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. )
☑ | Filed by the Registrant | |
☐ | Filed by a Party other than the Registrant |
CHECK THE APPROPRIATE BOX: | ||
Preliminary Proxy Statement | ||
Confidential, | ||
Definitive Proxy Statement | ||
Definitive Additional Materials | ||
Soliciting Material |
ANNALY CAPITAL MANAGEMENT, INC.
(Name of Registrant as Specified In Its Charter) May 23, 2018 Dear Fellow Shareholders, 2017 was a year of realization for Annaly. We enter 2018 having made significant progress on a number of key goals and initiatives further strengthening Annaly’s market leadership. Shareholder data per Ipreo based on investor filings as of December 31, 2017. Represents Annaly’s average operating expense as a percentage of average assets and average equity compared to the Bloomberg mREIT Index (BBREMTG Index) for the year ended December 31, 2017. Analysis includes companies in BBREMTG Index as of December 31, 2017. Operating expense is defined as: (i) for internally-managed peers, the sum of compensation and benefits, general and administrative expenses (“G&A”) and other operating expenses, and (ii) for externally-managed peers and Annaly, the sum of net management fees, compensation and benefits (if any), G&A and other operating expenses. After 20 years as a publicly-traded company, we have proven our longevity and delivered consistent outperformance while transforming Annaly into an industry leading, diversified “Yield Manufacturer”. Our continuous reflection of the past, self-assessment of the present and strategic planning for the future enables us 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 to our proprietary model and exceptional people. Each business and every strategic move is the product of our long developed plan. Our architecture is designed to capitalize on the numerous opportunities we are uniquely positioned to realize in the years ahead. I thank our investors for their support and trust, our Board for its guidance and each one of our employees for their deep commitment to Annaly and its shareholders. 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, Represents total shareholder return (“TSR”) for the year ended December 31, 2017. Board composition as of January 1, 2018. Approve, on an advisory The Company will also transact any other business as may properly come before the Annual Meeting or any postponement or adjournment thereof. Only 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. 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. The Company is excited to embrace the environmentally-friendly virtual meeting format, which it believes will enable increased stockholder attendance and participation. During this virtual meeting, you may ask questions and will be able to vote your shares electronically. 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 ANNALY CAPITAL MANAGEMENT, INC.(Name of Registrant as Specified In Its Charter)(Name of Person(s) Filing Proxy Statement, if other than the Registrant)Payment of Filing Fee (Check the appropriate box)PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):[X]☑ No fee required. [ ]☐Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. 1) Title of each class of securities to which transaction applies: 2) Aggregate number of securities to which transaction applies: 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): 4) Proposed maximum aggregate value of transaction: 5) Total fee paid: ☐ [ ]Fee paid previously with preliminary materials.materials:☐ [ ]Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Formform or Scheduleschedule and the date of its filing.1) Amount Previously Paid:previously paid: 2) Form, Schedule or Registration Statement No.: 3) Filing Party: 4) Date Filed:
Notice of 2018
Annual Meeting of Stockholders
and Proxy Statement
9:00 a.m. (Eastern Time)
www.virtualshareholdermeeting.com/NLY2018SHAREHOLDER
ENGAGEMENT
Broad Outreach to Shareholders; Responsive Disclosure Enhancements Throughout the past year, we have continued to expand the shareholder outreach efforts undertaken since I became CEO in 2015. We’ve redoubled our efforts to engage in meaningful dialogue around critical strategic and governance issues with our shareholders. In 2017, these efforts spanned new and existing investors in the U.S., Canada and Europe and included our inaugural investor day with over 100 participants in attendance. Across our ownership base, we engaged with shareholders representing over 70% of the Company’s institutional ownership. We concluded 2017 with over 170 new institutional investors and our overall institutional shareholder base has increased over 30% since 2014(1). In response to shareholder feedback, and in line with the Company’s ongoing commitment to improved transparency, we’ve added enhanced disclosure to this proxy statement regarding the operating efficiencies of our diversified model, the parameters and makeup of our manager’s executive pay program and our enhanced corporate governance practices. We look forward to your feedback. HUMAN CAPITAL &
OWNERSHIP CULTURE
Investing in Intellectual Capital with 125+ New Hires since 2014; 100% of Employees Subject to Stock Ownership Guidelines Have Purchased Annaly Shares 3)Filing Party:Since the initiation of our diversification strategy in 2014, we have hired over 125 professionals including senior members of our diversified investment and management teams. Many of these professionals – and over 40% of the entire firm – have been asked to purchase predetermined amounts of shares based on criteria including seniority, compensation level and role. I’m pleased that as of March 31, 2018, all individuals either met, or within the applicable period are expected to meet, the stock ownership guidelines. Recently, I voluntarily increased my ownership commitment to $15 million of Annaly shares to further instill an ownership culture at the Firm and to emphasize my belief in the Company and its future. OPERATIONAL EXCELLENCE
48% More Efficient as a Percentage of Equity; 61% More Efficient than Peers as a Percentage of Assets(2)While we have made broad and significant investments over the past few years in our investment platforms and financing strategies, we have not asked shareholders to bear the incremental costs for this growth and diversification. We currently operate our multi-strategy model with four distinct investment groups on a highly efficient basis, and our outsized returns are in part attributable to our diversified, scalable model, with an operating expense to equity ratio of 1.68%, 48% lower than the average of our industry peers. As a percentage of assets, this ratio is merely 0.25%, or 61% lower than the average mREIT. (1) (2) Annaly Capital Management Inc. 2018 Proxy Statement 3 DURABLE RETURNS
32% TSR, Outperforming Both the S&P 500 and Bloomberg mREIT Index by Nearly 50%(3)We believe our diversified and scalable model is the predominant reason for our consistent, attractive returns and ability to capitalize on the numerous opportunities we have anticipated. In 2017, we produced a total shareholder return (TSR) of 32%, outperforming both the S&P 500 and the mREIT sector average by nearly 50%. 2017 was the best annual TSR for Annaly in the last decade – a tremendous accomplishment given the rising interest rate environment. Further, since 2014 when we began our diversification strategy, our TSR of 86% far exceeds the 57% return of the S&P 500. In March of 2018, we declared our 18th consecutive quarterly dividend of $0.30. GOVERNANCE & SOCIAL RESPONSIBILITY
Increased Percentage of Women on the Board to 36%; Execution of Long-Term ESG Strategy(4) 4)Finally, well before ESG (Environmental, Social and Governance) became the popular acronym it is today, we were already highly focused on all aspects of corporate governance. We are very proud of the addition of two new highly qualified directors, Vicki Williams and Katie Beirne Fallon, which brings the percentage of women on the Board to 36%. As another illustration of our commitment to a gender equal workplace, in early 2018, Annaly was named as one of only 103 companies to the Bloomberg Gender Equality Index. The Company has also turned its lens on governance inward, refreshing Committee memberships and Chairmanships, and creating a new Public Responsibility Committee to oversee socially dedicated initiatives - including our joint venture with Capital Impact Partners to support community development for underserved areas. While too many other companies have ignored or are forced to play “catch-up” in these critical areas, Annaly has demonstrated our full commitment to being a market leader in corporate governance.
