director role created ■ ■Introduced annual employee engagement survey | ■Kevin Keyes appointed as CEO ■ | ||
2016 | ■Adopted broad-based stock ownership guidelines for employees ■Increased | ■Adopted clawback policy for external manager ■Adopted anti-pledging policy for employees ■Adopted four-year stock holding period | ||
2017 | ■Established ■Rotated Board Committee chairs and members ■Launched initial social impact investing joint venture ■ ■Joined Council of Institutional Investors (CII) ■Launched Women's Interactive Network | ■Designated second Audit Committee financial expert ■Joined National Association of Corporate Directors (NACD) ■NEOs voluntarily committed to increase stock ownership positions ■Hosted inaugural Investor Day | ||
2018 | ■Added ■ ■Adopted enhanced Board evaluation process, including individual directors assessments and periodic use of external facilitator ■Amended bylaws to declassify Board beginning with the 2019 Annual Meeting with full Board standing for annual election commencing with the 2021 Annual Meeting ■Created new executive role to lead the Company’s Corporate Responsibility and ESG initiatives | ■Enhanced compensation and other disclosure in proxy statement ■ ■Instructed Board search firm to present equal representation in the slate of potential director candidates, including women and minority candidates ■Adopted policy requiring that Independent Directors may not stand for re-election following the earlier of their 12thanniversary of Board service or 73rdbirthday |
| ||||
2019 | ■Announced second social impact investing joint venture ■Added extensive disclosure on ■The Manager reduced its management fee on Incremental Stockholders’ Equity(2) from 1.05% to 0.75% | ■Added two new Independent Directors (Kathy Hopinkah Hannan and Thomas Hamilton) ■Recognized in the 2019 Bloomberg Gender-Equality Index |
Note: For footnoted information, please refer to “Corporate Governance at Annaly” in Endnotes section.
Annaly Capital Management Inc. | ||
Proxy Summary
BOARD COMPOSITION AND REFRESHMENT
The Nominating/Corporate Governance Committee (the “NCG Committee”) of the Board seeks to achieve a balance of knowledge, experience and capability on the Board. Newer Directors offer fresh ideas and perspectives, while deeply experienced Directors bring extensive knowledge of the Company’s complex operations. On an annual basis, the NCG Committee evaluates the Board’s overall composition, including Director tenure and rigorously evaluates all Directors to ensure a continued match of their skill sets against the needs of the Company. This assessment also informs Board succession planning, and contributed to the appointment, effective January 1, 2018, of two new Independent Directors (Katie Beirne Fallon and Vicki Williams) with skills that complement the Company’s highly qualified Board. The table below summarizes key qualifications, skills, and attributes most relevant to the Directors’ service on the Board. For additional information about individual Director’s qualifications and experience, please see the Director biographies beginning on page20.
Corporate Governance at Annaly
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Corporate Governance at Annaly
01 | Election of Directors
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The Board has nominated and recommends a voteFOReach of |
Name | Age | Principal Occupation | Independent | Committees | ||||||
Director Nominees Standing for One-Year Terms | ||||||||||
Annaly Capital Management, Inc. | No | |||||||||
Construction Forms, Inc. | Yes | Risk | ||||||||
Former National Managing Partner, Global Lead Partner KPMG LLP | Yes | Audit NCG | ||||||||
Vicki Williams | 46 | Chief NBCUniversal | Yes | Compensation | ||||||
Directors Whose Current Terms Expire in 2020 | ||||||||||
Francine J. Bovich | 67 | Former Managing Director Morgan Stanley Investment Management | Yes | NCG (Chair) CR | ||||||
Katie Beirne Fallon | 43 | Global Head of Corporate Affairs Hilton Worldwide Holdings Inc. | Yes | CR NCG | ||||||
Jonathan D. Green* | 72 | Former Vice Chairman Rockefeller Group | Yes | CR (Chair) Compensation Risk | ||||||
John H. Schaefer | 67 | Former President and Chief Operating Officer Morgan Stanley Global Wealth Management | Yes | Risk (Chair) Audit Compensation | ||||||
Directors Whose Current Terms Expire in 2021 | ||||||||||
Annaly Capital Management, Inc. | No | CR Risk | ||||||||
Managing Director and Head of Conning North America Conning, Inc. | Yes | Audit Risk | ||||||||
Donnell A. Segalas | 61 | Chief Executive Officer and Managing Partner Pinnacle Asset Management, L.P. | Yes | |||||||
NCG | ||||||||||
* | Lead Independent Director. For more details, see page |
Corporate Governance at Annaly
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Annaly Capital Management Inc. | ||
Corporate Governance at Annaly
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CLASS II DIRECTORSDirector Nominees Standing for One-Year Terms
Kevin G. Keyes | |
Director since Chairman of the Board | Mr. Keyes serves as Annaly’s Chairman, Chief Executive Officer and President. Mr. Keyes has served as Chairman since January 2018, Chief Executive Officer since September 2015 and President since October 2012. Previously, Mr. Keyes served as Chief Strategy Officer and Head of Capital Markets of Annaly from September 2010 until October 2012. Prior to joining Annaly as a Managing Director in 2009, Mr. Keyes worked for 20 years in senior |
Director Qualification Highlights |
The Board believes that Mr. Keyes |
Director since Committees | Mr. |
Director Qualification Highlights |
The Board believes that Mr. |
Annaly Capital Management Inc. | ||
Corporate Governance at Annaly
Director since Committees |
Director Qualification Highlights |
The Board believes that |
Vicki Williams | |
Director since Committees | Ms. Williams has over 18 years of compensation and governance experience. Ms. Williams has served as Chief Human Resources Officer for NBCUniversal, a multinational media conglomerate, since July 2018, where she is responsible for the company’s global human resources function, including compensation, benefits, development and learning, talent acquisition, executive search, HR systems, and the HR service center. Ms. Williams previously served as Senior Vice President, Compensation, Benefits and HRIS at NBCUniversal |
Director Qualification Highlights |
The Board believes that Ms. |
Annaly Capital Management Inc. | ||
Corporate Governance at Annaly
CLASS III DIRECTORSDirectors Whose Current Terms Expire in 2020
Francine J. Bovich | |
Director since Committees | Ms. Bovich has over 30 years of investment management experience lastly serving as a Managing Director of Morgan Stanley Investment Management from 1993-2010. Since 2011, Ms. Bovich has been a trustee of The Bradley Trusts. Ms. Bovich has also served as a board member of The Dreyfus Family of Funds since 2012, and serves as a board member of a number of registered investment companies within the fund complex. These funds represent a broad scope of investment strategies including equities (U.S., non-U.S., global, and emerging markets), taxable fixed income (US, non-US, global and emerging markets), municipal bonds, and cash management. From 1991 through 2005, Ms. Bovich served as the U.S. Representative to the United Nations Investment Committee, which advised a global portfolio of approximately $30 billion. Ms. Bovich is a member of the Economic Club of New York and an emeritus trustee of Connecticut College and chair of the Investment Sub-Committee for its endowment. Ms. Bovich received a B.A. in Economics from Connecticut College and a M.B.A. in Finance from New York University. |
Director Qualification Highlights |
The Board believes that Ms. Bovich’s qualifications include her significant investment management experience and her experience serving as a trustee and board member. |
Katie Beirne Fallon | |
Director since Committees | Ms. Fallon has served as Global Head of Corporate Affairs for Hilton Worldwide Holdings Inc., a multinational hospitality company, since November 2016, where she is responsible for managing the company’s communications, government relations and corporate responsibility efforts. Prior to Hilton, from 2014 to 2016, Ms. Fallon was Senior Advisor and Director of Legislative Affairs for President Obama. Before becoming the President’s chief liaison to |
Director Qualification Highlights |
The Board believes that Ms. Fallon’s qualifications include her significant experience in serving at a senior executive level with a multinational public company and her experience serving as a top leadership aide in the highest levels of the U.S. government. |
Annaly Capital Management Inc. | ||
Corporate Governance at Annaly
Jonathan D. Green | |
Director since Committees Lead Independent | Mr. Green served as a special advisor to Rockefeller Group International, Inc., a wholly owned subsidiary of Mitsubishi Estate Company, Ltd., operating under the brand of the Rockefeller Group, from January 2011 until December 2014. He joined the Rockefeller Group in 1980 as Assistant Vice President and Real Estate Counsel. In 1983, he was appointed Vice President, Secretary and General Counsel, and in 1990 was elected Chief Corporate Officer. In 1995, he was named President and Chief Executive Officer of Rockefeller Group Development Corporation and Rockefeller Center Management Corporation, both subsidiaries of the Rockefeller Group. In 2002, Mr. Green was named President and Chief Executive Officer of Rockefeller Group International, Inc., becoming Vice Chairman in January 2009. He served as Vice Chairman until December 2010. In his role as Vice Chairman, Mr. Green was active in formulating the strategic planning for the company and its subsidiaries, which include Rockefeller Group Development Corporation, Rockefeller Group Investment Management, Rockefeller Group Technology Solutions, Inc. and Rockefeller Group Business Centers. Before joining the Rockefeller Group, Mr. Green was associated with the New York City law firm of Thacher, Proffitt & Wood. He also serves on the board of trustees of the Wildlife Conservation Society. Mr. Green graduated from Lafayette College and the New York University School of Law. |
Director Qualification Highlights |
The Board believes that Mr. Green’s qualifications include his significant experience as a chief executive, his diverse and significant background in the real estate industry and his legal expertise. |
John H. Schaefer | |
Director since Committees | Mr. Schaefer has over 40 years of financial services experience including serving as a member of the management committee of Morgan Stanley from 1998 through 2005. He was President and Chief Operating Officer of the Global Wealth Management division of Morgan Stanley from 2000 to 2005. Mr. Schaefer was Executive Vice President and Chief Strategic and Administrative Officer of Morgan Stanley from 1998 to 2000. From 1997 to 1998, he was Managing Director and Head of Strategic Planning and Capital Management. Prior to the 1997 merger of Dean Witter, Discover and Morgan Stanley, Mr. Schaefer was Executive Vice President, Investment Banking and Head of Corporate Finance at Dean Witter, a position he had held since 1991. He began his investment banking career at E.F. Hutton & Company in 1976. Mr. Schaefer served as a board member and chair of the audit committee of USI Holdings Corporation from 2008 through 2012. He received a B.B.A. in Accounting from the University of Notre Dame and a M.B.A. from the Harvard Graduate School of Business. |
Director Qualification Highlights |
The Board believes that Mr. Schaefer’s qualifications include his broad financial services management experience, including management of strategic planning, capital management, human resources, internal audit and corporate communications, as well as his board and audit committee experience. |
Annaly Capital Management Inc. | ||
Corporate Governance at Annaly
Directors Whose Current Terms Expire in 2021
Wellington J. Denahan | |
Director since Committees | Ms. Denahan co-founded Annaly in 1996 and has served as a Director since that time. Until December 2017, Ms. Denahan served as Chairman of the Board of Annaly (from November 2012) and Executive Chairman of Annaly (from September 2015). Previously, Ms. Denahan served as Chief Executive Officer of Annaly from November 2012 to September 2015 and as Co-Chief Executive Officer of Annaly from October 2012 to November 2012. Ms. Denahan was Annaly’s Chief Operating Officer from January 2006 to October 2012 and Chief Investment Officer from 2000 to November 2012. Ms. Denahan received a B.S. in Finance from Florida State University. |
Director Qualification Highlights |
The Board believes that Ms. Denahan’s qualifications include her significant oversight experience related to fixed income trading operations through years of serving as Annaly’s Chief Operating Officer and Chief Investment Officer, her industry experience and expertise in the mortgage-backed securities markets, and her operational expertise, including her service as Annaly’s former Chief Executive Officer. |
Michael Haylon | |
Director since Committees | Mr. Haylon has served as Managing Director and Head of Conning North America at Conning, Inc., a global provider of investment management solutions, services and research to the insurance industry, since June 2018. Mr. Haylon has served as a Managing Director at Conning, Inc. since January 2012 and previously served as Head of Asset Management Sales, Products and Marketing from December 2014 until June 2018 and as Head of Investment Products from January 2012 until December 2014. From September 2010 to December 2011, Mr. Haylon served as Head of Investment Product Management at General Re – New England Asset Management. He was Chief Financial Officer of the Phoenix Companies, Inc. from 2004 until 2007, and Executive Vice President and Chief Investment Officer of the Phoenix Companies in 2002 and 2003. From 1995 until 2002, he held the position of Executive Vice President of Phoenix Investment Partners, Ltd., a NYSE-listed company, and President of Phoenix Investment Counsel, where he was responsible for the management and oversight of $25 billion in closed-end and open-end mutual funds, corporate pension funds and insurance company portfolios. From 1990 until 1994, he was Senior Vice President of Fixed-Income at Phoenix Home Life Insurance Company. From 1986 until 1990, he was Managing Director at Aetna Bond Investors where he was responsible for management of insurance company and pension fund portfolios. From 1980 until 1984, he was a Senior Financial Analyst at Travelers Insurance Companies. He began his career in 1979 in the commercial lending program at Philadelphia National Bank. Mr. Haylon has previously served on the boards of Aberdeen Asset Management and Phoenix Investment Partners. Mr. Haylon received a B.A. from Bowdoin College and a M.B.A. from the University of Connecticut. |
Director Qualification Highlights |
The Board believes that Mr. Haylon’s qualifications include his significant leadership and management experience from his years of management and oversight of large financial asset portfolios, his prior board experience with other companies and his expertise in financial matters. |
Donnell A. Segalas | |
Director since Committees | Mr. Segalas has served as the Chief Executive Officer and a Managing Partner of Pinnacle Asset Management L.P., a New York-based alternative asset management firm, since 2003. Additionally, Mr. Segalas is a member of Pinnacle’s Investment Committee and sits on the boards of its offshore funds. Prior to joining Pinnacle, Mr. Segalas was Executive Vice President and Chief Marketing Officer for Alternative Investment Products at Phoenix Investment Partners. Mr. Segalas is a member of the Nantucket Historical Society. He received a B.A. from Denison University. |
Director Qualification Highlights |
The Board believes that Mr. Segalas’ qualifications include his significant experience from his years of investing and managing private and public investment vehicles and his experience serving on investment and executive committees of other companies. |
Annaly Capital Management Inc. 2019 Proxy Statement | 19 | |
Corporate Governance at Annaly
INDEPENDENCE OF DIRECTORSThe Board’s Role and Responsibilities
The Company is committed to maintaining a strong ethical culture and robust governance practices that benefit the long-term interests of stockholders, which include:
DIRECTOR INDEPENDENCE AND OVERSIGHT | ■Board refreshment policy triggered upon earlier of 12 years of service or 73rd birthday ■9 of 11 Continuing Directors(1) are Independent ■Robust Lead Independent Director role ■Regular executive sessions of Independent Directors ■Independent key Board committees ■Board oversees a succession plan for the CEO and other senior executives | |
DIRECTOR QUALIFICATIONS | ■45% of Continuing Directors(1) are women ■45% of Continuing Directors(1) have tenure of less than 5 years ■Annual Board, committee and individual Director self-evaluations with periodic use of an external facilitator ■Comprehensive Board refreshment and succession planning process ■Over-boarding policy limits the number of outside Boards on which Directors can serve ■Multiple audit committee financial experts | |
STOCKHOLDER RIGHTS AND ENGAGEMENT | ■Amended bylaws to declassify the Board over a three-year period ■Majority vote standard for uncontested elections ■Annual stockholder advisory vote on executive compensation ■Stockholders may amend the bylaws by a majority of votes entitled to be cast ■Virtual meeting format enables participation from global stockholder base ■Stockholders can submit questions for the Annual Meeting through an interactive pre-meeting forum | |
CORPORATE RESPONSIBILITY | ■Director and employee stock ownership guidelines ■Board created Corporate Responsibility Committee in 2017(2) ■Announced second joint venture dedicated to supporting community development in 2019 ■Member of the 2019 Bloomberg Gender-Equality Index ■Created executive role to lead the Company’s Corporate Responsibility initiatives ■Added extensive disclosure on Corporate Responsibility and ESG efforts to corporate website |
joined the Annaly Board the beginning of 2018 |
Note: For footnoted information, please refer to “The Board’s Role and Responsibilities” in Endnotes section.
20 | Annaly Capital Management Inc. 2019 Proxy Statement | |
Corporate Governance at Annaly
DIRECTOR NOMINATION PROCESSDirector Nomination Process
The NCG Committee is responsible for identifying and screening nominees for Director and for recommending to the Board candidates for nomination for election or re-election to the Board and to fill Board vacancies. The NCG Committee also seeks to maintain an ongoing list of potential Board candidates. Nominees may be suggested by Directors, members of management,stockholders or professional search firms. In evaluating a Director nomination, the NCG Committee may review materials provided by the nominator, a professional search firm or any other party.
The NCG Committee seeks to maintain an ongoing list of potential Board candidates |
DIRECTOR CRITERIA AND QUALIFICATIONSDirector Criteria and Qualifications
The NCG Committee seeks to achieve a balance of knowledge, experience and capability on the Board and considers a wide range of factors when assessing potential Director nominees, including a candidate’s background, skills, expertise, diversity, accessibility and availability to serve effectively on the Board. All candidates should (i) possess the highest personal and professional ethics, integrity and values, exercise good business judgment and be committed to representing the long-term interests of the Company and its stockholders, and (ii) have an inquisitive and objective perspective, practical wisdom and mature judgment. It is expected that all Directors will have an understanding of the Company’s business and be willing to devote sufficient time and effort to carrying out their duties and responsibilities effectively.