Kevin Keyes
Chairman, Chief Executive Officer & President
April 10, 2018(3) Date Filed:(4) 4 Annaly Capital Management Inc. 2018 Proxy Statement Notice of Annual Meeting of StockholdersANNALY CAPITAL MANAGEMENT, INC.NOTICE OF ANNUAL MEETING OF STOCKHOLDERSTo be Held May 21, 2015
To the Stockholders of Annaly Capital Management, Inc.:WeAnnaly Capital Management, Inc., a Maryland corporation (“Annaly” or the “Company”), will hold theits annual meeting of the stockholders of Annaly(the “Annual Meeting”) on May 21, 2015,23, 2018, at 9:00 a.m., New York time, (Eastern Time) online at the Warwick Hotel, 65 West 54th Street, New York, New York 10019, to consider and vote on the following proposals:www.virtualshareholdermeeting.com/NLY2018, to:●1.election●2.approval of a non-bindingresolution on ourbasis, the Company’s executive compensation; and●3.ratification of●any other matters as may properly come before our annual meeting or any adjournmentor postponement thereof. our common stockholders of record at the close of business on March 27, 2015,26, 2018, the record date for the annual meeting,Annual Meeting, may vote at the annual meetingAnnual Meeting and any postponements or adjournments or postponements of it. A complete list of our common stockholders of record entitled to vote at the annual meeting will be available for inspection during the 10 business days before the annual meeting at our executive offices during ordinary business hours for proper purposes.thereof.annual meeting in person,Annual Meeting online or listen to the telephonic audio broadcast, you will need to presentthe 16-digit control number included in your admission ticket, or an account statement showing your ownership of our common stock as of the record date, and valid government issued photo identification. The indicated portion ofNotice, on your proxy card or voter instruction cardon the instructions that accompany your proxy materials. Please note that listening to the audio broadcast will serve as your admission ticket.not be deemed to be attending the Annual Meeting, and you cannot 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.OurIf you wish to watch 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 of Directors recommends thatwill be in attendance at this location. If you vote: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.●“FOR” the election of each of the nominees as Directors;●“FOR” approval of the non-binding advisory resolution on executive compensation; and●“FOR” the ratification of the appointment of Ernst & Young LLP as our independentregistered public accounting firm for 2015.
By Order of the Board of Directors,
R. Nicholas Singh
Chief Legal Officer and Secretary
April 9, 201510, 2018
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to be Held on May 23, 2018. The Company’s Proxy Statement and 2017 Annual Report to Stockholders are available at www.proxyvote.com. |
Annaly Capital Management Inc. 2018 Proxy Statement | 5 | |
This summary contains highlights about the AvailabilityCompany and the Annual Meeting. This summary does not contain all of Proxy Materialsfor the Stockholderinformation that you should consider in advance of the Annual Meeting, May 21, 2015.Ourand the Company encourages you to read the entire Proxy Statement and 2014the Company’s 2017 Annual Report to Stockholders are available at www.proxyvote.com.
Table of Contentson Form 10-K carefully before voting.
AND DATE: | Wednesday, May 23, 2018 at 9:00 a.m. (Eastern Time) | |||
www.virtualshareholdermeeting.com/NLY2018 | ||||
Close of business on March 26, 2018 | ||||
VOTING: | 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
ANNALY CAPITAL MANAGEMENT, INC.1211 AVENUE OF THE AMERICASNEW YORK, NEW YORK 10036______________________
2015 ANNUAL MEETING OF STOCKHOLDERS______________________
PROXY STATEMENT
Annaly Capital Management, Inc. (“Annaly”, “we”, “our” or “us”) is furnishing this proxy statement in connection with our solicitation of proxies to be voted at our 2015 annual meeting of stockholders. We will hold the annual meeting at the Warwick Hotel, 65 West 54th Street, New York, New York 10019, on Thursday, May 21, 2015 at 9:00 a.m. New York time, and any postponements or adjournments thereof. We are sending this proxy statement and the enclosed proxy to our stockholders commencing on or about April 10, 2015.
Ratification of the appointment of Ernst & Young LLP | FOR | 49 |
PARTICIPATE IN THE ANNUAL MEETING
After years of declining attendance by stockholders at Annaly’s in-person annual meetings, 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, enable increased attendance and participation from locations around the world and reduce costs for both the Company and its stockholders. This approach also aligns with the Company’s broader sustainability goals. The virtual meeting 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.
VOTING Stockholders are entitled | ||
INTERNET | ||
TELEPHONE | ||
MAIL | ||
ONLINE INFORMATION |
You are entitled to participate and vote at the Annual Meeting by visiting www.virtualshareholdermeeting.com/NLY2018. 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 watch 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. 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.
6 | Annaly Capital Management Inc. 2018 Proxy Statement | |
Proxy Summary
ANNALY AT A GLANCE | ||||
NLY | 1997 | $15 billion(1) |
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 all of the compensation, including benefits, 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). 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. For ease of reference, throughout this Proxy Statement, the NEOs and the other employees of the Manager, together with employees of Annaly’s subsidiaries, are sometimes referred to as Annaly’s employees.
RECENT OPERATING ACHIEVEMENTS |
Performance | Capital Raising | Dividends | ||
32% | $2.8 billion of capital raised across common and preferred markets over 6 months(2) | $1.4 billion | ||
Diversification | Optionality | Efficiency | ||
24% | 36 | 48% | ||
Alignment | Financing | Human Capital | ||
$5.9 million | 7 | 27 |
(1) | Represents capital as of December 31, 2017. |
(2) | Capital raising total proceeds include $425 million preferred offering completed in January 2018. Gross proceeds are before deducting underwriting discounts and other offering expenses. |
(3) | The first quarter 2018 common stock cash dividend was declared on March 15, 2018 and is payable on April 30, 2018. |
(4) | Represents the percentage difference of Annaly’s operating expense as a percentage of average equity vs. the BBREMTG for |
(5) | Includes dividend reinvestments. |
Annaly Capital Management Inc. 2018 Proxy Statement | 7 | |
Proxy Summary
ANNALY’S DIVERSIFIED INVESTMENT STRATEGY
Diversification is a key component of the Annaly strategy. Since 2014, Annaly has diversified its business model by investing in credit assets, which complement the Company’s primary portfolio of interest rate sensitive investments. This strategy is designed to achieve stable risk-adjusted earnings and book value performance over various interest rate and economic cycles by pairing shorter duration floating-rate credit securities with the Company’s longer duration, fixed-rate agency portfolio. Annaly now has four distinct investment groups, which provide access to over 36 investment options and structures. 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.
Agency | Residential Credit | Commercial Real Estate | Middle Market Lending | ||||||
Invests in agency MBS collateralized by residential mortgages, which are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae | Invests in non-agency residential mortgage assets within securitized product and whole loan markets | Originates and invests in commercial mortgage loans, securities, and other commercial real estate debt and equity investments | Provides financing to private equity backed middle market businesses across the capital structure | ||||||
Assets1 | |||||||||
Capital2 | |||||||||
$107.3bn | $11.6bn | $2.8bn | $1.6bn | $2.0bn | $1.1bn | $1.0bn | $0.8bn | ||||||
Sector Rank3 | |||||||||
#1/6 | #6/18 | #4/12 | #14/42 | ||||||
Strategy | |||||||||
Countercyclical/ Defensive | Cyclical/Growth | ||||||||
Cyclical/Growth | |||||||||
Annaly Capital Management, Inc.1211 Avenue of the AmericasNew York, NY 10036Phone: (212) 696-0100Facsimile: (212) 696-9809Email: investor@annaly.comAttention: Investor Relations
Our principal executive offices are located at 1211 Avenue of the Americas, New York, New York 10036.
We file 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 we file with the SEC at the SEC’s public reference room at Public Reference Room, 100 F Street, N.E., Washington, D.C. 20549.
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 http://www.sec.gov. Reports, proxy statements and other information concerning us may also be inspected at the offices of the New York Stock Exchange, which is located at 20 Broad Street, New York, New York 10005.
Our website is www.annaly.com. We make available on this website under “Investor Relations - SEC Filings,” free of charge, our 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 we electronically file or furnish such materials to the SEC.
At the annual meeting, the stockholders will vote to elect three Class I Directors, whose terms will expire at our annual meeting of stockholders in 2018, subject to the election and qualification of their successors or to their earlier death, resignation or removal.
We have three Classes of Directors. Our Class I Directors elected at this year’s meeting will serve until our annual meeting of stockholders in 2018. Our Class II Directors serve until our annual meeting of stockholders in 2016. Our Class III Directors serve until our annual meeting of stockholders in 2017. Set forth below are the names and certain biographical information on each of our Directors.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR WELLINGTON J. DENAHAN, MICHAEL HAYLON AND DONNELL A. SEGALAS AS DIRECTORS TO HOLD OFFICE UNTIL OUR ANNUAL MEETING OF STOCKHOLDERS IN 2018 AND UNTIL THEIR RESPECTIVE SUCCESSORS ARE DULY ELECTED AND QUALIFIED. THE PERSONS NAMED IN THE ENCLOSED PROXY WILL VOTE YOUR PROXY IN FAVOR OF THESE NOMINEES UNLESS YOU SPECIFY A CONTRARY CHOICE IN YOUR PROXY.
Defensive | ||||||||||
Levered Returns4 | ||||||||||
9%-10% | 8%-11% | 7%-10% | 9%-11% |
(1) | Agency assets include to be announced (“TBA”) purchase contracts (market value) and mortgage servicing rights (“MSRs”). Residential Credit and Annaly Commercial Real Estate (“ACREG”) assets include only the economic interest of consolidated variable interest entities (“VIEs”). |
(2) | Dedicated capital includes TBA purchase contracts, excludes non-portfolio related activity and varies from total stockholders’ equity. |
(3) | Sector rank compares Annaly dedicated capital in each of its four investment groups as of December 31, 2017 (adjusted for price to book as of December 31, 2017) to the market capitalization of the companies in each respective comparative sector as of December 31, 2017. Comparative sectors used for Agency, Residential Credit and Commercial Real Estate ranking are their respective sector within the BBREMTG as of December 31, 2017. Comparative sector used for Middle Market Lending ranking is the S&P BDC Index. |
(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 a substantially similar, nature in each respective group. |
8 | Annaly Capital Management Inc. 2018 Proxy Statement | |
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 |
DIVIDENDS
From Annaly’s IPO in 1997 through December 31, 2017, the Company has declared over $16 billion in common and preferred dividends to its stockholders. In 2017, Annaly declared over $1.4 billion in common and preferred dividends.
$16 billion | $1.4 billion | 18 |
Cumulative Dividends Declared since Annaly’s IPO |
Annaly Capital Management Inc. 2018 Proxy Statement | 9 | |
Proxy Summary
DELIVERING SIGNIFICANT VALUE FOR STOCKHOLDERS
12.4%(1) Economic return in 2017, which represents the change in book value plus dividends declared over the year | 32% Total shareholder return in 2017, the single best year in the last decade | 883% Total shareholder return since Annaly’s IPO (including reinvestment of dividends) |
Since 2014 (the first full year the Company was externally-managed, as more fully described in “Management Structure” on page38), 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(2) |
2017 Total Shareholder Return(2) |
(1) | Economic return is shown for full year 2017 and represents change in book value plus dividends declared over prior period book value. |
(2) | Source: Bloomberg. mREITs represent BBREMTG Index. Utilities represent the Russell 3000 Utilities Index. MLPs represent the Alerian MLP Index. Asset Managers represent the S&P 500 Asset Management and Custody Bank Index. Banks represent the KBW Bank Index. S&P represents the S&P 500 index. Note: Total shareholder return shown for period of December 31, 2013 to December 31, 2017 in top graph. Total shareholder return shown for period of December 31, 2016 to December 31, 2017 in bottom graph. |
10 | Annaly Capital Management Inc. 2018 Proxy Statement | |
Proxy Summary
STOCKHOLDER OUTREACH AND RESULTS OF 2017 SAY-ON-PAY VOTE
7 Non-deal roadshows across the U.S., Canada and Europe | 72 One-on-one meetings and phone calls with stockholders | 100+ Participants attended Annaly’s inaugural Investor Day |
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 strategy and its corporate governance, compensation and management structures.
Following the results of Annaly’s 2017 advisory resolution on executive compensation (commonly known as a “Say-on-Pay” vote), which received support from 69% of votes cast, the Company continued its multi-pronged outreach campaign to solicit feedback from key stakeholders on a number of issues, including the Manager’s executive compensation program and proposed compensation disclosure for 2018, board composition and refreshment and corporate social responsibility initiatives.
Stockholder Engagement Efforts in 2017 | ||||||
Outreach included approximately | Outreach included approximately | Management hosted meetings with investors representing | ||||
The Company’s stockholder outreach efforts to solicit feedback on the Manager’s executive compensation program and the Company’s proposed disclosure were complemented by related initiatives, including: | |
■ | Analysis of market practices at peer companies |
■ | Advice from compensation consultants |
■ | Attendance at investor conferences |
■ | Discussions with proxy advisory services and corporate governance research firms |
These stockholder engagement efforts generated significant feedback for both the Board and management and resulted in a number of enhancements to corporate governance and compensation practices and disclosures. 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 2018 and beyond.