The NCG Committee seeks to achieve a balance of knowledge, experience and capability on the Board |
BOARD REFRESHMENT AND DIVERSITYConsideration of Board Diversity
On an annual basis, the NCG Committee evaluates the Board’s overall composition, including Director tenure, and rigorously evaluates all DirectorsThe Company endeavors to ensure a continued match of their skill sets against the needs of the Company. The NCG Committee seeks to achieve a balance between the deep knowledge and understanding of Annaly’s business that comes from longer-term service on the Board with the fresh ideas and perspectives that comes from having newer Directors on the Board. And although the NCG Committee does not have a formal diversity policy, it recognizes the importance of having a Board representing diverse backgrounds and a broad setwide range of experiences at policy-making levelsprofessional experiences. The NCG Committee also takes into account other factors that promote principles of diversity, including diversity of a candidate’s perspective, background, gender, race, nationality, age and other demographics. The NCG Committee instructs any search firm it engages to include women and minority candidates in business, finance, government, education, law and technology, and in other areas that are relevantevery director candidate pool presented to the Company’s business and its status as a public company.Committee.
Three women have joined the Annaly beginning of 2018 | ||
Corporate Governance at Annaly
The NCG Committee’s annual evaluation of the Board’s composition also informs Board succession planning, and contributed to the appointment, effective January 1, 2018, of two new Independent Directors (Ms. Fallon and Ms. Williams) with skills and backgrounds that complement the Company’s highly qualified Board. Ms. Fallon and Ms. Williams were respectively identified as potential Director nominees by the CEO and another member of senior management. Ms. Fallon and Ms. Williams were nominated by the NCG Committee after an extensive and careful search was conducted, and numerous other candidates proposed by Directors, members of management and professional search firms were considered.
STOCKHOLDER RECOMMENDATION OF DIRECTOR CANDIDATESStockholder Recommendation of Director Candidates
Stockholders who wish the NCG Committee to consider their recommendations for Director candidates should submit their recommendations in writing to Anthony C. Green, the Chief Corporate Officer, Chief Legal Officer and Secretary at the Company’s principal executive offices. Following verification of the stockholder status of persons proposing candidates, recommendations are aggregated and considered by the NCG Committee at a regularly scheduled or special meeting. If any materials are provided by a stockholder in connection with the nominationrecommendation of a Director candidate, such materials are forwarded to the NCG Committee. Properly submitted recommendations by stockholders will receive the same consideration by the NCG Committee as other suggested nominees.
Annaly Capital Management Inc. 2019 Proxy Statement | 21 | |
Corporate Governance at Annaly
THE BOARD’S ROLE AND RESPONSIBILITIESBoard Effectiveness, Self-Evaluations and Refreshment
Tenure of Continuing Directors(1) |
The Company’s comprehensive Board and Committee refreshment and succession planning process is designed to ensure that the Board and each Committee is comprised of highly qualified Directors, with the independence, diversity, skills and perspectives to provide strong and effective oversight. The Board, led by the NCG Committee, annually evaluates the composition of the Board and each Committee, and rigorously evaluates individual Directors to ensure a continued match of their skill sets and tenure against the needs of the Company. As a result of this process, the Board elected new Independent Directors Kathy Hopinkah Hannan and Thomas Hamilton, effective February 13, 2019 and March 6, 2019, respectively. Dr. Hannan and Mr. Hamilton were identified as potential Director nominees by two separate members of senior management, and were elected to the Board after an extensive and careful search was conducted, and after numerous other candidates proposed by Directors, members of management and a professional search firm were considered.
The NCG Committee is responsible for overseeing an annual self-evaluation process for the Board. The self-evaluation process seeks to identify specific areas, if any, that need improvement or strengthening in order to increase the effectiveness of the Board as a whole and its members and committees. In early 2018, the Board adopted an enhanced Board self-evaluation process that includes annual assessments of the full Board, each Board committee and individual Directors, along with periodic use of an external facilitator. In the summer of 2018, an outside governance expert facilitated this comprehensive self-evaluation. Focus areas included Board and Committee skills, structure, dynamics, processes, fulfillment of responsibilities, leadership and refreshment.
Based on the results of its self-evaluation, the Board determined to conduct a follow-up review to further analyze considerations related to Board refreshment, including Director term and tenure. This review, which benefitted from significant stockholder feedback, ultimately led to the adoption of a Board refreshment policy requiring that Independent Directors may not stand for re-election following the earlier of their 12thanniversary of Board service or their 73rdbirthday. In addition, this analysis informed the Board’s unanimous approval and adoption of a bylaw amendment to declassify the Board over a three-year period beginning with the 2019 Annual Meeting, with all Directors standing for annual election commencing with the 2021 Annual Meeting.
Board Commitment and Over-Boarding Policy
The Company is committedIn order to maintaining a strong ethical cultureprovide sufficient time for informed participation in their Board responsibilities:
■ | Directors who also serve as chief executive officers or hold equivalent positions at other companies should not serve on more than two other boards of public companies in addition to the Board; |
■ | Other Directors should not serve on more than four other boards of public companies in addition to the Board; and |
■ | A member of the Audit Committee should not serve on the audit committee of more than two other public companies. |
All Directors are currently in compliance with this policy. Directors are required to notify the Chairman of the Board and robust governance practices that benefit the long-term interestsChair of stockholders, which include:the NCG Committee in advance of accepting an invitation to serve on another public company board.
Note: For footnoted information, please refer to “Board Effectiveness, Self-Evaluations and Refreshment” in Endnotes section.
Annaly Capital Management Inc. | ||
Corporate Governance at Annaly
BOARD OVERSIGHT OF RISKBoard Oversight of Risk
FULL BOARD | ||||||
Risk management begins with the Board, through review and oversight of the Company’s risk management framework, and continues with executive management, through ongoing formulation of risk management practices and related execution in managing risk. The Board exercises its oversight of risk management primarily through its Risk Committee and Audit Committee. At least annually, the full Board reviews with management the Company’s risk management program, which identifies and quantifies a broad spectrum of enterprise-wide risks, including cyber and technology-related risks, and related action plans | ||||||
RISK COMMITTEE | AUDIT COMMITTEE | |||||
Assists the Board in its oversight of the Company’s risk governance structure, risk management and risk assessment guidelines and policies, and risk appetite, including risk appetite levels and capital | Assists the Board in its oversight of the quality and integrity of the Company’s accounting, internal controls and financial reporting practices, including appointing the independent auditor and reviewing its qualifications, performance and independence, and compliance with legal and regulatory requirements |
MANAGEMENT | |||||
Responsible for day-to-day risk assessment and risk management. A series of management committees have decision-making responsibilities for risk assessment and risk management activities. These management committees include the Operating Committee, Enterprise Risk Committee, the Asset and Liability Committee, the Investment Committee and the Financial Reporting and Disclosure Committee |
the Compensation Committee.Mr. Keyes. For additional information on this review, please see the “Risks“Risks Related to Compensation Policies and Practices”Practices” section of this Proxy Statement. For additional information on the responsibilities of the Risk Committee and the Audit Committee, please see the “Board Committees”“Board Committees” section of this Proxy Statement.
responsibilities, the Audit Committee and Risk |
MANAGEMENT SUCCESSION PLANNINGCEO Performance Reviews and Management Succession Planning
The Lead Independent Director and the Chair of the Compensation Committee jointly coordinate and lead the Board’s annual performance evaluation of the CEO, which reflects input from all non-executive Directors. The Board oversees and maintains a succession plan for the CEO and other senior executives. Executive succession and talent development are a regular agenda item for the Board and, at least once per year, the Board has a fulsome discussion of talent at each business and functional leadership level across the Company. In carrying out this function, the Board endeavors to ensure that the Company’s management has the capabilities to cause the Company to operate in an efficient and business-like fashion in the event of a vacancy in senior management, whether anticipated or sudden.
The Board’s oversight of succession planning and talent development is complemented by management’s commitment to attracting, developing and recruiting top talent with diverse perspectives and backgrounds. Since 2015, the Company has introduced ten unique learning and development programs for its employees, which are intended to foster community, employee skills and engagement and shared cultural values through professional development, career management and cross-departmental collaboration and networking.
Annaly Capital Management Inc. | ||
Corporate Governance at Annaly
BOARD COMMITMENT AND OVER-BOARDING POLICY
In order to provide sufficient time for informed participation in their Board responsibilities:
All Directors are currently in complianceCommunications with this policy. Directors are required to notify the Chairman of the Board and the chair of the NCG Committee in advance of accepting an invitation to serve on another public company board.
Stockholders and other persons interested in communicating with an individual Director (including the Lead Independent Director), the Independent Directors as a group, any committee of the Board or the Board as a whole, may do so by submitting such communication to:
Annaly Capital Management, Inc.
[Addressee]
1211 Avenue of the Americas
New York, NY 10036
Phone: 1-888-8 ANNALY
Facsimile: (212) 696-9809
Email: investor@annaly.com
The Legal Department reviews all communications to the Directors and forwards those communications related to the duties and responsibilities of the Board to the appropriate parties. Certain items such as business solicitation or advertisements, product-related inquiries, junk mail or mass mailings, resumes or other job-related inquiries, spam and unduly hostile, threatening, potentially illegal or similarly unsuitable communications will not be forwarded.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONSCertain Relationships and Related Party Transactions
Approval of Related Party Transactions
Each of Annaly’s Directors, Director nominees and executive officers is required to report allThe Board recognizes the fact that transactions with related persons present a heightened risk of conflicts of interests and/or improper valuation (or the Company in which they or an immediate family member had or will haveperception thereof). The Board has adopted a direct or indirect material interest in an annual disclosure questionnaire andwritten policy on an on-going basis. Management reviews these annual questionnaires and requires interim reports and, if determined to be necessary, discusses any reported transactions with related persons that is in conformity with NYSE listing standards.
Under this policy any related person transaction, and any material amendment or modification to a related person transaction, must be reviewed and approved or ratified by any standing or ad hoc committee of the entireBoard composed solely of Independent Directors who are disinterested or by the disinterested members of the full Board. Other than as discussed in this section, there were no reported transactions for 2017
In connection with the review and there is no transaction currently pending for 2018. The Board does not, however, have a formal written policy for approval or ratification of such transactions, and all such transactions are evaluated on a case-by-case basis. If management believes a transaction could be a related partyperson transaction, management must:
■ | disclose the name of the related person and the basis on which the person is a related person, the material terms of the related person transaction, including the approximate dollar value of the amount involved in the transaction, and all the material facts as to the related person’s direct or indirect interest in, or relationship to, the related person transaction; |
■ | advise as to whether the related person transaction complies with the terms of agreements governing the Company's material outstanding indebtedness that limit or restrict the Company's ability to enter into a related person transaction; |
■ | advise as to whether the related person transaction will be required to be disclosed in the Company's filings under the Securities Act of 1933, as amended (the “Securities Act”) or the Securities Exchange Act of 1934, as amended (the “Exchange Act” and collectively with the Securities Act, the “Acts”), and related rules, and, to the extent such transaction is required to be disclosed, ensure that the related person transaction is disclosed in accordance with such Acts and related rules; and |
■ | advise as to whether the related person transaction constitutes a “personal loan” for purposes of Section 402 of the Sarbanes-Oxley Act of 2002. |
In addition, the related person transaction policy provides that the committee or could raise particular conflictdisinterested Directors, as applicable, in connection with any approval or ratification of interest issues, it will discuss it with legal counsel,a related person transaction involving a non-employee Director or Director nominee, should consider whether such transaction would compromise the Director or Director nominee’s status as an “independent,” or “non-employee” Director, as applicable, under the rules and if necessary,regulations of the Board will form an Independent committee that hasSEC, the right to engage its own legalNYSE and financial counsel to evaluate, approve or ratify the transaction.Code of Business Conduct and Ethics.
Annaly Capital Management Inc. | ||
Corporate Governance at Annaly
Management Agreement
The Company has entered into a management agreement (the “Management Agreement”) with the Manager. Management of the Company is conducted by the Manager through the authority delegated to it in the Management Agreement and pursuant to the policies established by Annaly’s Board. The Independent Directors periodically review the Management Agreement with the assistance of separate legal and financial advisors, who are selected and retained by the Independent Directors. The Management Agreement was effective as of July 1, 2013, and was amended in November 2014 and then2013, amended and restated in April 2016 and August 2018 and amended most recently in March 2019, and may be further amended by agreement between the Manager and the Company.
The Management Agreement’s current term ends on December 31, 20182019 and will automatically renew for successive two-year terms unless at least two-thirds of the Independent Directors or the holders of a majority of the outstanding shares of the Company’s common stock in their sole discretion elect to terminate the agreement in their sole discretion and for any or no reason. At any time during the term or any renewal term, either party may deliver to the other partyreason upon 365 days prior written notice of its intention(such notice, a “Termination Notice”).
If the Company elects to terminate the Management Agreement, no less than one year priorit may elect to its proposed terminationaccelerate the Termination Date to a date or, but only inthat is between seven and 90 days after the eventdate it delivers a Termination Notice (the “Notice Delivery Date”). If the Company does not elect to accelerate the Termination Date, then the Manager may elect to accelerate the Termination Date to the date that is 90 days after the terminating party, such earlierNotice Delivery Date. If the Termination Date is accelerated (such date, as determined by the Company in its sole discretion. There is no termination fee for a termination of the Management Agreement“Accelerated Termination Date”) by either the ManagerCompany or the Company.
See also “Disclosure Enhancements” on page42Manager, in addition to any amounts accrued for a discussion of compensation paidthe period prior to the Accelerated Termination Date, the Company shall pay the Manager an acceleration fee in an amount equal to the average annual management fee earned by the Manager during the 24-month period immediately preceding such Accelerated Termination Date multiplied by a fraction with a numerator of 365 minus the number of days from the Notice Delivery Date to the NEOs.Accelerated Termination Date, and a denominator of 365.
The Management Agreement provides that during its term and, in the event of termination of the Management Agreement by the Manager without cause, for a period of one year following such termination, the Manager will not manage, operate, join, control, participate in, or advise any person other than the Company without the Company’s prior written consent manage any REIT, which engagesof the Risk Committee of the Board.
Prior to the most recent amendment to the Management Agreement in the management of mortgage-backed securities in any geographical region in whichMarch 2019, the Company operates.
had paid the Manager a flat monthly management fee equal to 1/12thof 1.05% of Stockholders’ Equity(1)for its management services. Pursuant to this arrangement, during the termsyear ended December 31, 2018, the Company incurred $179.8 million in management fees and $9.2 million in permitted reimbursement payments under the Management Agreement. None of the reimbursement payments were attributable to compensation of the Company’s NEOs.
In March 2019, the Manager and the Company amended the Management Agreement for the sole purpose of reducing the monthly management fee on Incremental Stockholders’ Equity.(2)Pursuant to this amendment, which recognizes the efficiencies that have been gained with scale, the Company pays the Manager a monthly management fee equal to 1/12th of 1.05% of the Company’s stockholders’ equity, as defined in the Management Agreement, for its management services. The Company incurred approximately $164.3 million in management fees underservices equal to 1/12thof the Management Agreement during the year ended December 31, 2017.sum of: (i) 1.05% of Base Stockholders’ Equity(3), and (ii) 0.75% of Incremental Stockholders’ Equity.(2)
The Manager
“Management Structure”“Management Structure”, “Compensation“Compensation Paid by the Manager to the Named Executive Officers”Officers” and “Compensation“Compensation Discussion and Analysis.”
its fee Stockholders’ Equity to 0.75% from 1.05% |
Note: For footnoted information, please refer to “Management Agreement” in Endnotes section.
Annaly Capital Management Inc. | ||
BOARD LEADERSHIP STRUCTUREBoard Leadership Structure
The Board believes that whether to have the same person occupy the offices of Chairman of the Board and CEO should be decided by the Board, from time to time, in its business judgment after considering relevant factors, including the specific needs of the business and what is in the best interests of the Company at that point in time. Under the Corporate Governance Guidelines, the Independent Directors will annually select an Independent Director to serve as Lead Independent Director when the CEO and Chairman of the Board roles are combined or if the Chairman is not otherwise independent. Currently, Mr. Keyes serves as Chairman, CEO and President, while Mr. J. Green serves as Lead Independent Director.
The Lead Independent Director has significant authority and responsibilities |
■Presides at full meetings of the Board and the Annual Meeting of Stockholders ■Meets with the Lead Independent Director to receive feedback from executive sessions of Independent Directors ■Communicates with all Directors on key issues and concerns outside of Board meetings ■Advises on the selection of committee chairs ■Draws on his knowledge of the Company’s business, operations, industry and competitive developments in setting Board agendas ■Consults with the Lead Independent Director to ensure that Board agendas and information empower the Board to fulfill its responsibilities ■Has authority to call special meetings of the Board if necessary and otherwise updates Directors between meetings through one-on-one or group phone calls ■Authorizes the retention of advisors and consultants who report to management ■Presents the Company’s message and strategy to stockholders, employees and regulators | ■Presides at all meetings of the Board in the absence of or at the request of the Chairman, including executive sessions of Independent Directors ■Facilitates communication between the Independent Directors and the Chairman of the Board and CEO ■Advises on the selection of committee chairs ■Approves the quality, quantity and timeliness of information sent to the Board ■Approves Board meeting agendas ■Approves Board meeting schedules to assure there is sufficient time for discussion of all agenda items ■Has authority to call meetings of the Independent Directors ■Authorizes the retention of outside advisors and consultants who report directly to the Board ■If requested by stockholders, ensures that he is available, when appropriate, for consultation and direct communication with major stockholders |
The Board believes that its independent oversight function is further enhanced by its policy to hold regular executive sessions of the Independent Directors without management present and the fact that a majority of the Company’s Directors (and every member of the Board’s three key committees)Audit Committee, Compensation Committee and NCG Committee) is independent.
26 | Annaly Capital Management Inc. 2019 Proxy Statement | |
Board Structure and Processes
EXECUTIVE SESSIONS OF INDEPENDENT DIRECTORSExecutive Sessions of Independent Directors
The Corporate Governance Guidelines require that the Board have at least two regularly scheduled executive sessions of Independent Directors each year. These executive sessions, which are designed to promote unfettered discussions among the Independent Directors, are presided over by the Lead Independent Director, or in his or her absence, the chair of the Compensation Committee. During 2017,2018, the Independent Directors, without the participation of Board members who are members of management, held fiveseven executive sessions.