Annaly Capital Management Inc. 2018 Proxy Statement | 11 | |
Proxy Summary
STOCKHOLDER ENGAGEMENT
WHAT THE COMPANY HEARD | WHAT THE COMPANY DID | |
Improve Disclosure to Enable Fully Informed Say-on-Pay Vote | ■Provided additional clarity and transparency on the Manager’s executive compensation program, including disclosure of: ■the portion of the management fee that is allocated to NEO compensation paid by the Manager ■of this compensation, the portion of fixed vs. variable/incentive pay ■the metrics utilized to measure performance to determine variable/ incentive pay | |
Further Increase Alignment of Senior Executives with Stockholders | ■CEO voluntarily increased his stock ownership commitment to $15 million (from his existing requirement of $10 million) and pledged to meet this amount through open market purchases within three years ■Other members of senior management, including the Chief Investment Officer, Chief Credit Officer, Chief Financial Officer and Chief Legal Officer, also committed to voluntarily increase their stock ownership positions beyond the amounts required under their applicable stock ownership guidelines | |
Focus on Board Refreshment and Diversity | ■Adopted an enhanced Board self-evaluation process that includes annual assessments of the full Board, each Board committee and individual Directors, which will be facilitated by an external evaluator on a periodic basis ■Assessed all Directors to ensure continued match of skills against the Company’s needs ■Refreshed Board Committee memberships and chairmanships ■Appointed 2 new highly qualified Directors to the Board as of January 1, 2018 ■Doubled the number of women Directors (from 2 to 4) as a result of these appointments ■36% of Directors are women ■4 of 11 Directors have tenure of less than 5 years | |
Elevate Board Education | ■Board became a Full Board Member of the National Association of Corporate Directors (NACD), which gives Directors access to an extensive menu of board education programs, along with research on governance trends and board practices | |
Expand Corporate Social Responsibility | ■Created Public Responsibility Committee of the Board to provide oversight of corporate philanthropy, culture and reputation, social impact investments and initiatives related to sustainability and public policy ■The Company partnered with Capital Impact Partners to launch a new joint venture dedicated to supporting community development in underserved cities across the country ■Recognized in the 2018 Bloomberg Gender-Equality Index, reflecting the Company’s commitment to creating a gender equal workplace | |
Increase Opportunities for Stockholder Engagement | ■Hosted first investor day with over 100 attendees ■Moving to an online format for the Annual Meeting to enable increased stockholder attendance and participation ■Established interactive pre-meeting forum, where stockholders can submit questions in advance of the Annual Meeting |
12 | Annaly Capital Management Inc. 2018 Proxy Statement | |
Proxy Summary
ENHANCED DISCLOSURE ON THE MANAGER’S EXECUTIVE COMPENSATION PROGRAM
89.7% of NEO compensation was variable and paid in the form of performance-based cash incentive bonuses | 10.3% of NEO compensation was paid in the form of fixed base salaries | 16.2% of the aggregate management fees paid to the Manager were allocated by the Manager as NEO compensation |
Over the last two years, the Company has engaged in extensive outreach 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 paid to the NEOs for 2017.
■ | With the exception of Mr. Keyes (who does not receive any direct or indirect compensation from the Manager or the Company for his services as the Company’s CEO, but does have an interest in the fees paid to the Manager as an indirect equityholder of the Manager), each of the NEOs received a base salary and a performance-based cash incentive bonus for 2017. |
■ | During 2017, the NEOs as a group received aggregate salaries of $2.8 million and aggregate performance-based cash incentive bonuses of $23.9 million from the Manager. These amounts collectively represent 16.2% of the aggregate management fees the Company paid to the Manager during 2017. On an aggregated basis, the NEOs received 10.3% of their total compensation in the form of base salaries and the remaining 89.7% in the form of performance-based cash incentive bonuses. |
■ | In determining the cash bonuses it paid to the NEOs for 2017, the Manager considered achievement of both rigorous Company performance metrics,(1)including core return on equity, core return on assets, and operating expenses as a percentage of average equity, along with individual performance objectives. |
■ | The Manager considered a list of specified peer companies (set forth on page44 under “Company Market Data”), together with advice from the Manager’s compensation consultants, to develop appropriate compensation packages for the NEOs. |
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.”
(1) | Each of the core performance metrics referred to in this Proxy Statement, including core return on equity and core return on assets, excludes 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. |
Annaly Capital Management Inc. 2018 Proxy Statement | 13 | |
Proxy Summary
THE MANAGER AND THE MANAGEMENT AGREEMENT
1.05% The Manager receives a fee equal to 1.05% of the Company’s stockholders’ equity | 29% Annaly’s management fee is 29% lower than the industry average of 1.48%(1) | $276 million Approximate compensation savings since the Externalization in July 2013(2) |
■ | 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 CEO, although, as an indirect equityholder of the parent of the Manager, Mr. Keyes has an interest in the fees paid to the Manager |
■ | The Manager is responsible for the compensation of its employees (including the NEOs other than Mr. Keyes) who provide services to the Company. Annaly does not pay any cash or equity compensation to its executive officers, does not provide pension benefits, perquisites or other personal benefits, and has no employment agreements or arrangements to pay any cash severance upon their termination or a change in control of the Company |
■ | The Manager receives a flat management fee equal to 1.05% of the Company’s stockholders’ equity (as defined in the Management Agreement), which is used by the Manager to, among other things, pay the compensation and benefits of the Manager’s employees (including the NEOs). 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 the Company reimburse the Manager for the cost of such compensation |
■ | For 2017, the management fee was approximately $164.3 million |
Over the past several years, 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 Estate 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 Estate 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) | |
10 | 7 | |
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 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 percentage of stockholders’ equity as described above.
Despite the costs associated with the diversification of its investment strategy, the Manager has continued to operate the business 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.
(1) | The “industry average” reflects the average management fee of all externally-managed companies (excluding Annaly) included in the BBREMTG Index as of December 31, 2017. For additional information, including assumptions, about this calculation, please see “Management Agreement Terms” on pages38 - 39. |
(2) | For additional information, including assumptions, about this calculation, please see “Continued Cost Savings Related to the Externalization” onpage 40. |
(3) | “Financial Services” average is provided by Perceptyx based on a cross section of global and domestic banks, credit card companies, insurance companies, accountancy companies, consumer finance companies, stock brokerages, and investment funds. |
14 | Annaly Capital Management Inc. 2018 Proxy Statement | |
Proxy Summary
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% |
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.”
GOVERNANCE TIMELINE
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 | ||
2014 | ■Enhanced financial disclosure, including additional financial metrics | ■Added new Independent Director | ||
2015 | ■Robust Lead Independent Director role created ■Established Risk Committee ■Detailed succession planning process with Board | ■Kevin Keyes appointed as CEO ■Initiated extensive investor outreach | ||
2016 | ■Adopted broad-based stock ownership guidelines for employees ■Increased Board ownership guidelines | ■Adopted clawback policy for external manager ■Adopted anti-pledging policy ■Adopted four-year stock holding period | ||
2017 | ■Established a new Public Relations Committee; rotated Board Committee chairs and members ■Launched social impact investing joint venture ■Inclusion of Board skills matrix in proxy statement ■Joined Council of Institutional Investors (CII) as corporate member | ■Designated second Audit Committee financial expert ■Joined National Association of Corporate Directors (NACD) as Full Board Member ■NEOs voluntarily committed to increase stock ownership positions ■Hosted inaugural Investor Day ■Launched Women's Interactive Network | ||
2018 | ■Added 2 Independent Directors ■Virtual meeting format for Annual Meeting ■Adopted enhanced Board evaluation process, including individual directors assessments and periodic use of external facilitator | ■Enhanced compensation and other disclosure in proxy statement ■Included in the 2018 Bloomberg Gender-Equality Index |
(1) | Source: Company Filings, SNL and Bloomberg. Averages are market weighted based on market capitalization as of December 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. |
Annaly Capital Management Inc. 2018 Proxy Statement | 15 | |
Proxy Summary
BOARD COMPOSITION AND REFRESHMENT
4 of 11 Directors have tenure of less than 5 years | 82% of Annaly’s Board of Directors is comprised of Independent Directors with deep and diverse expertise | 36% of Annaly’s Board of Directors are women |
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.
Board Skill / Experience Summary |
16 | Annaly Capital Management Inc. 2018 Proxy Statement | |
Annaly Capital Management Inc. 2018 Proxy Statement | 17 | |
Corporate Governance at Annaly
(1) | Represents the percentage difference of operating expense as a percentage of average equity for Annaly vs. the BBREMTG average for 2017. |
(2) | Represents the percentage difference of operating expense as a percentage of average assets for Annaly vs. the BBREMTG average for 2017. Notes: Operating Expense is defined as: (i) for internally-managed BBREMTG members, the sum of compensation & benefits, general & administrative expenses and other operating expenses, and (ii) for externally-managed BBREMTG members (including Annaly), the sum of net management fees, compensation & benefits (if any), general & administrative expenses and other operating expenses. |
18 | Annaly Capital Management Inc. 2018 Proxy Statement | |
Corporate Governance at Annaly
01 | Election of Directors The Company has three classes of Directors. At the Annual Meeting, stockholders will vote to elect three Class I Directors (Wellington J. Denahan, Michael Haylon and Donnell A. Segalas), whose terms will expire at the annual meeting of stockholders in 2021 (“2021 Annual Meeting”), one Class III Director (Katie Beirne Fallon, who was appointed to the Board, effective January 1, 2018), whose term will expire at the annual meeting of stockholders in 2020 (“2020 Annual Meeting”), and one Class II Director (Vicki Williams, who was appointed to the Board, effective January 1, 2018), whose term will expire at the annual meeting of stockholders in 2019 (“2019 Annual Meeting”), each subject to the election and qualification of his or her successor or to his or her earlier death, resignation or removal. Other than Ms. Williams and Ms. Fallon, the terms of the other Class II and Class III Directors expire at the 2019 Annual Meeting and the 2020 Annual Meeting, respectively, and will not be voted upon at the Annual Meeting. The table below provides summary information about each of the Directors. | ||
The Board has nominated and recommends a voteFOReach of Wellington J. Denahan, Michael Haylon and Donnell A. Segalas as Directors to hold office until the 2021 Annual Meeting,FORKatie Beirne Fallon as a Director to hold office until the 2020 Annual Meeting, andFORVicki Williams as a Director to hold office until the 2019 Annual Meeting. Unless you specify a contrary choice, the persons named in the enclosed proxy will vote in favor of these nominees. In the event that these nominees should become unavailable for election due to any presently unforeseen reason, the persons named in the proxy will have the right to use their discretion to vote for a substitute. |
Name | Age | Principal Occupation | Independent | Committees | ||||||||
Wellington J. Denahan | ■PR | |||||||||||
Annaly Capital Management, Inc. | ■Risk | |||||||||||
Wellington J. Denahanis Chairman of the Board of Directors and Chief Executive Officer of Annaly. Ms. Denahan was appointed Chairman of the Board of Directors and Chief Executive Officer of Annaly in November 2012. Previously, Ms. Denahan was appointed to serve as Co-Chief Executive Officer of Annaly in October 2012. Ms. Denahan was elected in December 1996 to serve as Vice Chairman of the Board of Directors. Ms. Denahan was Annaly’s Chief Operating Officer from January 2006 to October 2012 and Chief Investment Officer from 2000 to November 2012. She was a co-founder of Annaly. Ms. Denahan has a B.A. in Finance from Florida State University.
The Board of Directors believes that Ms. Denahan’s qualifications include her significant oversight experience related to fixed income trading operations through years of serving as our Chief Operating Officer and Chief Investment Officer, her industry experience and expertise in the mortgage-backed securities markets, and her operational expertise.
Michael Haylon
* | Lead Independent Director. For more details, see page30. |
Annaly Capital Management Inc. 2018 Proxy Statement | 19 | |
Corporate Governance at Annaly
Wellington J. Denahan | |
Director since Committees | Ms. Denahan co-founded Annaly in |
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 Asset Management Sales, Products and Marketing at Conning, Inc., a global provider of investment management solutions, services and research to the insurance industry, since December 2014. Mr. Haylon previously served as Managing Director and Head of Investment Products at Conning, Inc. 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. |
Director Qualification Highlights |
The Board |
20 | Annaly Capital Management Inc. 2018 Proxy Statement | |
Corporate Governance at Annaly
Donnell A. Segalas | |
Committees | Mr. Segalas |
Director Qualification Highlights |
The Board |
Kevin G. Keyes | |
Chairman of | 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 investment banking and capital markets roles. From 2005 until 2009, Mr. Keyes served in senior management and business origination roles in the Global Capital Markets and Banking Group at Bank of America Merrill Lynch. Prior to that, he worked at Credit Suisse First Boston from 1997 until 2005 in various capital markets origination roles and Morgan Stanley Dean Witter from 1990 until 1997 in the Mergers and Acquisitions Group and Real Estate Investment Banking Group. Mr. Keyes received a B.A. in Economics and a B.S. in Business Administration (ALPA Program) from the University of Notre Dame. |
The Board believes that Mr. Keyes brings to the Board a deep understanding of issues that are important to the Company’s growth through his roles as Annaly’s Chairman, CEO and President, and has demonstrated leadership qualities, management capability, business and industry knowledge and a long-term strategic perspective. In addition, Mr. Keyes’ qualifications include over 20 years of experience as an investment banking and equity capital markets professional. |
Kevin P. Brady | |
Committees | Mr. Brady |
Director Qualification Highlights |
The Board |
Annaly Capital Management Inc. 2018 Proxy Statement | 21 | |
Corporate Governance at Annaly
E. Wayne Nordberg | |
Committees | Mr. Nordberg has served as Chairman of Hollow Brook Wealth Management, LLC, a |
Director Qualification Highlights |
The Board |
Vicki Williams | |
Director since
| Ms. Williams has served as Senior Vice President, Compensation, Benefits and HRIS at NBCUniversal, a multinational media conglomerate, and has over 17 years of compensation and governance experience. In addition to overseeing Compensation, Benefits and HRIS, she also oversees human resources support for corporate legal, human resources, communications, diversity, social responsibility and corporate events for NBCUniversal. Prior to joining NBCUniversal, Ms. Williams was a Partner with Pay Governance LLC and a Principal with Towers Perrin (now Willis Towers Watson). Ms. Williams received a B.S. in Mathematics and Education and a M.B.A. with a concentration in finance and quantitative statistics, each with honors from the University of Georgia. |
Director Qualification Highlights |
The Board believes that Ms. Williams’s qualifications include her broad human resources, executive compensation and governance experience, including serving as a senior-level human resources executive at a multinational company and as an external compensation consultant. |
22 | Annaly Capital Management Inc. 2018 Proxy Statement | |
Corporate Governance at Annaly
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 |
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 the Hill, Ms. Fallon served from May 2013 to December 2013 as President Obama’s Deputy Communications Director at the White House where she devised and executed communications strategies for the President to promote his economic agenda across the country. From 2011 until May 2013, Ms. Fallon was the Staff Director of the Senate Democratic Policy and Communications Center in the U.S. Congress. Ms. Fallon’s prior roles in government and politics include Legislative Director to Senator Chuck Schumer (D-NY), Deputy Staff Director of the Joint Economic Committee and Policy Director at the Democratic Senatorial Campaign Committee. Ms. Fallon received a B.A. in Government and International Studies from the University of Notre |
Director Qualification Highlights |
The Board U.S. government. |
Annaly Capital Management Inc. 2018 Proxy Statement | ||
Table of ContentsClass III Directors
Corporate Governance at Annaly
Jonathan D. Green | |
Committees Lead Independent | Mr. Green |
Director Qualification Highlights |
The Board |
John H. Schaefer | |
Committees | Mr. Schaefer has over |
Director Qualification Highlights |
The Board |
Annaly Capital Management Inc. 2018 Proxy Statement | ||
Corporate Governance at Annaly
Annaly’s Corporate Governance Guidelines and NYSE rules require that at least a majority of Board members are Independent Directors. The Board has adopted the definition of “independent director” set forth in Section 303A of the NYSE rules and has affirmatively determined that each Director (other than Ms. Denahan and Mr. Keyes) has no material relationships with the Company (either directly or as partner, stockholder or officer of an organization that has a relationship with us) and is therefore independent under all applicable criteria for independence in accordance with the standards set forth in the NYSE rules and Annaly’s Corporate Governance Guidelines.