Board Structure and Processes
BOARD AND COMMITTEE EVALUATIONS
The Lead Independent Director Orientation and the NCG Committee are responsible for overseeing an annual self-evaluation process for the Board. The self-evaluation process seeks to identify specific areas, if any, that need improvement or strengthening in order to increase the effectiveness of the Board as a whole and its members and committees. In 2018, the Board adopted an enhanced Board self-evaluation process that includes annual assessments of the full Board, each Board committee and individual Directors. Such assessments will be facilitated by an external evaluator on a periodic basis. In addition to these formal self-evaluations, the Board considers its performance as well as that of its members and committees on an ongoing basis and shares relevant feedback with management.
DIRECTOR ORIENTATION AND CONTINUING EDUCATIONContinuing Education
The Board believes that Director orientation and continuing education is critical to the Board’s ability to fulfill its responsibilities in a dynamic and constantly evolving business environment. New Directors participate in a robust onboarding process, which includes extensive training materials and personal briefings by senior management on the Company’s strategic plans, financial statements, and key policies and practices. In addition, the Company encourages Directors to participate in external continuing director education programs, and the Company provides reimbursement for related expenses. Continuing director education is also provided during Board meetings and as stand-alone information sessions outside of meetings. In line with the Company’s commitment to continuing board education, in 2017, the Board became a Full Board Member of the NACD, which gives Directors access to an extensive menu of board education programs, along with research on governance trends and board practices.
GOVERNING DOCUMENTSGoverning Documents
Code of Business Conduct and Ethics
The Board has adopted a Code of Business Conduct and Ethics (the “Code of Conduct”), which sets forth the basic principles and guidelines for resolving various legal and ethical questions that may arise in the workplace and in the conduct of business. This Code of Conduct is applicable to Annaly’s Directors, executive officers and employees, and is also a “code of ethics” as defined in Item 406(b) of Regulation S-K. The Company will make any legally required disclosures regarding amendments to, or waivers of, provisions of the Code of Conduct on the Company’s website.
Corporate Governance Guidelines
The Board has adopted Corporate Governance Guidelines that, in conjunction with the charters of the Board committees, provide the framework for governance of the Company.
Other Governance Policies
Annaly’s Directors, executive officers and employees are also subject to the Company’s other governance policies, including a Foreign Corrupt Practices Act and Anti-Bribery Compliance Policy, an Insider Trading Policy, and a Regulation FD Policy.
Where You Can Find the Code of Conduct, Corporate Governance Guidelines and Committee Charters
The Code of Conduct, Corporate Governance Guidelines, Compensation Committee Charter, Audit Committee Charter, NCG Committee Charter, PublicCorporate Responsibility Committee Charter and Risk Committee Charter are available on Annaly’s website (www.annaly.com). The Company will provide copies of these documents free of charge to any stockholder who sends a written request to Investor Relations, Annaly Capital Management, Inc., 1211 Avenue of the Americas, New York, NY 10036.
Annaly Capital Management Inc. | ||
Board Structure and Processes
BOARD COMMITTEESBoard Committees
The Board created the new |
As part of the Board’s continuing review of its Board committee structure and responsibilities, and in response to dialogue with stockholders, the Board created the new Public Responsibility Committee in late 2017. At the same time, the Board reorganized the membership of most of its other committees.
Director | Audit Committee | Compensation Committee | NCG Committee | PR Committee | Risk Committee | |||||
Francine J. Bovich | • | |||||||||
Kevin P. Brady | • | • | ||||||||
Wellington J. Denahan | • | • | ||||||||
Katie Beirne Fallon | • | • | ||||||||
Jonathan D. Green(1) | • | • | ||||||||
Michael Haylon | • | • | ||||||||
E. Wayne Nordberg | • | • | • | |||||||
John H. Schaefer | • | • | ||||||||
Donnell A. Segalas | • | • | ||||||||
Vicki Williams | • | • | ||||||||
2017 Meetings: | 6 | 2 | 4 | 0(2) | 5 |
Director | Audit Committee | Compensation Committee | NCG Committee | CR Committee | Risk Committee | |||||
Francine J. Bovich | • | |||||||||
Kevin P. Brady(2) | E | • | • | |||||||
Wellington J. Denahan | • | • | ||||||||
Katie Beirne Fallon | • | • | ||||||||
Jonathan D. Green* | • | • | ||||||||
Thomas Hamilton(3) | • | • | ||||||||
Kathy Hopinkah Hannan(4) | • E | • | ||||||||
Michael Haylon | • E | • | ||||||||
E. Wayne Nordberg(2) | • | • | • | |||||||
John H. Schaefer | • | • | ||||||||
Donnell A. Segalas | • | • | ||||||||
Vicki Williams | • | • | ||||||||
% of Independent Members: | 100% | 100% | 100% | 80% | 80% | |||||
2018 Meetings: | 9 | 3 | 3 | 2 | 4 |
• |
Member | Chairperson |
| Financial Expert | * | Lead Independent | ||
Committee Membership Determinations
The Board annually reviews the membership and chairmanship of each Board Committee as part of its broader Board and Committee refreshment and succession planning. This review, which is led by the NCG Committee, takes into account, among other factors, the needs of the Committees, the experience, availability and projected tenure of Directors and the desire to balance Committee continuity with fresh insights. For additional detail, see the “Board Effectiveness, Self-Evaluations and Refreshment” section of this Proxy Statement.
Note: For footnoted information, please refer to “Board Committees” in Endnotes section.
Annaly Capital Management Inc. | ||
Board Structure and Processes
| |
Committee Members: Kevin P. Brady(Chair)(1) Thomas Hamilton(2) Kathy Hopinkah Hannan(3) Michael Haylon E. Wayne Nordberg(1) John H. Schaefer Vicki Williams Number of | Key Responsibilities: ■Appoints the independent registered public accounting firm and reviews its qualifications, performance and independence ■Reviews the plan and results of the auditing engagement with the Chief Financial Officer and the independent registered public accounting firm ■Oversees internal audit activities ■Oversees the quality and integrity of financial statements and financial reporting process ■Oversees the adequacy and effectiveness of internal control over financial reporting ■Reviews and pre-approves the audit and permitted non-audit services and proposed fees of the independent registered public accounting firm ■Prepares the report of the Audit Committee required by the rules of the SEC to be included in the Proxy Statement ■Together with the Risk Committee, jointly oversees practices and policies related to cybersecurity |
Each member of the Audit Committee is financially literate and independent of the Company and management under the applicable rules of the For more information on the Audit Committee’s responsibilities and activities, see the | |
| |
Committee Members: Donnell A. Segalas (Chair) Jonathan D. Green E. Wayne Nordberg(1) John H. Schaefer Number of | Key Responsibilities: ■Evaluates the performance of the Manager and the terms of the Management Agreement ■Reviews the fees payable to the Manager ■Administers the Company’s equity incentive plans and other equity compensation programs ■Reviews the form and amount of Director compensation ■Evaluates the performance of the Company’s officers ■Reviews and discusses with management the Compensation Discussion and Analysis and related disclosures as required by the SEC ■Prepares the report of the Compensation Committee required by the rules of the SEC to be included in the Proxy Statement |
Each member of the Compensation Committee is independent of the Company and management under the listing standards of the NYSE. For more information on the Compensation Committee’s responsibilities and activities, see the | |
Note: For footnoted information, please refer to “Audit Committee & Compensation Committee” in Endnotes section.
Annaly Capital Management Inc. | ||
Board Structure and Processes
NCG | |
Committee Members: Francine J. Bovich (Chair) Kevin P. Brady(1) Katie Beirne Fallon Kathy Hopinkah Hannan(2) E. Wayne Nordberg(1) Donnell A. Segalas Number of | Key Responsibilities: ■Develops and recommends criteria for considering potential Board candidates ■Identifies and screens individuals qualified to become Board members, and recommends to the Board candidates for nomination for election or re-election to the Board and to fill Board vacancies ■Develops and recommends to the Board a set of corporate governance guidelines and recommends modifications as appropriate ■Provides oversight of the evaluation of the Board and management ■Considers other corporate governance matters such as Director retirement policies, management succession plans and potential conflicts of interest of Board members and senior management, and recommends changes as appropriate |
Each member of the NCG Committee is independent of the Company and management under the applicable listing standards of the NYSE. For more information on the NCG Committee’s responsibilities and activities, see the | |
| |
Committee Members: Jonathan D. Green (Chair) Francine J. Bovich Wellington J. Denahan Katie Beirne Fallon Donnell A. Segalas Number of | Key Responsibilities: Assists the Board in its oversight of the Company’s items of ■corporate philanthropy ■social impact investments ■sustainability initiatives ■corporate culture and reputation ■public policy initiatives |
For more information on the formation of the | |
| |
Committee Members: John H. Schaefer(Chair) Kevin P. Brady(1) Wellington J. Denahan Jonathan D. Green Thomas Hamilton(4) Michael Haylon Number of | Key Responsibilities: Assists the Board in its oversight of the Company’s: ■risk governance structure ■risk management and risk assessment guidelines and policies regarding capital, liquidity and funding risk, investment/market risk, credit risk, counterparty risk, operational risk, compliance, regulatory and legal risk and such other risks as necessary to fulfill the committee’s duties and responsibilities ■risk appetite, including risk appetite levels and capital ■practices and policies related to cybersecurity (together with the Audit Committee) |
For more information on the Risk Committee’s responsibilities and activities, see the | |
Note: For footnoted information, please refer to “NCG Committee, Corporate Responsibility Committee |
Annaly Capital Management Inc. | ||
Board Structure and Processes
DIRECTOR ATTENDANCEDirector Attendance
During 2017,2018, the Board held 1314 meetings. Each DirectorAll Directors attended at least 75% of the aggregate number of meetings held byof the full Board and each committeethe committees on which the Directorthey served, during the period he or she was on such committee.in which they served, in 2018.
The Company expects each member of the Board to attend the Annual Meeting. All of the Company’s then-Directors attended Annaly’s 20172018 annual meeting of stockholders (the “2017“2018 Annual Meeting”). Ms. FallonDr. Hannan and Ms. WilliamsMr. Hamilton were appointedelected as Directors effective January 1, 2018February 13, 2019 and March 6, 2019, respectively, and therefore did not attend the 20172018 Annual Meeting.
COMPENSATION OF DIRECTORSCompensation of Directors
The Company compensates the IndependentNon-Executive Directors. Any Director who is also an employee or owner of the Manager does not receive compensation for serving on the Board. The Compensation Committee is responsible for reviewing, and recommending to the Board, the form and amount of compensation paid to the IndependentNon-Executive Directors.
The annual compensation elements paid to the IndependentNon-Executive Directors for service on the Board and its standing committees for 2017 is2018 are set forth below:
Annual Compensation Element | Amount | |
Annual Cash Retainer | $100,000 | |
Deferred Stock Unit (“DSU”) Grant | $135,000 in DSUs | |
Lead Independent Director Retainer | $30,000 | |
Committee Member Retainer | $8,000 – | |
Committee Chair Retainer(1) | $20,000 – Audit Committee | |
$10,000 – | ||
Committee Chairs received Committee Chair Retainers in addition to, and not in lieu of, Committee Member Retainers. |
Each DSU is equivalent in value to one share of the Company’s common stock. DSUs are granted on the date of the annual stockholder meeting and vest immediately. DSUs convert to shares of the Company’s common stock one year after the date of grant unless the Director elects to defer the settlement of the DSUs to a later date. DSUs do not have voting rights. DSUs pay dividend equivalents in either cash or additional DSUs at the election of the Director. The Independent Directors are also eligible to receive other stock-based awards under the Company’s equity incentive plan.
The Company reimburses the Directors for their reasonable out-of-pocket travel expenses incurred in connection with their attendance at full Board and committee meetings.
Director Stock Ownership Guideline
The stock ownership guideline for Independent Directors the annual cash retainer |
Annaly Capital Management Inc. | ||
Board Structure and Processes
Role of the Independent Compensation Consultant
During 2017,2018, the Compensation Committee retained an independent compensation consultant, Frederic W. Cook & Co. (“F. W. Cook”), to assist the Compensation Committee in its review of the compensation arrangements provided to the IndependentNon-Executive Directors. The Compensation Committee considered F. W. Cook’s independence in light of SEC regulations and NYSE listing standards. The Compensation Committee discussed all relevant factors and concluded that no conflict of interest exists that would prevent F. W. Cook from independently representing the Compensation Committee.
Director Compensation
The table below summarizes the compensation paid by the Company to the IndependentNon-Executive Directors for the fiscal year ended December 31, 2017.2018.
Name(1) | Fees Earned or Paidin Cash | Stock Awards(2) | Total | Fees Earned or Paid in Cash ($) | Stock Awards(2) ($) | Total ($) | ||||||
Francine J. Bovich | $113,000 | $135,000 | $248,000 | |||||||||
Francine J. Bovich | 126,000 | 135,000 | 261,000 | |||||||||
Kevin P. Brady | $140,000 | $135,000 | $275,000 | 144,000 | 135,000 | 279,000 | ||||||
Jonathan D. Green | $154,000 | $135,000 | $289,000 | |||||||||
Michael Haylon | $115,000 | $135,000 | $250,000 | |||||||||
E. Wayne Nordberg | $122,000 | $135,000 | $257,000 | |||||||||
Wellington J. Denahan | 116,000 | 135,000 | 251,000 | |||||||||
Katie Beirne Fallon | 116,000 | 135,000 | 251,000 | |||||||||
Jonathan D. Green(3) | 182,000 | 135,000 | 317,000 | |||||||||
Michael Haylon(3) | 124,000 | 135,000 | 259,000 | |||||||||
E. Wayne Nordberg(3) | 132,000 | 135,000 | 267,000 | |||||||||
John H. Schaefer | $122,000 | $135,000 | $257,000 | 134,000 | 135,000 | 269,000 | ||||||
Donnell A. Segalas | $122,000 | $135,000 | $257,000 | |||||||||
Donnell A. Segalas(3) | 142,000 | 135,000 | 277,000 | |||||||||
Vicki Williams | 116,000 | 135,000 | 251,000 |
| |
The amounts in this column represent the aggregate grant date fair value of the DSU awards, computed in accordance with FASB ASC Topic 718 and based on the closing price of the Company’s common stock on the date of grant. DSUs are vested at grant and accrue dividend equivalents as additional DSUs or cash at the election of the Director. | |
3. | The amount in the “Fees Earned or Paid in Cash ($)” column includes fees earned for service on a special committee of the Board established to evaluate changes to the terms of the Management Agreement and related agreements. The fees include a retainer in the amount of $8,000 for each special committee member and an additional retainer in the amount of $10,000 for the special committee chair Mr. J. Green. |
The following table sets forth information with respect to the aggregate unexercised option awards at December 31, 20172018 of each of the IndependentNon-Executive Directors. All such option awards have vested. Options are no longer granted as part of the Company’s Non-Executive Director compensation program.
Name(1) | Unexercised Option Awards | |
Kevin P. Brady | ||
Jonathan D. Green | ||
Michael Haylon | ||
E. Wayne Nordberg | ||
Donnell A. Segalas |
1. | Ms. Bovich, Ms. Denahan, Ms. Fallon, Mr. Schaefer and Ms. Williams did not hold any unexercised option awards at December 31, 2018. Dr. Hannan and Mr. Hamilton were elected to the Board effective February 13, 2019 and March 6, 2019, respectively. |
Annaly Capital Management Inc. | ||
The following table sets forth certain information with respect to the Company’s executive officers, all of whom are indirect owners and/or employees of the Manager:
Name | Age | Title | ||
Kevin G. Keyes | Chairman, Chief Executive Officer and President | |||
Glenn A. Votek | Chief Financial Officer | |||
David L. Finkelstein | Chief Investment Officer | |||
Timothy P. Coffey | Chief Credit Officer | |||
Anthony C. Green | Chief Corporate Officer, Chief Legal Officer and Secretary |
Biographical information on Mr. Keyes is provided above under the heading “Election“Election of Directors.Directors.” Certain biographical information for Messrs. Votek, Finkelstein, Coffey and Green is set forth below.
Glenn A. Votekhas served as Chief Financial Officer of Annaly since August 2013. Mr. Votek also served as Chief Financial Officer of Fixed Income Discount Advisory Company, a former wholly-owned subsidiary of the Company, from August 2013 until October 2015 and as Annaly’s Chief Administrative Officer from May 2013 until August 2013. Mr. Votek joined Annaly in May 2013 from CIT Group where he was an Executive Vice President and Treasurer since 1999 and President of Consumer Finance since 2012. Prior to that, Mr. Votek worked at AT&T and its finance subsidiary from 1986 until 1999 in various financial management roles. Mr. Votek has a B.S. in Finance and Economics from the University of Arizona/Kean College and a M.B.A. in Finance from Rutgers University.
David L. Finkelsteinhas served as Chief Investment Officer of Annaly since November 2016. Mr. Finkelstein previously served as Annaly’s Chief Investment Officer, Agency and RMBS beginning in February 2015 and as Annaly’s Head of Agency Trading beginning in August 2013. Prior to joining Annaly, Mr. Finkelstein served for four years as an Officer in the Markets Group of the Federal Reserve Bank of New York where he was the primary strategist and policy advisor for the MBS purchase program. Mr. Finkelstein has over 20 years of experience in fixed income investment. Prior to the Federal Reserve Bank of New York, Mr. Finkelstein held Agency MBS trading positions at Salomon Smith Barney, Citigroup Inc. and Barclays PLC. Mr. Finkelstein received his B.A. in Business Administration from the University of Washington and his M.B.A. from the University of Chicago, Booth School of Business. Mr. Finkelstein also holds the Chartered Financial Analyst®designation.