female Independent Directors joined the Annaly Board in |
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 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.
BOARD REFRESHMENT AND DIVERSITY
Director Tenure |
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. 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 set of experiences at policy-making levels in business, finance, government, education, law and technology, and in other areas that are relevant to the Company’s business and its status as a public company.
Annaly Capital Management Inc. 2018 Proxy Statement | 25 | |
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 CANDIDATES
Stockholders who wish the NCG Committee to consider their recommendations for Director candidates should submit their recommendations in writing to the 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 nomination 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.
THE 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 | DIRECTOR QUALIFICATIONS | STOCKHOLDER RIGHTS AND ENGAGEMENT | GOOD GOVERNANCE/ CORPORATE CITIZENSHIP | ||||||
■9 of 11 Directors are Independent ■Robust Lead Independent Director role ■Regular executive sessions of Independent Directors ■Independent key Board committees ■Board oversees a ■The
| ■36% of Directors ■4 of 11 Directors have tenure of less than 5 years ■Annual Board, committee and individual Director self-evaluations
■ 2 “audit committee financial experts” | ■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 ■Stockholders can submit questions for the Annual Meeting through an interactive pre-meeting forum | ■Clawback policy with Manager ■Director and employee stock ownership guidelines ■Board ■Launched joint venture dedicated to supporting community development in underserved cities ■Member of |
26 | Annaly Capital Management Inc. 2018 Proxy Statement | |
Corporate Governance at Annaly
FULL BOARD | |||||
| |||||
RISK COMMITTEE | AUDIT COMMITTEE | ||||
Assists the Board | Assists the |
MANAGEMENT |
Responsible for day-to-day risk assessment and risk management. A series of management
|
In addition to the risk oversight processes outlined above, the Board reviews its risk assessment of the Company’s compensation policies and practices applicable to the Company’s equity incentive plans with the Compensation Committee. For additional information on this review, please see the “Risks Related to Compensation Policies and 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” section of this Proxy Statement.
The have primary Board of the management framework |
MANAGEMENT SUCCESSION PLANNING
The Board oversees and maintains a succession plan for the CEO and other senior executives. 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.
Annaly Capital Management Inc. 2018 Proxy Statement | 27 | |
Corporate Governance at Annaly
BOARD COMMITMENT AND OVER-BOARDING POLICY
In order to provide sufficient time for informed participation in their Board responsibilities:
■ | Directors who also serve as chief executive officers or |
■ | Other Directors |
■ | A member of the |
All Directors are currently in compliance 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 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.
Stockholders may Communicate with any Director, Including the Lead Independent Director |
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Approval of Related Party Transactions
Each of Annaly’s Directors, Director nominees and executive officers is required to report all transactions with the Company in which they or an immediate family member had or will have a direct or indirect material interest in an annual disclosure questionnaire and 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 the entire Board. Other than as discussed in this section, there were no reported transactions for 2017 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 party transaction or could raise particular conflict of interest issues, it will discuss it with legal counsel, and if necessary, the Board will form an Independent committee that has the right to engage its own legal and financial counsel to evaluate, approve or ratify the transaction.
28 | Annaly Capital Management Inc. 2018 Proxy Statement | |
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 then amended and restated in April 2016, and may be further amended by agreement between the Manager and the Company.
The Management Agreement’s current term ends on December 31, 2018 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 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 party prior written notice of its intention to terminate the Management Agreement no less than one year prior to its proposed termination date or, but only in the event the Manager is the terminating party, such earlier date as determined by the Company in its sole discretion. There is no termination fee for a termination of the Management Agreement by either the Manager or the Company.
See also “Disclosure Enhancements” on page42 for a discussion of compensation paid by the Manager to the NEOs.
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, without the Company’s prior written consent, manage any REIT, which engages in the management of mortgage-backed securities in any geographical region in which the Company operates.
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. The Company incurred approximately $164.3 million in management fees under the Management Agreement during the year ended December 31, 2017.
The Manager
The Manager is a Delaware limited liability company and is indirectly owned by certain members of senior management. For additional information about the Manager, please see “Management Structure”, “Compensation Paid by the Manager to the Named Executive Officers” and “Compensation Discussion and Analysis.”
The management fee of stockholders’ equity (as defined in the Management Agreement) compares favorably to the industry average |
Annaly Capital Management Inc. 2018 Proxy Statement |
| |
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. Green serves as Lead Independent Director.
The Board believes that the current leadership structure provides effective independent oversight of management, while allowing both the Board and management to benefit from Mr. Keyes’s day-to-day familiarity with the Company’s business.
The Lead Independent Director has significant authority and |
THE CHAIRMAN OF THE BOARD | ◆ | THE LEAD INDEPENDENT DIRECTOR |
■Presides at full meetings of the Board and ■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 ■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 ■Facilitates communication between the Independent Directors and ■Advises on the selection of ■Approves the quality, quantity and ■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 ■If requested by stockholders, ensures that he is available, when appropriate, for consultation and
|
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) is independent.