Timothy P. Coffeyhas served as Chief Credit Officer of Annaly since January 2016. Mr. Coffey served as Annaly’s Head of Middle Market Lending from 2010 until January 2016. Mr. Coffey has over 20 years of experience in leveraged finance and has held a variety of origination, execution, structuring and distribution positions. Prior to joining Annaly in 2010, Mr. Coffey served as Managing Director and Head of Debt Capital Markets in the Leverage Finance Group at Bank of Ireland. Prior to that, Mr. Coffey held positions at Scotia Capital, the holding company of Saul Steinberg’s Reliance Group Holdings, and SC Johnson International. Mr. Coffey received his B.A. in Finance from Marquette University.
Anthony C. Greenhas served as Chief Corporate Officer of Annaly since January 2019 and Chief Legal Officer and Secretary of Annaly since March 2017. Mr. Green previously served as Annaly’s Deputy General Counsel from 2009 until February 2017. Prior to joining Annaly, Mr. Green was a partner in the Corporate, Securities, Mergers & Acquisitions Group at the law firm K&L Gates LLP. Mr. Green has over 1819 years of experience in corporate and securities law. Mr. Green holds a B.A. in Economics and Political Science from the University of Pennsylvania and a J.D. and LL.M. in International and Comparative Law from Cornell Law School.
STOCK PURCHASES BY EXECUTIVE OFFICERS SINCEStock Purchases by Executive Officers Since 2011
Since 2011, the executive officers have purchased over 1.4approximately 1.5 million shares of the Company’s common stock (including open market purchases and dividend reinvestments, and option exercises)reinvestments) with an aggregate purchase price of $16.3approximately $16.5 million as set forth in the table below.
Executive Officer | Shares Purchased | Purchase Price(1) | No NEO has ever sold shares of the Company’s common stock | Shares Purchased | Purchase Price(1) | No NEO has ever sold shares of the Company’s common stock | ||||||||
Kevin G. Keyes | 934,779 | $ | 10,560,000 | 934,779 | $ | 10,560,000 | ||||||||
Glenn A. Votek | 93,597 | $ | 1,017,000 | 104,846 | $ | 1,135,000 | ||||||||
David L. Finkelstein | 300,000 | $ | 3,370,000 | 300,000 | $ | 3,371,000 | ||||||||
Timothy P. Coffey | 30,000 | $ | 304,000 | 30,000 | $ | 304,000 | ||||||||
Anthony C. Green | 101,000 | $ | 1,085,000 | 101,000 | $ | 1,085,000 | ||||||||
TOTAL | 1,459,376 | $ | 16,336,000 | 1,470,624 | $ | 16,455,000 |
Rounded to the nearest thousand. |
Annaly Capital Management Inc. | ||
The Management Agreement compares favorably to the management agreements of the Company’s externally- managed peers |
From the inception of the Company's management externalization transaction (the “Externalization”) in 2013 through March 2019, the Company paid the Manager a flat monthly management fee for its management services equal to 1/12thof 1.05% of Stockholders’ Equity(2). In March 2019, the Manager and the Company amended the Management Agreement for the sole purpose of reducing the monthly management fee on Incremental Stockholders’ Equity(3). Pursuant to this amendment, which recognizes the efficiencies that have been gained with scale, the Company pays the Manager a monthly management fee equal to 1/12thof the sum of: (i) 1.05% of Base Stockholders’ Equity(4), and (ii) 0.75% of Incremental Stockholders’ Equity(3). In addition to the management fee, the Company continues to reimburse the Manager for certain legal, tax, accounting and other support and advisory services provided by employees of the Manager to the Company as permitted pursuant to the terms of the Management Agreement.
MANAGEMENT AGREEMENT TERMSManagement Agreement Terms
The Compensation Committee believes that the terms and conditions of the Management Agreement, including the recent reduction to the management fee, compare favorably to the terms and conditions that exist between Annaly’s externally-managed mREIT peers and their respective managers. In particular, as illustrated by the table below(5), when compared to the median for the peer comparison, (i) the tiered management fee paid to the Manager is lower as a percentage of stockholders’ equity and (ii) the term of the Management Agreement wasis of a shorter duration, and (iii) theduration.
Mean | Median | Min | Max | Annaly | ||||||
Agency Residential REITs | ||||||||||
Base management fee(6) | 1.28% | 1.28% | 1.20% | 1.36% | 1.05% | |||||
Initial term in years | 6.0 | 6.0 | 2.0 | 10.0 | 2.0 | |||||
Incentive fee | None | None | None | None | None | |||||
Commercial REITs | ||||||||||
Base management fee | 1.50% | 1.50% | 1.50% | 1.50% | 1.05% | |||||
Initial term in years | 2.8 | 3.0 | 2.0 | 3.0 | 2.0 | |||||
Incentive fee(7) | 20% above 8% hurdle | 20% above 8% hurdle | None | 25% above 8% hurdle | None | |||||
Non-Agency Residential/Hybrid REITs | ||||||||||
Base management fee | 1.49% | 1.50% | 1.41% | 1.50% | 1.05% | |||||
Initial term in years | 4.3 | 3.0 | 1.0 | 15.0 | 2.0 | |||||
Incentive fee(8) | N/A | N/A | ~15% above ~12% hurdle | 35% above 12.5% hurdle | None |
Note: For footnoted information, please refer to “Overview, Recent Changes & Management Agreement has no termination fee, which is expressedTerms” in the table below as a multiple of trailing average annual management fees.
Mean | Median | Min | Max | Annaly | ||||||
Agency Residential REITs | ||||||||||
Base management fee(1) | 1.29% | 1.29% | 1.20% | 1.37% | 1.05% | |||||
Initial term in years | 6.0 | 6.0 | 2.0 | 10.0 | 2.0 | |||||
Termination fee multiple(2) | 4.2x | 4.2x | 3.0x | 5.3x | None | |||||
Incentive fee | None | None | None | None | None | |||||
Commercial REITs | ||||||||||
Base management fee | 1.50% | 1.50% | 1.50% | 1.50% | 1.05% | |||||
Initial term in years | 2.8 | 3.0 | 2.0 | 3.0 | 2.0 | |||||
Termination fee multiple | 3.2x | 3.0x | 3.0x | 4.0x | None | |||||
Incentive fee(3) | 20% above 8% hurdle | 20% above | None | 25% above 8% hurdle | None | |||||
Non-Agency Residential/Hybrid REITs | ||||||||||
Base management fee(4) | 1.49% | 1.50% | 1.41% | 1.50% | 1.05% | |||||
Initial term in years | 4.0 | 3.0 | 1.0 | 15.0 | 2.0 | |||||
Termination fee multiple(5) | 2.9x | 3.0x | 1.0x | 5.0x | None | |||||
Incentive fee(6) | N/A | N/A | ~15% above ~12% hurdle | 35% above 12.5% hurdle | None |
Source: Public filings as of year ended December 31, 2017. All base management fees are calculated as a percentage of stockholders’ equity and all termination fees are calculated as a multiple of the average annual base management fee during the prior 24-month period, except as otherwise specified below. Agency Residential REITs represent the externally-managed agency mortgage REITs included in the BBREMTG Index as of December 31, 2017 and includes Anworth Mortgage Asset Corporation (“ANH”) and ARMOUR Residential REIT, Inc. (“ARR”). Commercial REITs represent the externally-managed commercial mortgage REITs included in the BBREMTG Index as of December 31, 2017 and includes Blackstone Mortgage Trust, Inc. (“BXMT”), Ares Commercial Real Estate Corp. (“ACRE”), Resource Capital Corp. (“RSO”), Apollo Commercial Real Estate Finance, Inc. (“ARI”), Starwood Property Trust (“STWD”) and Sutherland Asset Management (“SLD”). Non-Agency Residential / Hybrid REITs represents the externally-managed non-agencyEndnotes section.
Annaly Capital Management Inc. | ||
Management Structure
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STRUCTURE AND AMOUNT OF THE MANAGEMENT FEEStructure and Amount of the Management Fee
The Compensation Committee annually reviews both the structure of the management fee as well as the amount of such fee to determine whether they incentivize the Manager to work towards the Company’s desired goals to the benefit of long-term stockholder interests. The Compensation Committee has determined that the use of a tiered management fee formulated as a percentage of stockholders’ equity (as defined in the Management Agreement) Stockholders’ Equity(1)represents a responsible and prudent method of compensating the Manager. In particular, in the context of an mREIT that uses leverage as a key component of its business strategy, the Compensation Committee believes that providing for a contractually required payment structured as an “incentive fee” may misalign the goals of the Manager from those of the stockholders.
Moreover, the Compensation Committee believes that a management fee that is based upon stockholders’ equityStockholders’ Equity (along with the stock ownership guidelines discussed on page47) 35) aligns the management team to the goals of the Company, and that focusing the management fee on the preservation and growth of the Company’s book value incentivizes the Manager to achieve long-term performance that protects stockholders’ equity asStockholders’ Equity because realized losses decrease such equity and, ultimately, the management fee.
The Compensation Committee annually reviews the structure and amount of the management fee to determine whether it appropriately incentivizes the management team |
The Compensation Committee also believes that the structure of the management fee is more favorable to the Company’s stockholders than if the fee was based on total assets under management, which could potentially incentivize an external manager to excessively leverage assets under management in an attempt to increase short-term incentive payouts.
In addition to the management fee, in August 2018, following the unanimous approval of the Independent Directors, the Company began reimbursing the Manager for certain legal, tax, accounting and other support and advisory services provided by employees of the Manager to the Company. These reimbursements (which totaled $9.2 million for 2018) are permitted pursuant to the terms of the Management Agreement provided the related costs are no greater than those that would be payable to comparable third party providers.
Clawback for the Management Fee
Pursuant to the 2016 amendment and restatement of the Management Agreement, the Company is entitled to receive reimbursement from the Manager if the Board determines that a computation error (regardless of the reason for or amount of such error) resulted in the overpayment of a management fee to the Manager.
Management Structure
CONTINUED COST SAVINGS RELATED TO THE EXTERNALIZATIONContinued Cost Savings Related to the Externalization
The Company estimates that the Externalization has resulted in total compensation savings, including tax savings, of approximately $300 million |
As illustrated byNote: For footnoted information, please refer to “Structure and Amount of the table below,Management Fee &
Continued Cost Savings Related to the management fee for each of 2013(1), 2014, 2015, 2016 and 2017 is significantly lower than the Company’s 2012 compensation expenses (which is represented by the dark gray line):Externalization” in Endnotes section.
Annaly Capital Management |
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Management Structure
ANNUAL REVIEW OF MANAGER PERFORMANCE AND MANAGEMENT FEE CONSIDERATIONSAnnual Review of Manager Performance and Management Fee Considerations
The Compensation Committee annually reviews the Manager’s performance and management fee against both historical results and the Company’s mREIT peers based on a number of metrics, including those discussed above in the “Proxy Summary” and the expense ratios discussed below.
Management Structure
Peer Comparison of Operating Expenses as a Percentage of Average Assets and Average Stockholders’ Equity“Proxy Summary”.
The Compensation Committee also reviews the Company’s total operating expenses (including the management fee)fee and related expenses), as a percentage of both average assets and average stockholders’ equity, among other metrics.equity. The Compensation Committee believes these ratios, which allow comparison of the Manager’s performance against the Company’s internally- and externally-managed mREIT peers, measure the extent to which the Manager operates in an economically efficient manner.
Operating Expense as a Percentage of Average Assets(1) |
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | Average | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | Average | ||||||||||||||
0.19% | 0.22% | 0.24% | 0.25% | 0.25% | 0.25% | 0.23% | 0.19% | 0.22% | 0.24% | 0.25% | 0.25% | 0.25% | 0.26% | 0.24% | ||||||||||||||
Internally-Managed Peers | 0.54% | 1.05% | 0.87% | 0.72% | 0.37% | 0.44% | 0.67% | 0.54% | 1.05% | 0.87% | 0.72% | 0.37% | 0.44% | 0.46% | 0.64% | |||||||||||||
Externally-Managed Peers | 0.67% | 0.63% | 0.75% | 0.81% | 0.74% | 0.74% | 0.72% | 0.67% | 0.63% | 0.75% | 0.81% | 0.74% | 0.74% | 0.88% | 0.75% | |||||||||||||
mREIT Index | 0.62% | 0.74% | 0.77% | 0.80% | 0.60% | 0.62% | 0.69% | 0.62% | 0.74% | 0.77% | 0.80% | 0.60% | 0.62% | 0.63% | 0.68% |
Operating Expense as a Percentage of Average Equity(1) |
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | Average | |||||||
1.45% | 1.66% | 1.61% | 1.58% | 1.65% | 1.68% | 1.61% | |||||||
Internally-Managed Peers | 2.71% | 3.95% | 3.92% | 3.68% | 2.14% | 2.10% | 3.08% | ||||||
Externally-Managed Peers | 2.38% | 3.06% | 3.55% | 3.82% | 4.36% | 4.00% | 3.53% | ||||||
mREIT Index | 2.33% | 3.30% | 3.62% | 3.80% | 3.53% | 3.25% | 3.30% |
Source: Company Filings, SNL and Bloomberg. Averages are market weighted based on market capitalization as of Dec. 31st of each respective year. Note: Internally-Managed Peers and Externally-Managed Peers represent the respective internally- and externally-managed members of the BBREMTG Index as of December 31st of each respective year. The average for each excludes Annaly and companies during years in which they became public or first listed. Operating Expense is defined as: (i) for Internally-Managed Peers, the sum of compensation & benefits, general & administrative expenses and other operating expenses, and (ii) for Externally-Managed Peers and Annaly, the sum of net management fees, compensation & benefits (if any), general & administrative expenses and other operating expenses. Annaly’s 2016 operating expenses exclude costs of $49 million related to the Company’s acquisition of Hatteras Financial Corp.
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | Average | ||||||||
1.45% | 1.66% | 1.61% | 1.58% | 1.65% | 1.68% | 1.85% | 1.64% | ||||||||
Internally-Managed Peers | 2.71% | 3.95% | 3.92% | 3.68% | 2.14% | 2.10% | 2.36% | 2.98% | |||||||
Externally-Managed Peers | 2.38% | 3.06% | 3.55% | 3.82% | 4.36% | 4.00% | 4.54% | 3.67% | |||||||
mREIT Index | 2.33% | 3.30% | 3.62% | 3.80% | 3.53% | 3.25% | 3.29% | 3.25% |
In its review of these operating expense ratios, the Compensation Committee noted that the Company has outperformed both its internally- and externally-managed mREIT peers over the last sixseven fiscal years. In this regard, the Compensation Committee has viewed the Company’s performance as an indicator that, among other things, the Manager has managed the Company in ana comparatively efficient manner with appropriately scaled operating costs (including the management fee).
Note: For footnoted information, please refer to “Annual Review of Manager Performance and
Management Fee Considerations” in Endnotes section.
36 | Annaly Capital Management Inc. | |
Compensation Paid by the Manager to the Named Executive Officers
NAMED EXECUTIVE OFFICERSNamed Executive Officers
The NEOs for 20172018 are:
Name | Title | |
Kevin G. Keyes | Chairman, Chief Executive Officer | |
Glenn A. Votek | Chief Financial Officer | |
David L. Finkelstein | Chief Investment Officer | |
Timothy P. Coffey | Chief Credit Officer | |
Anthony C. Green | Chief Corporate Officer, Chief Legal Officer |
As discussed throughout this Proxy Statement,above in “Management Structure,” the Company is externally managed by the Manager and pays the Manager a management fee, the purpose of which is not to provide compensation to the NEOs, but rather to compensate the Manager for the services it provides for the day-to-day management of Annaly.the Company. The proceeds of the management fee are used by the Manager in part to pay compensation to the Manager’s personnel, including the NEOs other than Mr. Keyes (who does not receive any compensation for serving as the Company’s Chairman, CEO and President, but has an interest in the management fee as an indirect equityholder of the Manager); however,. As an externally-managed issuer, the Company does not determine the compensation payable by the Manager to the NEOs, the Company does not allocateal-locate any specific portion of the management fee it pays to the compensation of the NEOs, norand does the Companynot reimburse the Manager for the cost of such compensation. TheAside from a severance agreement directly between the Company and Mr. Keyes and the ability of the Compensation Committee to grant plan-based equity awards to the NEOs (which it has not exercised since the Externalization), the Manager makes all decisions relating to compensation it pays to the NEOs based on the factors, including individual and Company performance, it determines to be appropriate and subject to any employment agreements entered into between the Manager and individual NEOs.
DISCLOSURE ENHANCEMENTSThe Manager’s Executive Compensation Program
Given that Annaly does not provide any compensationIn order to enable the NEOs, historically,Company’s stockholders to make an informed Say-on-Pay vote, the Company disclosedManager has provided the following information about the management feescompensation it paid to the Manager, but did not disclose information about the Manager’s executive compensation program. However, at the request of the Independent Directors, the Company has engaged in extensive outreach over the last two years in order to understand the information stockholders need to fully evaluate the Manager’s executive compensation programNEOs for purposes of the Say-on-Pay vote.