EXECUTIVE 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, the Independent Directors, without the participation of Board members who are members of management, held five executive sessions.
Board Structure and Processes
BOARD AND COMMITTEE EVALUATIONS
The Lead Independent Director 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 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.
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, Public 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. 2018 Proxy Statement | 31 | |
Board Structure and Processes
The Board has five standing committees: the Audit Committee, the Compensation Committee, the NCG Committee, the Risk Committee and the recently-formed Public Responsibility Committee.
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.
The Board created the new Public Responsibility Committee in late 2017 |
The table below shows the current membership of each Board committee and number of meetings of each committee held in 2017.
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 |
• Member Chairperson |
(1) | Mr. Green serves as the Lead Independent Director. For more details, see page30. |
(2) | The Public Responsibility (“PR”) Committee did not hold any meetings in 2017, as it was established in November 2017. |
32 | Annaly Capital Management Inc. 2018 Proxy Statement | |
Board Structure and Processes
AUDIT COMMITTEE | |
Committee Members: Kevin P. Brady (Chair) Michael Haylon E. Wayne Nordberg John H. Vicki Williams Number of | Key Responsibilities: ■Appoints the ■Reviews the plan and results of the auditing engagement with ■Oversees internal audit activities ■Oversees the quality and ■Oversees the ■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 |
Each member of the Audit
|
COMPENSATION COMMITTEE | |
Committee Members: Donnell A. Segalas (Chair) Jonathan D. Green E. Wayne Nordberg John H. Schaefer Vickie Williams Number of Meetings: | 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 “Compensation of Directors” and “Compensation Discussion and Analysis” sections of this Proxy Statement. |
Annaly Capital Management Inc. 2018 Proxy Statement | 33 | |
Board Structure and Processes
NCG COMMITTEE | |
Committee Members: Francine J. Bovich (Chair) Kevin P. Brady Katie Beirne Fallon E. Wayne Nordberg Donnell A. Number of | Key Responsibilities: ■Develops and recommends criteria for ■Identifies and screens individuals qualified to become Board members, and recommends to the Board ■Develops and recommends to the Board ■Provides oversight of the evaluation of the Board ■Considers other corporate governance matters, such as Director retirement policies, management succession plans appropriate |
For more information on the NCG Committee’s responsibilities and activities, see the “Director Nomination Process,” “Director Criteria and Qualifications”, “Board Refreshment and Diversity” and “Stockholder Recommendation of Director Candidates” section of this Proxy Statement. |
PUBLIC RESPONSIBILITY COMMITTEE | |
Committee Jonathan D. Green (Chair) Francine J. Bovich Wellington J. Denahan Katie Beirne Fallon Donnell A. Segalas Number of Meetings: | Key Responsibilities: Assists the Board in ■corporate philanthropy ■social impact investments ■sustainability initiatives ■corporate culture and reputation ■public policy initiatives |
For more information on the formation of the Public Responsibility Committee, see the “Stockholder Outreach and Results of 2017 Say-on-Pay Vote” section of this Proxy Statement. |
RISK COMMITTEE | |
Committee Members: John H. Schaefer(Chair) Kevin P. Brady Wellington J. Denahan Jonathan D. Green Michael Haylon Number of Meetings: | Key Responsibilities: Assists the Board in its oversight of the Company’s: ■risk governance ■risk management and risk assessment guidelines and policies regarding ■risk appetite, including risk limits |
|
(1) | The Public Responsibility Committee |
34 | Annaly Capital Management Inc. 2018 Proxy Statement | |
Board Structure and Processes
During 2017, the Board held 13 meetings. Each Director attended at least 75% of the aggregate number of meetings held by the Board and each committee on which the Director served during the period he or she was on such committee.
The Company expects each member of the Board to attend the Annual Meeting. All of the Company’s then-Directors attended Annaly’s 2017 annual meeting of stockholders (the “2017 Annual Meeting”). Ms. Fallon and Ms. Williams were appointed as Directors effective January 1, 2018 and, therefore, did not attend the 2017 Annual Meeting.
The Company compensates the Independent 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 Independent Directors.
The compensation elements paid to the Independent Directors for service on the Board and its committees for 2017 is 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 – Audit Committee | |
$7,000 – Compensation Committee | ||
$7,000 – Risk Committee | ||
$5,000 – NCG Committee | ||
Committee Chair Retainer(1) | $20,000 – Audit Committee | |
$10,000 – Compensation Committee | ||
$10,000 – Risk Committee | ||
$10,000 – NCG Committee |
(1) | Committee Chairs received Committee Chair Retainers in addition to, and not in lieu of, Committee Member Retainers. No retainers for service as a Member or Chair of the |
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
|
Annaly Capital Management Inc. 2018 Proxy Statement | 35 | |
Board Structure and Processes
Role of the Independent Compensation Consultant
During 2017, 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 Independent 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 Independent Directors for the fiscal year ended December 31, 2017.
Name(1) | Fees Earned or Paidin Cash | Stock Awards(2) | Total | |||
Francine J. Bovich | $113,000 | $135,000 | $248,000 | |||
Kevin P. Brady | $140,000 | $135,000 | $275,000 | |||
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 | |||
John H. Schaefer | $122,000 | $135,000 | $257,000 | |||
Donnell A. Segalas | $122,000 | $135,000 | $257,000 |
(1) |
|
(2) | The amounts in this column represent the aggregate grant date fair value of the |
The following table sets forth information with respect to the aggregate unexercised option awards at December 31, 2017 of each of the Independent Directors. All such option awards have vested. Options are no longer granted as part of the Company’s Director compensation program.