2017 Changes
In response to conversations with stockholders following the 2016 Say-on-Pay vote and conversations with the Manager, the Manager consented to disclosure of certain qualitative information about the Manager’s executive compensation program in the Company’s 2017 Proxy Statement. The Independent Directors also requested that the Manager provide the following information for disclosure in the Company’s 2018 Proxy Statement:2018:
■ | The portion of the management fee that is allocated to NEO compensation paid by the Manager; |
■ | Of this compensation, the breakdown of fixed vs. variable/incentive pay; and |
■ | The metrics the Manager uses to measure performance to determine the NEOs’ variable/incentive pay. |
Summary of 2018 ChangesNEO Compensation
■ | With the exception of Mr. Keyes(1), each of the other NEOs received a base salary and a performance-based incentive bonus for 2018. |
■ | With respect to 2018,(2) the NEOs as a group received aggregate salaries of $3.0 million and aggregate performance-based incentive bonuses of $28.7 million from the Manager. These amounts collectively represent 16.8% of the aggregate management fees and reimbursements the Company paid to the Manager for 2018. On an aggregated basis, the NEOs received 9.5% of their total compensation in the form of base salaries and the remaining 90.5% in the form of performance-based incentive bonuses. |
■ | In determining the cash bonuses it paid to the NEOs for 2018, the Manager considered achievement of both rigorous Company performance metrics(3), including core return on equity, core return on assets and operating expenses as a percentage of average equity and as a percentage of average assets, along with group and individual performance objectives. |
■ | The Manager considered a list of specified peer companies (set forth below under “Company Market Data”), together with advice from the Manager’s compensation consultants and counsel, to develop appropriate compensation packages for the NEOs. |
Note: For footnoted information, please refer to “Summary of 2018 NEO Compensation” in Endnotes section.
Annaly Capital Management Inc. 2019 Proxy Statement | 37 | |
Compensation Paid by the Manager to the Named Executive Officers
NEO Compensation Philosophy and Process
The key principle of the Manager’s Compensation philosophy to pay for performance |
The Manager’s NEO compensation planning process incorporates key areas of evaluation including: | |
■ | external market data |
■ | internal benchmarking |
■ | quantitative and qualitative assessments of Company, group and individual performance |
Individuals are evaluated assesses based on mid-year and year-end manager reviews and the utilization of a 9-box talent review model, which assesses individual performance and potential. In establishing and reviewing individual NEO compensation packages, the Manager also considers the nature and scope of each NEO’s role and responsibilities, retention considerations and feedback from stakeholders. The Company utilizes a third party compensation consultant to advise on external benchmarking and other compensation practices (as further described below under “Role of the Manager’s Compensation Consultants” and “Market Compensation Data”). |
NEO Compensation Practices
Following the 2017 Say-on-Pay vote, the Company again engagedThe Manager’s pay-for-performance philosophy is reflected in a multi-pronged effort to gather stockholder feedback regarding its 2017 compensation disclosure. While stockholders generally appreciated the qualitative information the Company provided about the Manager’s executive compensation program in the 2017 Proxy Statement, others indicated that they needed specific information about the magnitude of NEO compensation and the proportion of variable NEO pay in order to evaluate the alignment between NEO pay and Company performance. In response to this feedback, the Manager has provided the information below about the compensation it paid to the NEOs for 2017.practices:
■ | Majority of compensation is “at risk” – variable performance-based compensation comprises 90.5% of the NEOs’ total compensation |
■ | Multiple performance metrics – diversified mix of rigorous Company performance metrics, including core return on equity, core return on assets and operating expenses as a percentage of average equity and as a percentage of average assets, along with group and individual performance objectives |
■ | Annual assessment of NEO compensation practices against peer companies and best practices |
■ | External legal review |
■ | Third-party compensation consultant |
■ | Regular stockholder feedback through robust outreach program |
What the Manager Does Not Do |
■ | No guaranteed salary increases |
■ | No targeting of specific percentiles versus peers in setting compensation levels |
■ | No incentive or additional performance awards for growing assets under management or for exceeding returnbenchmarks |
■ | No excessive perquisites |
■ | No tax gross-ups |
38 | Annaly Capital Management Inc. | |
Compensation Paid by the Manager to the Named Executive Officers
Summary of 2017 NEO Compensation
Components of the NEOs’ Compensation
The Manager’s executive compensation program includes both a base salary and a performance-based cash incentive bonus. Although the Compensation Committee has discretion to grant equity awards of Company common stock to the NEOs (which it has not exercised since the Externalization), the management fee the Company pays to the Manager is paid entirely in cash and therefore the Manager has no independent ability to provide awards of Company stock as part of the NEOs’ compensation. To address this limitation in the Manager’s executive compensation program, the Manager has structured the NEOs’ performance-based cash incentive bonuses with a mix of both rigorous Company performance metrics and group and individual performance objectives. objectives, which aligns the interests of the NEOs with the interests of the Company’s stockholders. This alignment is strengthened by the Company’s stock ownership guidelines, pursuant to which the NEOs purchase shares of the Company’s common stock in the open market (as further described under “Stock Ownership Guidelines/Commitments”).
The table below describes the objectives supported by each of the Manager’s primary compensation elements, along with an overview of the key design features of each element.
Compensation Element | What It Does | Key Measures | ||
Base Salary | ■Provides a level of fixed pay appropriate to an executive’s role and responsibilities ■Evaluated on an annual | ■Experience, duties and scope of responsibility ■Internal and external market factors | ||
| ■Provides a competitive annual cash incentive opportunity ■Links executives’ interests with stockholders’ interests ■Incentivizes and rewards superior group individual and Company performance | ■Based on achievement of both rigorous Company performance metrics (including core return on equity, core return on assets and operating expenses as percentage of average |
NEO Pay Mix
The Manager’s executive compensation program is designed so that the majority of compensation is performance-based and “at-risk” to promote alignment of the NEOs’ interests with those of stockholders. In determining payout of the NEOs’ performance-based cash incentive bonuses (which represents the variable portion of their compensation packages), the Manager considered achievement of both rigorous performance metrics, including core return on equity, core return on assets and operating expenses as a percentage of average equity and as a percentage of average assets, along with group and individual performance objectives. During 2017,2018, Messrs. Votek, Finkelstein, Coffey, and Green received aggregate performance-based cash incentive bonuses of $23.9$28.7 million from the Manager.
Compensation Paid by the Manager to the Named Executive Officers
The base salaries for the NEOs (which represent the fixed portion of their compensation packages) are reviewed annually and may be increased or decreased as the Manager deems appropriate. During 2017,2018, Messrs. Votek, Finkelstein, Votek, Coffey, and Green received aggregate salaries of $2.8$3.0 million from the Manager. On an aggregated basis, Messrs. Votek, Finkelstein, Coffey and Green received 10.3%9.5% of their total compensation in the form of base salaries and the remaining 89.7%90.5% in the form of performance-based cash incentive bonuses.
Annaly Capital Management Inc. 2019 Proxy Statement | 39 | |
HowCompensation Paid by the Manager Makesto the Named Executive Compensation Decisions
In establishing and reviewing executive compensation packages, the Manager considers the nature and scope of each executive’s role and responsibilities, individual and Company performance, retention considerations and feedback from stakeholders, along with the market data, analyses and recommendations provided by external compensation consultants (as further described below under “Role of the Manager’s Compensation Consultants” and “Market Compensation Data”).Officers
Role of the Manager’s Compensation ConsultantsConsultant
During 2017,2018, the Manager retained Meridian Compensation Partners, LLC, FPL Associates, L.P. and Richter Associates, Inc.a third-party compensation consultant for advice and perspectives regarding market trends that may impact decisions about the Manager’s executive compensation program and practices.
The Manager considers compensation data and practices of a group of peer companies (the “Peer Group”), as well as current market trends and practices generally, in developing appropriate compensation packages for the NEOs.
The Manager considers both specific dynamics to identify the peers with which the Company competes for assets, stockholders and talent |
COMPENSATION PEER GROUPCompensation Peer Group
Affiliated Managers Group, Inc. | Northern Trust Corporation | |
AGNC Investment Corp. | Franklin Resources, Inc. | Raymond James Financial, Inc. |
Invesco Ltd. | Starwood Property Trust, Inc. | |
Ameriprise Financial, Inc. | Jefferies Financial Group Inc. | T. Rowe Price Group, Inc. |
Ares Capital Corporation | KKR & Co. L.P. | |
Ares Management | Lazard Ltd | |
ARMOUR Residential REIT, Inc. | Legg Mason, Inc. | |
E*TRADE Financial Corporation | ||
New Residential Investment Corp. |
Annaly Capital Management Inc. | ||
02 | Advisory Approval of Executive Compensation The Board is committed to corporate governance best practices and recognizes the significant interest of stockholders in executive compensation matters. The Company is providing this non-binding advisory vote pursuant to Section 14A of the Exchange Act. As described in detail under the headings The Company is not party to any employment agreements entered into between the Manager and individual NEOs. However, the Company is party to a Severance and Noncompetition Agreement (the “CEO Severance Agreement”) with Mr. Keyes, which provides for cash severance to be paid by the Company to Mr. Keyes in certain termination events. For more information, see “CEO Severance Agreement” and “Potential Payments upon Termination or Change in Control” below. The NEOs are eligible to receive equity awards pursuant to the Company’s equity incentive plan, which is administered by the Compensation Committee. No equity awards were made to any of the NEOs in The Board unanimously recommends that the stockholders vote in favor of the following resolution: “RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and related narrative discussion, is hereby APPROVED.” While this vote is advisory and non-binding, the Board and Compensation Committee value the views of the Company’s stockholders and will consider the voting results when making compensation decisions regarding the CEO Severance Agreement and the Company’s equity incentive plans. | ||
The Board unanimously recommends a voteFORthe Approval of this Resolution. |
COMPENSATION DISCUSSION AND ANALYSIS
As discussed above, the Manager pays all of the compensation, including benefits, to its employees (including the NEOs other than Mr. Keyes). Although certain personnel (but none of the NEOs) are employed by the Company’s subsidiaries for regulatory or corporate efficiency reasons, all compensation and benefits paid to such personnel by the Company’s subsidiaries reduce, on a dollar-for-dollar basis, the management fee the Company pays to the Manager. The proceeds of the management fee are used in part to pay compensation to the Manager’s personnel, including the NEOs other than Mr. Keyes (who does not receive any compensation for serving as the Company’s CEO, but has an interest in the management fee as an indirect equityholder of the Manager); however, the Company does not determine the compensation payable by the Manager to the NEOs, the Company does not allocate any specific portion of the management fee it pays to the compensation of the NEOs, nor does it reimburse the Manager for the cost of such compensation.
Annaly Capital Management Inc. | ||
Executive Compensation
Accordingly,Compensation Discussion and Analysis
As discussed above, the Company did not pay any cashManager pays all of the compensation, including benefits, to the NEOs, nor did the Company grant them any plan-based awards, for 2017. The Company does not provide the NEOs with pension benefits, perquisites or other personal benefits. The Company is not party to any employment agreements entered into between the Manager and individual NEOs, and it does not have any arrangements to pay such individuals any cash severance upon their termination or a change in control of the Company.NEOs. As a result, no compensation is includable in the Summary Compensation Table for the NEOs.
Pursuant to the terms of the Management Agreement, the Company pays the Manager a monthly management fee equal to 1/12th of 1.05% of the Company’s stockholders’ equity, as defined in the Management Agreement, for its management services, which was approximately $164.3 million during the year ended December 31, 2017.
The Manager, which is a private company that is not subject to the disclosure requirements of the SEC, the Manager has sole discretion to determine the compensation it pays to its employees, including the NEOs. The Manager makes all compensation determinations for its employeesthe NEOs without any direction by the Board and without reference to any specific policies or programs under the oversight of the Board.Board or the Compensation Committee. The Manager compensates its employees (including the NEOs)NEOs for a variety of services performed for the benefit of the Manager. Thus, the compensation paid by the Manager to its employees who are serving as the Company’s NEOs is not considered to be part of the Company’s executive compensation program.
Pursuant to the terms of the Management Agreement, the Company pays the Manager a monthly management fee for its management services equal to 1/12thof the sum of: (i) 1.05% of Base Stockholders’ Equity(1), and (ii) 0.75% of Incremental Stockholders’ Equity(2). In addition to the management fee, the Company reimburses the Manager for the cost of certain legal, tax, accounting and other support and advisory services provided by employees of the Manager to the Company. During the year ended December 31, 2018, the Company incurred $179.8 million in management fees and $9.2 million in permitted reimbursement payments under the Management Agreement. None of the reimbursement payments were attributable to compensation of the Company’s NEOs. The proceeds of the management fee are used in part to pay compensation to the NEOs other than Mr. Keyes (who does not receive any compensation for serving as the Company’s Chairman, CEO and President, but has an interest in the management fee as an indirect equityholder of the Manager). The Company does not determine the compensation that the Manager pays to the NEOs, the Company does not allocate any specific portion of the management fee that the Company pays to the compensation of the NEOs, and the Company does not reimburse the Manager for the cost of such compensation.
Accordingly, the Company did not pay any cash compensation to the NEOs, nor did the Company grant them any plan-based awards, for 2018. The Company does not provide the NEOs with pension benefits, perquisites or other personal benefits. As a result, no compensation is includable in the Summary Compensation Table.
The Company is not party to any employment agreements entered into between the Manager and individual NEOs. However, the Company is party to the CEO Severance Agreement with Mr. Keyes, which provides for cash severance to be paid by the Company to Mr. Keyes in certain termination events. For more information, see “CEO Severance Agreement” and “Potential Payments upon Termination or Change in Control” below. No “single-trigger” severance amounts are payable to Mr. Keyes solely upon a change in control of the Company.
The Company believes that providing appropriate severance benefits to Mr. Keyes upon certain termination events helps the Company retain Mr. Keyes’ services as its CEO. The CEO Severance Agreement also allows the Company to protect its interests through noncompetition provisions that continue to apply following Mr. Keyes’ termination as CEO of the Company. In connection with its review and recommendation of the CEO Severance Agreement, a special committee of the Board comprised of four independent Directors considered the executive compensation arrangements of its compensation peer group.
Consideration of “Say-on-Pay” Voting Results
At the Company’s 20172018 Annual Meeting, 69%over 94% of the votes cast supported the Company’s Say-on-Pay vote. WhileUpon consideration of the Say-on-Pay vote received majority support, the Compensation Committee was disappointed with thehigh percentage of votes cast againstin support of the proposal andSay-on-Pay vote, along with additional feedback from engagement with stockholders, the Company redoubled its engagement efforts in orderCompensation Committee determined it was appropriate to understand thecontinue providing detailed quantitative information stockholders need to evaluate the alignment between NEO pay and Company performance. These efforts included:
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During the course of this review, the Company identified that certain stockholders and other key stakeholders would like the Company to disclose the magnitude of NEO compensation and the proportion of variable NEO pay to facilitate an informed evaluation ofabout the Manager’s executive compensation program. In orderto address these concerns,program in the Manager has provided the Company with detailed quantitative information about its executive compensation program for inclusion in this Proxy Statement.Company’s proxy materials. For additional details, please see “Compensation Paid by the Manager to the Named Executive Officers – 2018 Changes”Officers” above.
The Company and the Board will continue to consider the outcome of future Say-on-Pay votes, as well as stockholder feedback received throughout the year, and invite stockholders to express their views to the Independent Directors as described under “Communications“Communications with the Board.Board.”
Over 94% of votes cast supported the Company’s most recent Say-on-Pay vote |
Note: For footnoted information, please refer to “Compensation Discussion and Analysis” in Endnotes section.
Annaly Capital Management Inc. | ||
Executive Compensation
EXECUTIVE COMPENSATION POLICIESExecutive Compensation Policies
Stock Ownership Guidelines/Commitments
Position | Number of Individuals | Annaly Stock Ownership Guideline/Commitment | Timeframe to Meet Guideline/Commitment | |||
Chief Executive Officer(1) | 1 | $15,000,000 | July 2020 | |||
Other Operating Committee Members(2) | 9 | 30% of Annual Total Compensation | 5 years | |||
Managing Directors | 23 | 20% of Annual Total Compensation | 5 years | |||
Director-Level Employees | 28 | 10% of Annual Total Compensation | 5 years | |||
Total | 61 |
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Position | Number of Individuals | Annaly Stock Ownership Guideline/Commitment | Timeframe to Meet Guideline/Commitment | |||
Chief Executive Officer(1) | 1 | $15,000,000 | July 2020 | |||
Other Operating Committee Members(2) | 11 | 30% of Annual Total Compensation | 5 years | |||
Managing Directors | 26 | 20% of Annual Total Compensation | 5 years | |||
Director-Level Employees | 32 | 10% of Annual Total Compensation | 5 years | |||
Total | 70 |
TheseThe stock ownership guidelines outlined above apply to more than 40% of the Manager’s employees. As of MarchDecember 31, 2017, all such individuals either met or, within2018, over 50% of the applicable period, are expectedManager’s employees had purchased stock in the open market, which includes senior employees subject to meet the Company’s stock ownership guidelines.
Stock Holding Period
Under a policy adopted by the Compensation Committee in 2016, theManager’sThe Manager’s employees (including the executive officers)NEOs) are required to hold for a period of four years the net after-tax shares of Company stock they receive through stock option exercises or vesting of equity incentive awards.
Prohibition on Hedging Company Securities
The Company has a policy prohibiting the Manager’s employees (including the executive officers)NEOs), employees of the Company and its subsidiaries, and members of the Board from engaging in any hedging transactions with respect to Company securities held by them, which includesthem. Such prohibited transactions include the purchase of any financial instrument (including forward contracts and zero cost collars) designed to hedge or offset any decrease in the market value of Company securities.
Prohibition on Pledging Company Securities
The Company has a policy prohibiting the Manager’s employees (including the executive officers)NEOs), employees of the Company and its subsidiaries, and members of the Board from holding Company securities in a margin account or pledging Company securities as collateral for a loan.
Risks Related to Compensation Policies and Practices
As discussed above in “Management“Management Structure,,” the Compensation Committee is not entitled to approve compensation decisions made by the Manager and the Manager does not consult with the Compensation Committee prior to making any such decisions. Therefore, the Compensation Committee has no compensation policies or practices applicable to, or decision-making role regarding, the manner in which the Manager uses the management fee to cover its operating expenses, including employee compensation.compensate the NEOs. However, in connection with the Compensation Committee’s administration of the Company’s equity incentive plan and oversight of the CEO Severance Agreement, the Compensation Committee conducts an annual risk assessment of the Company’s applicable compensation policies and practices applicable to such plan.practices. In 2017,2018, the Compensation Committee determined that these compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company.
Executive Compensation
COMPENSATION COMMITTEE REPORTReport of the Compensation Committee
The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
Donnell A. Segalas (Chair) | Jonathan D. Green | E. Wayne Nordberg | John H. Schaefer | Vicki Williams |
Note: For footnoted information, please refer to “Stock Ownership Guidelines/Commitments” in Endnotes section.
Annaly Capital Management Inc. 2019 Proxy Statement | 43 | |
Executive Compensation
EXECUTIVE COMPENSATION TABLESExecutive Compensation Tables and Related Narrative
Summary Compensation Table
The Company did not pay any compensation to the NEOs, and did not reimburse the Manager for any compensation paid to the NEOs, with respect to the years ended December 31, 2017,2018, December 31, 20162017 or December 31, 2015.2016.
The Company did not grant the NEOs any plan based awards in 2017.2018.
Outstanding Equity Awards at Fiscal Year-End
None of the NEOs had outstanding equity awards at December 31, 2017.2018.
Options Exercised and Stock Vested
The Company did not pay any cash or equity compensation to the NEOs for does not provide them with pension benefits, perquisites or other personal benefits. |
The Company does not provide the NEOs with any benefits pursuant to defined benefit plans and nonqualified deferred compensation plans.
CEO Severance Agreement
On August 1, 2018, the Company and Mr. Keyes entered into the CEO Severance Agreement. The term of the CEO Severance Agreement continues through July 31, 2020, and will automatically renew for successive one-year terms unless either party gives written notice (a “Notice of Non-Renewal”) to the other of its intention not to renew at least 180 days prior to the expiration of the then-current term.
Upon (i) the removal of Mr. Keyes as the Company’s Chief Executive Officer without “cause” (as defined in the CEO Severance Agreement), (ii) the resignation of Mr. Keyes with “good reason” (as defined in the CEO Severance Agreement) or (iii) the expiration of the then-current term following a Notice of Non-Renewal provided by the Company (each, a “Severance Event”), the Company shall pay Mr. Keyes a cash payment equal to $30 million (the “Severance Payment”). The Severance Payment shall be payable in 12 equal monthly installments after Mr. Keyes’ separation from service upon or following a Severance Event (the “Severance Period”); provided that if such separation from service occurs within two years immediately following a “change of control” (as defined in the CEO Severance Agreement), the Severance Payment shall be made in a single lump sum. The payment of the Severance Payment shall be subject to the execution of a waiver and release of claims against the Company and its subsidiaries and affiliates and on Mr. Keyes’ continued compliance with applicable noncompetition provisions. For additional information about the CEO Severance Agreement, see “Compensation Discussion and Analysis.”
Potential Payments upon Termination or Change in Control
The following table sets forth quantitative information with respect to potential payments to Mr. Keyes or his beneficiaries upon various termination events described above, assuming termination on December 31, 2018. Other than Mr. Keyes, the Company is not responsible forhas no responsibility to provide any amounts payablepayments or benefits to any additional vesting of outstanding equity awards for anyNEO in connection with a termination of service by any of the NEOs. No amounts would have been payable by the Company to any of the NEOs upon aor change in control ascontrol.
Type of Termination(1) | ||||||
Executive | By Company without Cause | By Executive with Good Reason | Company Non-Renewal of Severance Agreement | |||
Kevin G. Keyes | $30,000,000 | $30,000,000 | $30,000,000 |
1. | Payments are subject to the execution of a waiver and release of claims and compliance with applicable noncompetition provisions. |
44 | Annaly Capital Management Inc. 2019 Proxy Statement | |
Table of December 31, 2017.Contents
Executive Compensation
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATIONCompensation Committee Interlocks and Insider Participation
The Compensation Committee is comprised solely of the following Independent Directors: Messrs. Segalas (Chair), Green, Nordberg and Schaefer and Ms. Williams. None of them is serving or has served as an officer or employee of the Company or any affiliate or has any other business relationship or affiliation with the Company, except his service as a Director, and there are noDirector. During 2018, none of the Company’s executive officers served on the compensation committee (or other committee serving an equivalent function) or another entity whose executive officers served on the Compensation Committee interlocks that are required to be reported under the rules and regulations of the Exchange Act.or Board.
Effective July 1, 2013, allThe Manager is responsible for managing the Company’s affairs pursuant to the Management Agreement and, as of December 31, 2018, directly employed 95% of the Company’sindividuals who provide services to the Company. The remaining employees were terminatedare employed by the Company and were hired by the Manager. However, a limited number of employees remain as employeessubsidiaries of the Company’s subsidiariesCompany for regulatory or corporate efficiency reasons. All compensation and benefits paid to such personnel by the Company’s subsidiaries reduce, on a dollar-for-dollar basis, the management fee the Company pays to the Manager. At December 31, 2017,2018, the Company’s measurement date for identifying the median employee, the Company’s subsidiaries had sixeight full-time employees (and no part-time employees). The Company chose total compensation in accordance with the requirements of the Summary Compensation Table as its consistently applied compensation measure to identify the median employee. The Company’s median employee compensation as calculated using the Summary Compensation Table requirements was $229,408$265,000 in 2017.2018. The Company does not provide any compensation to the CEO. As a result, the CEO to median employee pay ratio required to be disclosed under Item 402(u) of Regulation S-K is not applicable.
This information is being provided for compliance purposes. Neither the Compensation Committee nor management of the CompanyManager used the pay ratio measure in making any compensation decisions.
Annaly Capital Management Inc. 2019 Proxy Statement | ||
Executive Compensation
03 | Approval of an Amendment to the Company’s Charter to Increase the Number of Authorized Shares of Capital Stock to 3,000,000,000 Shares As of March 25, 2019, we had 1,442,971,679 shares of common stock, 7,000,000 shares of 7.625% Series C Cumulative Redeemable Preferred Stock, 18,400,000 shares of 7.50% Series D Cumulative Redeemable Preferred Stock, 28,800,000 shares of 6.95% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, 17,000,000 shares of 6.50% Series G Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, and 2,200,000 shares of 8.125% Series H Cumulative Redeemable Preferred Stock, issued and outstanding. Our charter currently allows us to issue up to a combined total of 2,000,000,000 shares of capital stock, par value $0.01 per share. The proposed amendment of our charter raises the total number of authorized shares of capital stock we are permitted to issue from 2,000,000,000 shares to 3,000,000,000 shares. Although our charter permits our Board to classify and reclassify any unissued shares of capital stock by setting or changing in any one or more respects the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption of such shares of stock, we commit to allocating all 1,000,000,000 shares as common stock, and will not reallocate any such shares as preferred stock. The proposed amendment to our charter deletes the current ARTICLE VI(A) of our charter and replaces it with the following: “ARTICLE VI A.The total number of shares of stock of all classes which the Corporation has authority to issue is three billion (3,000,000,000) shares of capital stock, par value one cent ($0.01) per share, amounting in the aggregate par value to thirty million dollars ($30,000,000). Of these shares of capital stock, 2,924,050,000 shares are classified as “Common Stock,” 7,000,000 shares are classified as “7.625% Series C Cumulative Redeemable Preferred Stock,” 18,400,000 shares are classified as “7.50% Series D Cumulative Redeemable Preferred Stock,” 28,800,000 shares are classified as “6.95% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock,” 19,550,000 shares are classified as “6.50% Series G Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock,” and 2,200,000 shares are classified as “8.125% Series H Cumulative Redeemable Preferred Stock.” Our Board may classify and reclassify any unissued shares of capital stock by setting or changing in any one or more respects the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption of such shares of stock.” | ||
The Board declared advisable, and unanimously recommends a voteFORthe approval of an amendment to our charter to increase the number of authorized shares to 3,000,000,000 shares. |
46 | Annaly Capital Management Inc. | |
Executive Compensation
To retain the ability to issue additional shares of capital stock, we seek to increase the number of shares we are currently authorized to issue for general corporate purposes from 2,000,000,000 shares to 3,000,000,000 shares. As of March 25, 2019, the Company had 1,516,371,679 shares of capital stock issued and outstanding, leaving 483,628,321 shares of capital stock available for future issuances, of which approximately 389,022,880 shares are reserved for future issuance, including shares reserved for future issuance under our Dividend Reinvestment and Share Purchase Plan and upon a conversion of our preferred stock pursuant to the terms thereof. The Board believes that the availability of additional shares is essential for the Company to successfully pursue its business objectives. Approval of an amendment to the Company’s charter increasing the authorized number of shares will provide the Company with valuable flexibility to take advantage of opportunities to raise additional capital for general corporate purposes, investment activity, mergers and acquisitions, and/or stock dividends or splits. Although the Company’s charter permits the Board to classify and reclassify any unissued shares of capital stock by setting or changing in any one or more respects the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption of such shares of stock, the Company commits to allocating all 1,000,000,000 shares as common stock, and will not reallocate any such shares as preferred stock. The Company currently does not have any acquisitions or other major transactions planned that would require an increase to the Company’s authorized share capital, and the Board is not proposing the increase with the intent of using the newly-authorized shares as an anti-takeover device.
Future issuances of common stock or securities convertible into common stock could have a dilutive effect on the earnings per share, book value per share, voting power and percentage interest of holdings of current stockholders. In addition, the availability of additional shares of common stock for issuance could, under certain circumstances, discourage or make more difficult efforts to obtain control of the Company, although that is not the intention of this proposal.
The approval of the proposed amendment to the Company’s charter requires the affirmative vote of the holders of a majority of the total number of issued and outstanding shares of our common stock entitled to vote. Abstentions will have the same effect as votes against this proposal. This proposal is considered a “routine” matter that brokers may vote on without instruction from beneficial owners. As a result, a broker non-vote cannot occur with respect to this proposal. For more information on the voting requirements, see the “Questions and Answers about the Annual Meeting” section in this Proxy Statement.
The Board considers this amendment to the Company’s charter advisable to provide flexibility for future capital needs, including general corporate purposes, investment activity, mergers and acquisitions, and/or stock dividends or splits. Approval of this amendment by the stockholders at the Annual Meeting may avoid the expensive procedure of calling and holding a special meeting of stockholders for such a purpose at a later date.
Annaly Capital Management Inc. 2019 Proxy Statement | 47 | |
Ratification of Appointment of Independent Registered Public Accounting Firm The Audit Committee is responsible for the appointment, compensation, retention, and oversight of the Company’s independent registered public accounting firm. The Audit Committee has appointed Ernst & Young LLP (“Ernst & Young” or | |||
The Board unanimously recommends a voteFORthe ratification of the appointment of Ernst & Young LLP as the Company’s Independent Registered Public Accounting Firm for the year |
REPORT OF THE AUDIT COMMITTEEReport of the Audit Committee
The Audit Committee operates pursuant to a charter which it reviews annually, and a brief description of the Audit Committee’s primary responsibilities is included under the heading “Board“Board Committees – Audit Committee”Committee” in this Proxy Statement. Under the Audit Committee’s charter, management is responsible for the preparation of the Company’s financial statements and the independent registered public accounting firm is responsible for auditing those financial statements and expressing an opinion as to their conformity with U.S.generally accepted accounting principles. In addition, the independent registered public accounting firm is responsible for auditing and expressing an opinion on the Company’s internal controls over financial reporting.
The Audit Committee is responsible for the appointment, compensation, retention and oversight of the independent auditors |
The Audit Committee has discussed with Ernst & Young the matters required to be discussed by applicable standards adopted by the Public Company Accounting Oversight Board, including matters concerning Ernst & Young’s independence. Ernst & Young has also provided to the Audit Committee the written disclosures and letter required by the applicable requirements of the Public Company Accounting Oversight Board regarding Ernst & Young’s communications with the Audit Committee concerning independence. The Audit Committee also discussed with Ernst & Young their independence from the Company and management, and considered whether non-audit services provided by Ernst & Young to the Company are compatible with maintaining Ernst & Young’s independence.
In reliance on these reviews and discussions, and the report of the independent registered public accounting firm, the Audit Committee has recommended to the Board, and the Board has approved, that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20172018 filed with the SEC.
The foregoing report has been furnished by the Audit Committee:
Kevin P. Brady (Chair) | Michael Haylon | E. Wayne Nordberg | John H. Schaefer | Vicki Williams |
48 | Annaly Capital Management Inc. | |
Audit Committee Matters
RELATIONSHIP WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMRelationship with Independent Registered Public Accounting Firm
The aggregate fees billed for 2018 and 2017 and 2016 by E&YEY for each of the following categories of services are set forth below:
Service Category | 2017 | 2016 | 2018 | 2017 | ||||||||
Audit(1) | $ | 2,498,876 | $ | 2,416,392 | $ | 2,708,050 | $ | 2,569,311 | ||||
Audit-Related(2) | 61,000 | 30,000 | 62,000 | 61,000 | ||||||||
Tax(3) | 232,000 | 239,900 | 509,800 | 316,700 | ||||||||
All Other(4) | – | – | 134,000 | – | ||||||||
Total | $ | 2,791,876 | $ | 2,686,292 | $ | 3,413,850 | $ | 2,947,011 |
Audit fees primarily relate to integrated audits of the Company’s annual consolidated financial statements and internal control over financial reporting under Sarbanes-Oxley Section 404, reviews of the Company’s quarterly consolidated financial statements, audits of the Company’s subsidiaries’ financial statements and comfort letters and consents related to SEC registration statements. | |
Audit-Related fees are primarily for assurance and related services that are traditionally performed by the independent registered public accounting firm and include due diligence and accounting consultations. | |
Tax fees are primarily for preparation of tax returns and compliance services and tax consultations. | |
All Other fees are for those services not described in one of the other categories. |
The Audit Committee has also adopted policies and procedures for pre-approving all non-audit work performed by the independent registered public accounting firm. The Audit Committee retained E&YEY to provide certain non-audit services in 2017,2018, all of which were pre-approved by the Audit Committee. Specifically, the Audit Committee pre-approved the use of E&YEY for the following categories of non-audit services:
■ | accounting consultations on matters addressed during the audit or interim reviews |
■ | agreed upon procedures in connection with financing arrangements of certain Company subsidiaries |
■ | tax compliance and consultations |
The Audit Committee determined that the provision by E&YEY of these non-audit services is compatible with E&YEY maintaining its independence.
In addition to the non-audit services described above, the Audit Committee also pre-approved certain audit services, including comfort letters and consents related to SEC registration statements and review of SEC comment letters.
|
The Company understands the need for E&YEY to maintain objectivity and independence as the auditor of its financial statements and internal control over financial reporting. In accordance with SEC rules, the Audit Committee requires the lead E&YEY partner assigned to Annaly’s audit to be rotated at least every five years, and the Audit Committee and its chair is involved in selecting each new lead audit partner. The Audit Committee approved the hiring of E&YEY to provide all of the services detailed above prior to such independent registered public accounting firm’s engagement. None of the services related to theAudit-Related Feesdescribed above was approved by the Audit Committee pursuant to a waiver of pre-approval provisions set forth in applicable rules of the SEC.
Annaly Capital Management Inc. | 49 | |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTSecurity Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of March 26, 201825, 2019 relating to the beneficial ownership, as defined in SEC rules, of the Company’s common stock by (i) each NEO, (ii) each Director and nominee for Director, (iii) all executive officers and Directors as a group, and (iv) all persons that the Company knows beneficially own more than 5% of its outstanding common stock. Under SEC rules, a person is deemed to be a “beneficial owner” or a security if that person has or shares voting power or investment power, which includes the power to dispose of or to direct the disposition of such security.
Knowledge of the beneficial ownership of the Company’s common stock as shown below is drawn from statements filed with the SEC pursuant to Section 13(d) or 13(g) of the Exchange Act.
Beneficial Owner(1) | Amount and Nature of Beneficial Ownership(2) | Percent of Class(3) |
| Amount and |
| Percent of Class(3) | ||
Kevin G. Keyes | 984,779 | * | 984,779 | * | ||||
Glenn A. Votek | 93,597 | * | 104,846 | * | ||||
David L. Finkelstein | 300,000 | * | 300,000 | * | ||||
Timothy P. Coffey | 38,000 | * | 38,000 | * | ||||
Anthony C. Green | 101,000 | * | 101,000 | * | ||||
Francine J. Bovich | 98,240 | * | ||||||
Kevin P. Brady(4) | 260,836 | * | 252,502 | * | ||||
Francine J. Bovich | 76,574 | * | ||||||
Wellington J. Denahan | 2,198,414 | * | 1,811,272 | * | ||||
Katie Beirne Fallon | – | * | 12,858 | * | ||||
Jonathan D. Green | 214,778 | * | 198,379 | * | ||||
Thomas Hamilton(5),(6) | 250,000 | * | ||||||
Kathy Hopinkah Hannan(6) | - | * | ||||||
Michael Haylon | 154,028 | * | 152,629 | * | ||||
E. Wayne Nordberg(6) | 231,278 | * | ||||||
E. Wayne Nordberg(7) | 214,879 | * | ||||||
John H. Schaefer | 108,679 | * | 126,474 | * | ||||
Donnell A. Segalas(7) | 259,386 | * | ||||||
Vicki Williams(5) | – | * | ||||||
All executive officers and Directors as a group (15 people) | 5,021,349 | * | ||||||
BlackRock, Inc.(8) | 98,137,061 | 8.5% | ||||||
The Vanguard Group, Inc.(9) | 97,590,302 | 8.4% | ||||||
Donnell A. Segalas(8) | 241,052 | * | ||||||
Vicki Williams | 12,858 | * | ||||||
All executive officers and Directors as a group (17 people) | 4,899,768 | * | ||||||
BlackRock, Inc.(9) | 120,128,838 | 9.1% | ||||||
The Vanguard Group, Inc.(10) | 119,048,402 | 9.1% |
* | Represents beneficial ownership of less than one percent of the common stock. |
The business address of each Director and NEO is c/o Annaly Capital Management, Inc., 1211 Avenue of the Americas, New York, NY 10036. To the best of the Company’s knowledge, each stockholder listed has sole voting and investment power with respect to the shares beneficially owned by the stockholder. | |
For purposes of this table, “beneficial ownership” is determined in accordance with Rule 13d-3 under the Exchange Act, pursuant to which a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person, or such group of persons, has the right to acquire within 60 days of the date of determination. The Company has also included shares of common stock underlying vested options. The shares of common stock underlying vested options included in the above table are as follows: Kevin P. Brady | |
For purposes of computing the percentage of outstanding shares of common stock held by each person or group of persons named above, any shares which such person or group of persons has the right to acquire within 60 days, including vested options and DSUs, are deemed to be outstanding for the purpose of computing the percentage of outstanding shares of the class owned by such person or group of persons, but are not deemed to be outstanding for the purpose of computing the percentage of outstanding shares owned by any other person or group of persons. | |
Includes: (i) 48,750 shares owned by the Kevin P. Brady Family Trust, (ii) 42,500 shares owned by Mr. Brady’s wife, and (iii) 1,500 shares owned by Mr. Brady’s | |
| |
6. | Dr. Hannan and Mr. Hamilton were appointed to the Board effective |
50 | Annaly Capital Management Inc. 2019 Proxy Statement | |
Stock Ownership Information
7. | Includes: (i) 10,000 shares owned by |
Includes: (i) 3,000 shares owned by the Hercules Segalas Irrevocable Trust, (ii) 900 shares owned by Mr. |
Stock Ownership Information
BlackRock, Inc., 55 East 52nd Street, New York, NY 10055, as a parent holding company or control person of certain named funds (“BlackRock”), filed a Schedule 13G/A on | |
The Vanguard Group, Inc., 100 Vanguard Blvd., Malvern, PA 19355, as a parent holding company or control person of certain named funds (“Vanguard”), filed a Schedule 13G/A on February |
SECTIONSection 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCEBeneficial Ownership Reporting Compliance
The Company believes that based solely on its review of the reports filed during the fiscal year ended December 31, 20172018, and on the written representations of those filing reports, all Section 16(a) forms required to be filed by Annaly’s executive officers, Directorsdirectors and beneficial owners of more than ten percent of its common stock were filed on a timely basis and in compliance with Section 16(a) of the Exchange Act.Act, with the exception of one transaction reported on a Form 5 filed on January 19, 2019, on behalf of David Finkelstein, which was filed late due to an administrative error.