Name | Unexercised Option Awards at 12/31/17 | |
Francine J. Bovich | — | |
Kevin P. Brady | 42,500 | |
Jonathan D. Green | 90,000 | |
Michael Haylon | 75,000 | |
E. Wayne Nordberg | 90,000 | |
John H. Schaefer | — | |
Donnell A. Segalas | 77,500 |
36 | 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:
Glenn A. Votek | 59 | Chief Financial Officer
| |||||||||||||||||||||||||||||||||||||||||
David L. Finkelstein | 45 | Chief Investment Officer | |||||||||||||||||||||||||||||||||||||||||
Timothy P. Coffey | 44 | Chief Credit Officer | |||||||||||||||||||||||||||||||||||||||||
Anthony C. Green | 43 | Chief Legal Officer and Secretary |
Biographical information on Mr. Keyes is provided above under the heading “Election of 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 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 18 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 SINCE 2011
Since 2011, the executive officers have purchased over 1.4 million shares of the Company’s common stock (including open market purchases, dividend reinvestments, and option exercises) with an aggregate purchase price of $16.3 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 | ||||
Kevin G. Keyes | 934,779 | $ | 10,560,000 | ||||
Glenn A. Votek | 93,597 | $ | 1,017,000 | ||||
David L. Finkelstein | 300,000 | $ | 3,370,000 | ||||
Timothy P. Coffey | 30,000 | $ | 304,000 | ||||
Anthony C. Green | 101,000 | $ | 1,085,000 | ||||
TOTAL | 1,459,376 | $ | 16,336,000 |
(1) | Rounded to the nearest thousand. |
Annaly Capital Management Inc. 2018 Proxy Statement | 37 | |
The Management Agreement compares favorably to the management agreements of the Company’s externally- managed peers |
The Compensation Committee believes that the terms and conditions of the Management Agreement 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, when compared to the median for the peer comparison, (i) the management fee paid to the Manager is lower as a percentage of stockholders’ equity, (ii) the term of the Management Agreement was of a shorter duration, and (iii) the Management Agreement has no termination fee, which is expressed 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-agency
38 | Annaly Capital Management Inc. 2018 Proxy Statement | |
Management Structure
(1) | For ARR, base management fee is calculated as 1.50% of gross equity raised up to $1.0 billion plus 0.75% of gross equity raised in excess of $1.0 billion. |
(2) | ARR’s termination fee is calculated as the greater of (a) the base management fee calculated prior to the effective date of agreement termination for the remainder of the term or (b) 3x the base management fee during the preceding full 12 months. |
(3) | Of the six Commercial REITs, five have incentive fees in addition to their base management fees. STWD and RSO have incentive fees of 20% above an 8% hurdle. BXMT has an incentive fee of 20% above a 7% hurdle. RSO has an incentive fee of 25% above an 8% hurdle. SLD 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. |
(4) | NYMT only pays base management and incentive fees with respect to its distressed residential loan strategy. NYMT’s base management fee is calculated as 1.50% of invested capital in distressed residential mortgage loans. |
(5) | NRZ’s termination fee is calculated using the prior 12-month period. Pursuant to the terms of its management agreement, PMT’s termination fee is calculated as a multiple of the base management fee and a performance incentive fee. For purposes of this table, any impact from this performance incentive fee on PMT’s termination fee multiple has been disregarded. |
(6) | Of the 13 Non-Agency Residential/Hybrid REITs, four 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%. NYMT has an incentive fee of 35% above a 12.5% hurdle. AJX has an incentive fee of 20% above an 8% hurdle. For purposes of this table, the calculation of the mean includes only the four Non-Agency Residential/Hybrid REITs that have incentive fees. |
STRUCTURE 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 management fee formulated as a percentage of stockholders’ equity (as defined in the Management Agreement) 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’ equity (along with the stock ownership guidelines discussed on page47) 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 as 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.
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.
Annaly Capital Management Inc. 2018 Proxy Statement | 39 | |
Management Structure
CONTINUED COST SAVINGS RELATED TO THE EXTERNALIZATION
The Compensation Committee believes that the Externalization has materially reduced the Company’s compensation-related costs. When comparing the management fees the Company paid for the fiscal years ended December 31, 2013, 2014, 2015, 2016 and 2017 against the estimated compensation costs (including tax costs) the Company would have paid for the same period if those costs remained what they were in 2012, management estimates that the Externalization has resulted in total compensation savings, including tax savings, (calculated in accordance with GAAP) of approximately $276 million.
As illustrated by the table below, the management fee for each of 2013(1), 2014, 2015, 2016 and 2017 is significantly lower than the Company’s 2012 compensation expenses (which is represented by the dark gray line):
Management Fee/Compensation Expense(2),(3) |
($ in thousands)
(1) | 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 |
(2) | Assumes compensation costs for each of 2013, 2014, 2015, 2016 and 2017 would have remained what they were in |
(3) | Gray shaded area represents compensations savings (exclusive of |
Table of ContentsANNUAL 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 The Compensation Committee reviews the Company’s total operating expenses (including the management fee), as a percentage of both average assets and average stockholders’ equity, among other metrics. 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.
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. 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 six 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 an efficient manner with appropriately scaled operating costs (including the management fee).
Compensation Paid by the Manager to the Named Executive Officers
As discussed throughout this Proxy Statement, the Company 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 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 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 the Company reimburse the Manager for the cost of such compensation. 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. Given that Annaly does not provide any compensation to the NEOs, historically, the Company disclosed information about the management fees 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 program 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 Changes Following the 2017 Say-on-Pay vote, the Company again engaged 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.
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 individual performance objectives. 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.
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, along with individual performance objectives. During 2017, Messrs. Votek, Finkelstein, Coffey, and Green received aggregate performance-based cash incentive bonuses of $23.9 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, Messrs. Finkelstein, Votek, Coffey and Green received aggregate salaries of $2.8 million from the Manager. On an aggregated basis, Messrs. Votek, Finkelstein, Coffey and Green received 10.3% of their total compensation in the form of base salaries and the remaining 89.7% in the form of performance-based cash incentive bonuses.
How the Manager Makes 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”). Role of the Manager’s Compensation Consultants During 2017, the Manager retained Meridian Compensation Partners, LLC, FPL Associates, L.P. and Richter Associates, Inc. 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. In determining the Peer Group, the Manager considers both industry and company-specific dynamics to identify the peers with which the Company competes for assets, stockholders and talent. As a result, the Manager focuses on peers within the mREIT industry, as well as asset management companies that manage mREITs, along with other asset managers and financial companies within relevant market capitalization and/or revenue bands. The Manager annually reviews the Peer Group and may update its composition to better reflect the Company’s competitive landscape or, if necessary, to account for corporate changes, including acquisitions and dispositions.
COMPENSATION PEER GROUP
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.
Executive Compensation Accordingly, the Company did not pay any cash compensation 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. 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, has sole discretion to determine the compensation it pays to its employees, including the NEOs. The Manager makes all compensation determinations for its employees without any direction by the Board and without reference to any specific policies or programs under the oversight of the Board. The Manager compensates its employees (including the 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. Consideration of “Say-on-Pay” Voting Results At the Company’s 2017 Annual Meeting, 69% of the votes cast supported the Company’s Say-on-Pay vote. While the Say-on-Pay vote received majority support, the Compensation Committee was disappointed with the percentage of votes cast against the proposal and the Company redoubled its engagement efforts in order to understand the information stockholders need to evaluate the alignment between NEO pay and Company performance. These efforts included:
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 of the Manager’s executive compensation program. In orderto address these concerns, the Manager has provided the Company with detailed quantitative information about its executive compensation program for inclusion in this Proxy Statement. For additional details, please see “Compensation Paid by the Manager to the Named Executive Officers – 2018 Changes” 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 with the Board.”
Executive Compensation EXECUTIVE COMPENSATION POLICIES Stock Ownership Guidelines/Commitments
These stock ownership guidelines apply to more than 40% of the Manager’s employees. As of March 31, 2017, all such individuals either met or, within the applicable period, are expected to meet the stock ownership guidelines. Stock Holding Period Under a policy adopted by the Compensation Committee in 2016, theManager’s employees (including the executive officers) 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) from engaging in any hedging transactions with respect to Company securities held by them, which includes 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) 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 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. However, in connection with the Compensation Committee’s administration of the Company’s equity incentive plan, the Committee conducts an annual risk assessment of the Company’s compensation policies and practices applicable to such plan. In 2017, 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 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
|