Annaly Capital Management Inc. | 51 | |
ACCESS TO FORM 10-KWhere You Can Find More Information
The Company files annual, quarterly and current reports, proxy statements and other information with the SEC. SEC filings are available to the public from commercial document retrieval services and at the Internet worldwide web site maintained by the SEC at www.sec.gov.
Annaly’s website is www.annaly.com. The Company makes available on this website under “Investors - SEC Filings,” free of charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as well as proxy statement and other information filed with or furnished to the SEC as soon as reasonably practicable after such materials are electronically submitted to the SEC.
OnAdditionally, on written request, the Company will provide without charge to each record or beneficial holder of the Company’s common stock as of the close of business on March 26, 201825, 2019 (the “Record Date”) a copy of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017,2018, as filed with the SEC. You should address your request to Investor Relations, Annaly Capital Management, Inc., 1211 Avenue of the Americas, New York, NY 10036 or email your request to investor@annaly.com.
You may also access such report on Annaly’s website,www.annaly.com, under “Investors - SEC Filings.”
STOCKHOLDER PROPOSALSStockholder Proposals
Any stockholder intending to propose a matter for consideration at the Company’s 20192020 Annual Meeting and have the proposal included in the proxy statement and form of proxy for such meeting must, in addition to complying with the applicable laws and regulations governing submissions of such proposals (Rule 14a-8 of the Exchange Act), submit the proposal in writing no later than December 11, 2018.2019, in order to be timely.
Pursuant to the Company’s current Amended and Restated Bylaws (“Bylaws”), any stockholder intending to nominate a Director or present a proposal at an annual meeting of stockholders that is not intended to be included in the Proxy Statement for such annual meeting must provide written notification not later than 5:00 p.m. Eastern Time on the date that is 120 days prior to the first anniversary of the date of the proxy statement for the preceding year’s annual meeting nor earlier than 150 days prior to the first anniversary of the date of the Proxy Statement for the preceding year’s annual meeting. Accordingly, any stockholder who intends to submit such a nomination or such a proposal at the 20192020 Annual Meeting must provide written notification of such proposal by December 11, 2018,2019, but in no event earlier than November 11, 2018.2019.
Any such nomination or proposal should be sent to Anthony C. Green, the Chief Corporate Officer, Chief Legal Officer and Secretary, Annaly Capital Management, Inc., 1211 Avenue of the Americas, New York, NY 10036 and, to the extent applicable, must include the information required by the Company’s Bylaws.
As of the date of this Proxy Statement, the Board does not know of any matter that will be presented for consideration at the Annual Meeting other than as described in this Proxy Statement.
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETINGQuestions and Answers About the Annual Meeting
Q | When and where is the Annual Meeting? |
A | The Annual Meeting will be held on May |
52 | Annaly Capital Management Inc. 2019 Proxy Statement | |
Other Information
Q | Why did I receive a Notice in the mail regarding the Internet availability of proxy materials instead of a paper copy of proxy materials? | ||||||
A | The SEC has approved “Notice and Access” rules relating to the delivery of proxy materials over the Internet. These rules permit the Company to furnish proxy materials, including this Proxy Statement and the Annual Report, to stockholders by providing access to such documents on the Internet instead of mailing printed copies. Most stockholders will not receive paper copies of the proxy materials unless they request them. Instead, the Notice, which will be mailed to stockholders, provides instructions regarding how you may access and review all of the proxy materials on the Internet. The Notice also instructs you as to how you may authorize your proxy via the Internet or by telephone. If you would like to receive a paper or email copy of the Company’s proxy materials, you should follow the instructions for requesting such materials printed on the Notice. | ||||||
Other Information
Q | Can I vote my shares by filling out and returning the Notice? | ||||||
A | No. The Notice identifies the items to be considered and voted on at the Annual Meeting, but you cannot vote by marking the Notice and returning it. The Notice provides instructions on how to authorize your proxy via the Internet or by telephone or how to vote at the Annual Meeting or to request a paper proxy card, which will contain instructions for authorizing a proxy by the Internet, by telephone or by returning a signed paper proxy card. | ||||||
Q | Who is entitled to vote at the Annual Meeting? | ||||||
A | Only common stockholders of record as of the close of business on the Record Date (March | ||||||
Q | How can I vote my shares? | ||||||
A | You may vote online during the Annual Meeting prior to the closing of the polls at www.virtualshareholdermeeting.com/ | ||||||
Q | What quorum is required for the Annual Meeting? | ||||||
A | A quorum will be present at the Annual Meeting if a majority of the votes entitled to be cast on any matter are present, in person or by proxy. | ||||||
Q | What are the voting requirements that apply to the proposals discussed in this Proxy Statement? | ||||||
A | Proposal | Vote Required | Discretionary Voting Allowed? | Board Recommendation | ||||
(1) | Election of Directors listed herein | Majority | No | FOR | ||||
(2) | Advisory approval of executive compensation | Majority | No | FOR | ||||
(3) | Majority | Yes | FOR |
(4) Ratification of the appointment of Ernst & Young | Majority | Yes | FOR | ||||
“Majority” means (a) with regard to an uncontested election of Directors, the affirmative vote of a majority of total votes cast for and against the election of each Director; |
Annaly Capital Management Inc. 2019 Proxy Statement | 53 | |
Other Information
“Discretionary voting” occurs when a bank, broker, or other holder of record does not receive voting instructions from the beneficial owner and votes those shares in its discretion on any proposal as to which the rules of the NYSE permit such bank, broker, or other holder of record to vote (“routine matters”). When banks, brokers, and other holders of record are not permitted under the NYSE rules to vote the beneficial owner’s shares on a proposal (“non-routine matters”), if you do not provide voting instructions, your shares will not be voted on such proposal. This is referred to as a | ||
For each of the proposals above, you can vote or authorize a proxy to vote “FOR,” “AGAINST” or “ABSTAIN.” | ||
Q | What is the effect of abstentions and | |
A | Abstentions will have no effect on | |
same effect as a vote against Proposal 3. “Broker | ||
Other Information
Q | How will my shares be voted if I do not specify how they should be voted? | |
A | Properly executed proxies that do not contain voting instructions will be voted as follows: | |
(1) | Proposal No. 1: FOR the election of each Director nominee listed herein; | |
(2) | ||
Proposal No. 2: FOR the approval, on a non-binding and advisory basis, of the Company’s executive | ||
(3) | ||
Proposal No. 3: FOR the approval of the amendment to our charter; and | ||
(4) | Proposal No. 4: FOR the ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for | |
The Company officers you authorize as proxies may exercise their proxy and vote your shares for one or more postponements or adjournments of the Annual Meeting, including postponements or adjournments to permit further solicitations of proxies. | ||
Q | What do I do if I want to change my vote? | |
A | You may revoke a proxy at any time before it is exercised by filing a duly executed revocation of proxy, by submitting a duly executed proxy with a later date, using the phone or online voting procedures, or by participating in the Annual Meeting via live webcast and voting online during the Annual Meeting prior to the closing of the polls. You may revoke a proxy by any of these methods, regardless of the method used to deliver your previous proxy. Virtual attendance at the Annual Meeting without voting online will not itself revoke a proxy. | |
Q | How will voting on any other business be conducted? | |
A | Other than the | |
Q | Who will count the vote? | |
A | Representatives of American Election Services, LLC, the independent inspector of elections, will count the votes. |
54 | Annaly Capital Management Inc. 2019 Proxy Statement | |
Other Information
Q | How can I participate in the Annual Meeting? |
A | All stockholders of record as of the Record Date can attend the Annual Meeting online at www.virtualshareholdermeeting.com/ |
Q | What is the pre-meeting forum and how can I access it? |
A | One of the benefits of the online Annual Meeting format is that it allows the Company to communicate more effectively with its stockholders via a pre-meeting forum that you can access by visiting www.proxyvote.com. Through use of the pre-meeting forum, stockholders can submit questions in advance of the Annual Meeting and view copies of the Company’s proxy materials. The Company will respond to as many inquiries at the Annual Meeting as time allows. |
Other Information
Q | Why is the Company holding the Annual Meeting online? |
A | After years of declining attendance by stockholders at Annaly’s in-person annual meetings and marked growth of our international stockholder base over the same time period, the Company |
Q | What if I have difficulties accessing the pre-meeting forum or locating my 16-digit control number prior to the day of the Annual Meeting on May |
A | Prior to the day of the Annual Meeting on May |
Q | What if during the check-in time or during the Annual Meeting I have technical difficulties or trouble accessing the live webcast of the Annual Meeting? |
A | If you encounter any difficulties accessing the live webcast of the Annual Meeting during the check-in or during the Annual Meeting itself, including any difficulties with your 16-digit control number, please call toll-free 1-855-449-0991 in the United States or 1-720-378-5962 if calling from outside the United States, for assistance. Technicians will be ready to assist you beginning at 8:30 a.m. Eastern Time with any difficulties. |
Q | How will the Company solicit proxies for the Annual Meeting? |
A | The expense of soliciting proxies will be borne by the Company. Proxies will be solicited principally through the use of mail, but Directors, executive officers and employees, who will not be specially compensated, may solicit proxies from stockholders by telephone, facsimile or other electronic means or in person. Also, the Company will reimburse banks, brokerage houses and other custodians, nominees and fiduciaries for any reasonable expenses in forwarding proxy materials to beneficial owners. |
Annaly Capital Management Inc. 2019 Proxy Statement | 55 | |
Other Information
The Company has retained Georgeson Inc., a proxy solicitation firm, to assist it in the solicitation of proxies in connection with the Annual Meeting. The Company will pay Georgeson a fee of $15,000 for its services. In addition, the Company may pay Georgeson additional fees depending on the extent of additional services requested by the Company and will reimburse Georgeson for expenses Georgeson incurs in connection with its engagement by the Company. In addition to the fees paid to Georgeson, the Company will pay all other costs of soliciting proxies. | |
Stockholders have the option to vote over the Internet or by telephone. Please be aware that if you vote over the Internet, you may incur costs such as telephone and access charges for which you will be responsible. | |
Q | What is “Householding” and does Annaly do this? |
A | “Householding” is a procedure approved by the SEC under which stockholders who have the same address and last name and do not participate in electronic delivery of proxy materials receive only one copy of a company’s Proxy Statement and Annual Report unless one or more of these stockholders notifies the company or their respective bank, broker or other intermediary that they wish to continue to receive individual copies. The Company engages in this practice as it reduces printing and postage costs. However, if a stockholder of record residing at such an address wishes to receive a separate Annual Report or Proxy Statement, he, she or it may request it by writing to Annaly Capital Management, Inc., 1211 Avenue of the Americas, New York, NY 10036, Attention: Investor Relations, by emailing investor@annaly.com, or by calling 212-696-0100, and the Company will promptly deliver the requested Annual Report or Proxy Statement. If a stockholder of record residing at such an address wishes to receive a separate Annual Report or Proxy Statement in the future, he, she or it may contact the Company in the same manner. If you are an eligible stockholder of record receiving multiple copies of the Company’s Annual Report and Proxy Statement, you can request householding by contacting the Company in the same manner. If you own your shares through a bank, broker or other nominee, you can request householding by contacting the bank, broker or other nominee. |
Other Information
Q | Could the Annual Meeting be postponed or adjourned? |
A | If a quorum is not present or represented, the Company’s Bylaws permit the chairman of the meeting to |
Q | Who can help answer my questions? |
A | If you have any questions or need assistance voting your shares or if you need copies of this Proxy Statement or the proxy card, you should contact: |
Annaly Capital Management, Inc. |
The Company’s principal executive offices are located at the address above.
56 | Annaly Capital Management Inc. 2019 Proxy Statement | |
Endnotes
WHERE YOU CAN FIND MORE INFORMATIONMessage from our Chairman, CEO and President (page i)
1. | Represents originated or purchased whole loans, commercial mortgage-backed securities and equity assets across the credit investment groups from December 31, 2013 to December 31, 2018. |
2. | $6.5bn of capital includes: (1) $816mm raised through a common equity offering in July 2017; (2) $720mm raised through a preferred equity offering in July 2017; (3) $857mm raised through a common equity offering in October 2017; (4) $425mm raised through a preferred equity offering in January 2018; (5) $877mm raised through a common equity offering in September 2018; (6) $840mm raised through a common equity offering in January 2019; (7) $251mm raised through the Company’s at-the-market sales program for its common stock, which was entered into in January 2018, net of sales agent commissions and other offering expenses; (8) $975mm of equity issued as partial merger consideration and $288mm of preferred equity assumed in connection with the Hatteras Financial acquisition in April 2016; and (9) $456mm of equity issued as partial merger consideration and $55mm of preferred equity assumed in connection with the MTGE Investment Corp. acquisition in September 2018. These amounts exclude any applicable underwriting discounts and other estimated offering expenses, unless otherwise noted. The July 2017, September 2018 and January 2019 common equity offerings include the underwriters’ full exercise of their overallotment option to purchase additional shares of stock. The July 2017 preferred offering and October 2017 common offering include the underwriters’ partial exercise of their overallotment option to purchase additional shares of preferred and common stock, respectively. |
3. | $2.4bn of additional borrowing capacity includes $1.5bn in residential whole loan securitizations ($1.1bn closed in 2018 and $394mm closed subsequent to year end in January 2019) and $900mm in additional credit financing capacity ($700mm closed in 2018 and $200mm closed subsequent to year end in January 2019). |
4. | Represents total shareholder return for the period beginning December 31, 2013 to January 31, 2019. |
5. | Represents LTM pre-tax margin calculated as pre-tax income divided by total revenue or total gross interest income for each company. Companies with negative pre-tax margins are excluded from the calculation. |
6. | “Continuing Directors” represent the eleven members of the Board following the 2019 Annual Meeting (assuming all nominees are elected). |
7. | Employee composition statistics as of December 31, 2018. Annaly is externally managed by Annaly Management Company, LLC (the “Manager”). As of December 31, 2018, the Manager had 162 employees and Annaly’s subsidiaries collectively had 8 employees. For ease of reference, throughout this Annual Report, the employees of the Manager, together with employees of Annaly’s subsidiaries, are referred to as Annaly’s employees. |
8. | Survey results based on annual internal surveys conducted by Perceptyx from 2015 through 2018. |
9. | Represents Financial Activities industry sector, which consists of Finance and Insurance and Real Estate and Rental and Leasing sectors as of December 31, 2018. |
The Company files annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information that the Company files with the SECAnnaly at the SEC’s public reference room at Public Reference Room, 100 F Street, N.E., Washington, D.C. 20549.a Glance & Recent Operating Achievements (page 3)
1. | Represents market capitalization as of January 31, 2019. |
2. | Represents: (1) $720mm raised through a preferred equity offering in July 2017; (2) $425mm raised through a preferred equity offering in January 2018; (3) $251mm raised through the Company’s at-the-market sales program for its common stock, which was entered into in January 2018, net of sales agent commissions and other offering expenses; (4) $975mm of equity issued as partial merger consideration and $288mm of preferred equity assumed in connection with the Hatteras Financial acquisition in April 2016; and (5) $456mm of equity issued as partial merger consideration and $55mm of preferred equity assumed in connection with the MTGE Investment Corp. acquisition in September 2018. These amounts exclude any applicable underwriting discounts and other estimated offering expenses, unless otherwise noted. The July 2017 preferred offering includes the underwriters’ partial exercise of their overallotment option to purchase additional shares of preferred and common stock, respectively. |
3. | Includes unfunded commitments of $161mm. |
4. | Represents the percentage difference of Annaly’s operating expense as a percentage of average equity vs. the BBREMTG for 2018. Operating expense is defined as: (i) for internally-managed BBREMTG members, the sum of compensation & benefits, general & administrative expenses and other operating expenses less any one-time or transaction related expenses, and (ii) for externally-managed BBREMTG members, the sum of net management fees, compensation & benefits (if any), general & administrative expenses and other operating expenses less any one-time or transaction related expenses. |
5. | Includes $200mm credit facility closed in January 2019. |
Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room. These SEC filings are also available to the public from commercial document retrieval services and at the Internet worldwide web site maintained by the SEC at www.sec.gov. Reports, proxy statements and other information concerning the Company may also be inspected at the offices of the NYSE, which is located at 20 Broad Street, New York, NY 10005.
Annaly’s website is www.annaly.com. The Company makes available on this website under “Investors - SEC Filings,” free of charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after such materials are electronically filed or furnished to the SEC.Diversified Shared Capital Model (page 4)
Note: Market data as of January 31, 2019. Financial data as of December 31, 2018. | |
1. | Agency assets include to be announced (“TBA”) purchase contracts (market value) and mortgage servicing rights (“MSRs”). Residential Credit and Commercial Real Estate assets exclude securitized debt of consolidated variable interest entities (“VIEs”). |
2. | Represents the capital allocation for each of the four investment groups and is calculated as the difference between assets and related financing. Includes TBA purchase contracts, excludes non-portfolio related activity and varies from total stockholders’ equity. |
Annaly Capital Management Inc. | 57 | |
Endnotes
Annaly’s Diversified Shared Capital Model(cont’d)(page 4)
3. | Sector rank compares Annaly dedicated capital in each of its four investment groups as of December 31, 2018 (adjusted for P/B as of January 31, 2019) to the market capitalization of the companies in each respective comparative sector as of January 31, 2019. Comparative sectors used for Agency, Commercial Real Estate and Residential Credit ranking are their respective sector within the BBREMTG Index as of January 31, 2019. Comparative sector used for Middle Market Lending ranking is the S&P BDC Index as of January 31, 2019. |
4. | Levered return assumptions are for illustrative purposes only and attempt to represent current market asset returns and financing terms for prospective investments of the same, or of a substantially similar, nature in each respective group. |
Growth and Income (page 5)
1. | Total return is shown for period of December 31, 2015 through January 31, 2019. |
2. | The third quarter 2018 common stock dividend is represented as the aggregate $0.30 common stock dividend comprised of (i) the $0.22174 short period dividend paid on September 6, 2018 in connection with the MTGE acquisition and (ii) the $0.07826 remaining dividend paid on September 28, 2018. |
3. | Line represents the lower bound of the target Federal Funds range. |
Delivering Significant Value for Stockholders (page 6)
1. | Economic return is shown for period of December 31, 2013 to December 31, 2018 and represents change in book value plus dividends declared over prior period book value. |
2. | Includes reinvestment of dividends. |
3. | Source: Bloomberg. mREITs represent BBREMTG Index. Equity REITs represent the RMZ Index. S&P represents the S&P 500 index. Utilities represent the Russell 3000 Utilities Index. Select Financials represents an average of companies in the S5FINL Index with dividend yields greater than 50 basis points higher than the S&P 500 dividend yield as of January 31, 2019. Consumer Staples represents the S5CONS Index. MLPs represent the Alerian MLP Index. Note: Total shareholder return shown for period of December 31, 2013 to January 31, 2019. |
Stockholder Engagement (page 8)
1. | “Continuing Directors” represent the eleven members of the Board following the 2019 Annual Meeting (assuming all nominees are elected). |
Corporate Responsibility & The Manager and the Management Agreement (page 9)
1. | The Corporate Responsibility Committee was initially created as the Public Responsibility Committee in late 2017. |
2. | “Incremental Stockholders’ Equity” represents the Company’s stockholders’ equity (as defined in the Management Agreement, “Stockholders’ Equity”) in excess of $17.28bn. |
3. | The “industry average” reflects the average management fee of all externally-managed companies (excluding Annaly) included in the BBREMTG Index as of December 31, 2018. For additional information, including assumptions, about this calculation, please see “Management Agreement Terms” on page 34. |
4. | For additional information, including assumptions, about this calculation, please see “Continued Cost Savings Related to the Externalization” on page 35. |
5. | “Base Stockholders’ Equity” represents Stockholders’ Equity of $17.28bn. |
Overview of the Manager’s 2018 Executive Compensation Program (page 10)
1. | Aggregated bonus amounts for 2018 reflect payments made to NEOs in January 2019 based on 2018 performance. |
2. | The core performance metrics referred to herein exclude the premium amortization adjustment, which represents the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to the Company’s Agency mortgage-backed securities. |
Board Composition, Structure and Refreshment (page 11)
1. | “Continuing Directors” represent the eleven members of the Board following the 2019 Annual Meeting (assuming all nominees are elected). |
2. | Directors have self-identified as bringing diversity to the Board by way of gender, race, ethnicity, national origin or other characteristics. |
Corporate Governance at Annaly (page 13)
1. | The Corporate Responsibility Committee was initially created as the Public Responsibility Committee in late 2017. |
2. | “Incremental Stockholders’ Equity” represents Stockholders’ Equity in excess of $17.28bn. |
58 | Annaly Capital Management Inc. 2019 Proxy Statement | |
Endnotes
The Board’s Role and Responsibilities (page 20)
1. | “Continuing Directors” represent the eleven members of the Board following the 2019 Annual Meeting (assuming all nominees are elected). |
2. | The Corporate Responsibility Committee was initially created as the Public Responsibility Committee in late 2017. |
Board Effectiveness, Self-Evaluations and Refreshment (page 22)
1. | “Continuing Directors” represent the eleven members of the Board following the 2019 Annual Meeting (assuming all nominees are elected). |
Management Agreement (page 25)
1. | As defined in the Management Agreement. |
2. | “Incremental Stockholders’ Equity” represents Stockholders’ Equity in excess of $17.28bn. |
3. | “Base Stockholders’ Equity” represents Stockholders’ Equity of $17.28bn. |
Board Committees (page 28)
1. | The Corporate Responsibility Committee was initially created as the Public Responsibility Committee in late 2017. |
2. | Messrs. Brady and Nordberg have not been renominated as Directors and will step down from the Board following the Annual Meeting in line with the Board refreshment policy adopted in October 2018. |
3. | Mr. Hamilton was elected to the Board, and appointed to the Audit Committee and the Risk Committee effective March 6, 2019. |
4. | Dr. Hannan was elected to the Board, and appointed to the Audit Committee and the NCG Committee effective February 13, 2019. |
Audit Committee & Compensation Committee (page 29)
1. | Messrs. Brady and Nordberg have not been renominated as Directors and will step down from the Board following the Annual Meeting in line with the Board refreshment policy adopted in October 2018. |
2. | Mr. Hamilton was elected as a Director and appointed as a member of the Audit Committee and the Risk Committee effective March 6, 2019. |
3. | Dr. Hannan was elected as a Director and appointed as a member of the Audit Committee and NCG Committee effective February 13, 2019. |
NCG Committee, Corporate Responsibility Committee & Risk Committee (page 30)
1. | Messrs. Brady and Nordberg have not been renominated as Directors and will step down from the Board following the Annual Meeting in line with the Board refreshment policy adopted in October 2018. |
2. | Dr. Hannan was elected as a Director and appointed as a member of the Audit Committee and NCG Committee effective February 13, 2019. |
3. | The Corporate Responsibility Committee was initially created as the Public Responsibility Committee in late 2017. |
4. | Mr. Hamilton was elected as a Director and appointed as a member of the Audit Committee and the Risk Committee effective March 6, 2019. |
Overview, Recent Changes & Management Agreement Terms (page 34)
1. | Mr. Keyes does not receive any compensation for serving as the Company’s Chairman, CEO and President, but has an interest in the management fee as an indirect equityholder of the Manager. |
2. | As defined in the Management Agreement. |
3. | “Incremental Stockholders’ Equity” represents Stockholders’ Equity in excess of $17.28bn. |
4. | “Base Stockholders’ Equity” represents Stockholders’ Equity of $17.28bn. |
5. | Source: Public filings as of year ended December 31, 2018. All base management fees are calculated as a percentage of stockholders’ equity, except as otherwise specified below. Agency Residential REITs represent the externally-managed agency mortgage REITs included in the BBREMTG Index as of December 31, 2018 and includes Anworth Mortgage Asset Corporation (“ANH”) and ARMOUR Residential REIT, Inc. (“ARR”). Commercial REITs represent the externally-managed commercial mortgage REITs included in the BBREMTG Index as of December 31, 2018 and includes Blackstone Mortgage Trust, Inc. (“BXMT”), Ares Commercial Real Estate Corp. (“ACRE”), Exantas Capital Corp. (“XAN”), Apollo Commercial Real Estate Finance, Inc. (“ARI”), Starwood Property Trust (“STWD”) and Ready Capital Corp. (“RC”). Non-Agency Residential / Hybrid REITs represents the externally- managed non-agency residential and hybrid mortgage REITs included in the BBREMTG Index as of December 31, 2018 and includes New Residential Investment Corp. (“NRZ”), Two Harbors Investment Corp. (“TWO”), Invesco Mortgage Capital, Inc. (“IVR”), PennyMac Mortgage Investment Trust (“PMT”), AG Mortgage Investment Trust, Inc. (“MITT”), Orchid Island Capital, Inc. (“ORC”), Western Asset Mortgage (“WMC”), Great Ajax Corp (“AJX”), Cherry Hill Mortgage Investment Corp. (“CHMI”), Ellington Residential Mortgage REIT (“EARN”), and Hunt Companies Finance Trust (“HCFT”). |
6. | For ARR, base management fee is calculated as 1.50% of gross equity raised up to $1.0bn plus 0.75% of gross equity raised in excess of $1.0bn. |
Annaly Capital Management Inc. 2019 Proxy Statement | 59 | |
Endnotes
Overview, Recent Changes & Management Agreement Terms(cont’d)(page 34)
7. | Of the six Commercial REITs, five have incentive fees in addition to their base management fees. STWD and XAN have incentive fees of 20% above an 8% hurdle. BXMT has an incentive fee of 20% above a 7% hurdle. XAN has an incentive fee of 25% above an 8% hurdle. RC has an incentive fee of 15% above an 8% hurdle. For purposes of this table, the calculation of the mean includes only the five Commercial REITs that have incentive fees. |
8. | Of the 11 Non-Agency Residential/Hybrid REITs, three have incentive fees in addition to their base management fees. NRZ has an incentive fee of 25% above a 10% hurdle. PMT has an incentive fee with a sliding scale beginning above 8%. AJX has an incentive fee of 20% above an 8% hurdle. For purposes of this table, the calculation of the mean includes only the three Non-Agency Residential/Hybrid REITs that have incentive fees. |
Structure and Amount of the Management Fee & Continued Cost Savings Related to the Externalization (page 35)
1. | As defined in the Management Agreement. |
2. | “Incremental Stockholders’ Equity” represents Stockholders’ Equity in excess of $17.28bn. |
3. | Although the Manager commenced management of Annaly on July 1, 2013, the Company’s stockholders received the benefit of the compensation savings created by the Externalization for the entire 2013 calendar year pursuant to a pro forma adjustment to the 2013 management fee. The Manager calculated a pro forma management fee, which was the management fee as if the Company was managed by the Manager from January 1, 2013 until July 1, 2013, and the actual amount of cash compensation paid to all of Annaly’s employees from January 1, 2013 until July 1, 2013 reduced the amount of the management fee owed to the Manager. |
Annual Review of Manager Performance and Management Fee Considerations (page 36)
1. | Source: Company Filings, SNL and Bloomberg. Averages are market weighted based on market capitalization as of Dec. 31st of each respective year. Note: Internally-Managed Peers and Externally-Managed Peers represent the respective internally- and externally-managed members of the BBREMTG Index as of December 31st of each respective year. The average for each excludes Annaly and companies during years in which they became public or first listed. Operating Expense is defined as: (i) for Internally-Managed Peers, the sum of compensation & benefits, general & administrative expenses and other operating expenses less any one-time or transaction related expenses, and (ii) for Externally-Managed Peers and Annaly, the sum of net management fees, compensation & benefits (if any), general & administrative expenses and other operating expenses less any one-time or transaction related expenses. Annaly’s 2016 operating expenses exclude costs of $49mm related to the Company’s acquisition of Hatteras Financial Corp and Annaly’s 2018 operating expenses exclude costs of $60mm related to the Company’s acquisition of MTGE Investment Corp. |
Summary of 2018 NEO Compensation (page 37)
1. | Mr. Keyes does not receive any compensation for serving as the Company’s Chairman, CEO and President, but has an interest in the management fee as an indirect equityholder of the Manager. |
2. | Aggregated bonus amounts for 2018 reflect payments made to NEOs in January 2019 based on 2018 performance. |
3. | The core performance metrics referred to herein exclude the premium amortization adjustment, which represents the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to the Company’s Agency mortgage-backed securities. |
Compensation Discussion and Analysis (page 42)
1. | “Base Stockholders’ Equity” represents Stockholders’ Equity of $17.28bn. |
2. | “Incremental Stockholders’ Equity” represents Stockholders’ Equity in excess of $17.28bn. |
Stock Ownership Guidelines/Commitments (page 43)
1. | In July 2017, Mr. Keyes voluntarily committed to increase his stock ownership position beyond his Board-approved ownership guideline of $10mm. Mr. Keyes has pledged to meet his enhanced $15mm commitment solely through additional open market purchases of the Company’s common stock. |
2. | In July 2017, other members of senior management (including each of the other NEOs) voluntarily committed to increase their stock ownership beyond the guideline of 30% of annual total compensation adopted by the Board. Like Mr. Keyes, these officers have agreed to achieve their increased stock ownership commitments by July 2020 solely through open market purchases of the Company’s common stock. |
60 | Annaly Capital Management Inc. 2019 Proxy Statement | |
2019 ANNUAL MEETING OF STOCKHOLDERS
RESERVATION REQUEST FORM
If you wish to view Annaly Capital Management, Inc.’s 20182019 Annual Meeting of Stockholders webcast at the offices of Venable LLP (located at 750 E. Pratt Street, Suite 900, Baltimore, MD 21202), please complete the following information and return to Anthony C. Green, Chief Corporate Officer, Chief Legal Officer and Secretary, Annaly Capital Management, Inc., 1211 Avenue of the Americas, New York, NY 10036. Please note that no members of management or of the Board of Directors will be present at Venable LLP’s offices. In addition, you must bring a valid, government-issued photo identification, such as a driver’s license or a passport to Venable LLP’s offices.
Your name and address: | ||
Number of Shares of NLY | ||
Common Stock You Hold: | ||
If the shares listed above are not registered in your name, please identify the name of the registered stockholder belowand include evidence that you beneficially own the shares.
Registered Stockholder: | ||
(Name of Your Bank, Broker or Other Nominee) |
THIS IS NOT A PROXY CARD |
Annaly Capital Management Inc. 2019 Proxy Statement | 61 | |
ANNALY CAPITAL MANAGEMENT, INC.
1211 AVENUE OF THE AMERICAS
NEW YORK, NY 10036
ATTN: GLENN A. VOTEK
VOTE BY INTERNET
Before The Meeting - Go towww.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
During The Meeting - Go towww.virtualshareholdermeeting.com/NLY2018NLY2019
You may attend the meeting via the Internet and vote during the meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | ||
KEEP THIS PORTION FOR YOUR RECORDS | ||
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. | DETACH AND RETURN THIS PORTION ONLY |
ANNALY CAPITAL MANAGEMENT, INC.
|
The Board of Directors recommends you vote FOR the following: |
1. | Election of | |||||||
Nominees: | For | Against | Abstain | |||||
1a. | ☐ | ☐ | ☐ | |||||
1b. | ☐ | ☐ | ☐ | |||||
1c. | ☐ | ☐ | ☐ | |||||
1d. | ||||||||
Vicki Williams | ☐ | ☐ | ☐ | |||||
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For address changes and/or comments, please check this box and write them on the back where indicated. | ☐ | |||||||
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. |
| ||||||||
The Board of Directors recommends you vote FOR proposal 2: | For | Against | Abstain | |||||
2. | Advisory approval of the company's executive compensation. | ☐ | ☐ | ☐ | ||||
The Board of Directors recommends you vote FOR proposal 3: | ||||||||
3. | Approval of an amendment of our charter to increase the number of authorized shares of capital stock to 3,000,000,000 shares. | ☐ | ☐ | ☐ | ||||
The Board of Directors recommends you vote FOR proposal 4: | ||||||||
4. | Ratification of the appointment of Ernst & Young LLP as | ☐ | ☐ | ☐ | ||||
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NOTE:Voting items may include such other business as may properly come before the meeting or any adjournment thereof. |
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Signature [PLEASE SIGN WITHIN BOX] | Date | Signature (Joint Owners) | Date |
Annaly Capital Management, Inc.
1211 Avenue of the Americas
New York, NY 10036
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The 20172018 ANNUAL REPORT TO STOCKHOLDERS and 20182019 NOTICE & PROXY STATEMENT are available at www.proxyvote.com.
Annaly Capital Management, Inc. Revoking all prior proxies, the undersigned hereby appoints Kevin G. Keyes and Anthony C. Green, and each of them, as proxies for the undersigned, with full power of substitution, to appear on behalf of the undersigned and to vote all shares of Common Stock, par value $.01 per share, of Annaly Capital Management, Inc. (the "Company") that the undersigned is entitled to vote at the Annual Meeting of Stockholders of the Company, which will be a The shares represented by this proxy when properly executed, will be voted as directed.If no directions are given, this proxy will be voted in accordance with the Board of Directors' recommendations as listed on the reverse side of this card and at their discretion on any other matter that may properly come before the meeting. | |||
Address Changes/Comments: | |||
(If you noted any address change and/or comments above, please mark corresponding box on the reverse side.) Continued and to be signed on reverse side |