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 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. Notice of Annual Meeting of Stockholders(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)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:4) Date Filed: 
Notice of 20162018
Annual Meeting of Stockholders
and Proxy Statement26, 2016, at 23, 2018
9:00 a.m. (Eastern Time)The Warwick Hotel65 West 54th StreetNew York, NY 10019www.virtualshareholdermeeting.com/NLY2018Dear Fellow Shareholders,Amidst a challenging macroeconomic environment marked by unprecedented volatility across all asset classes, Annaly delivered strong financial results in 2015, declaring over $1.2 billion in dividends and producing an attractive return on equity while maintaining a low leverage ratio relative to the industry. In addition to our dividend program, in August of last year, we authorized a repurchase plan of up to $1 billion of our common shares through December 31, 2016. As of March 31, 2016, we have cumulatively repurchased $614 million of stock under both our current program and our previous share repurchase program, which was initiated in 2012.Annaly delivered strong financial results in 2015, declaring over$1.2 billion in dividendsThroughout 2015, we continued to execute on our strategic plan to diversify our investments in assets with complementary cash flows. During the year, we expanded our allocation of capital into lower-levered, largely floating rate credit businesses from 11% to 23% of our total equity capital. We invested $1.3 billion in growing our commercial real estate business, launching our own residential credit platform and nearly tripling the size of our middle market lending portfolio. On a stand-alone basis of roughly $3 billion of equity capital, these three businesses would amount to one of the largest hybrid mortgage REITs in the world and three times the size of the average market capitalization for the 40 other mortgage REITs in the industry.As of March 31, 2016, we have cumulatively repurchased$614 million of stockAs we look ahead through 2016 and beyond, we remain focused both on returning value to our stockholders and enhancing our corporate governance, compensation and management structures. The Board of Directors continually evaluates these structures to further align the interests of our management with those of shareholders. Among numerous other initiatives, we announced the expansion of our stock ownership guidelines in the first quarter of 2016. Pursuant to these guidelines, more than 40% of the Annaly team (including our executive officers) will be asked to purchase predetermined amounts of shares in the open market. These guidelines reflect our desire to establish an ownership culture throughout the firm, which is also evidenced by the fact that senior management has purchased nearly 1.9 million common shares with an aggregate purchase price of $22.0 million since 2011.We expanded our allocation of capital into lower-levered, largely floating rate credit businesses from 11% to23%of our total equity capitalWe are proud of our attention and focus on our shareholders over the years – and our industry best practices are exemplified by what I believe is one of the most shareholder friendly management agreements in the asset management industry. Our management contract is structured without termination or incentive fees, has one of the lowest fixed management fee percentages in the industry and a two-year term that provides our Board and shareholders with the opportunity to actively monitor and assess our performance over reasonable time frames. In addition to the stock ownership guidelines discussed above, other recent enhancements include the adoption of a robust clawback policy for the management fee, increased stock ownership guidelines for ourSenior management has purchased nearly1.9 million common shares since 2011www.annalyannualmeeting.comIIndependent Directors, a four-year stock holding period requirement, an anti-pledging policy (which is complementary to our existing anti-hedging policy) and the creation of the role of Lead Independent Director, which is currently held by Jon Green.Also, given the various changes to the market, our industry and our business, we have dedicated tremendous focus and resources to enhancing our financial disclosure and risk management practices. Over the past year, we provided increased transparency into our amended capital allocation policy and more granular portfolio detail on our growing credit businesses. This year’s proxy statement, which includes an updated format and graphics, also reflects our continued focus on accuracy and transparency. Our paramount responsibility, as long term stewards of capital, is to ensure that we have appropriate clarity within our financial statements, strong risk management practices and the comprehensive operational infrastructure needed to support our evolving businesses. In 2015, significant achievements were made within our operating strategies including: attracting numerous key hires into our risk, legal, accounting, human resources and information technology teams; implementing enhanced asset, portfolio and risk management systems, including a comprehensive risk rating system across the various investment businesses; and restructuring our internal management reporting lines and governance committees to more appropriately monitor and manage our evolving strategies.I look forward to welcoming many of you to our 2016 Annual Meeting of Stockholders.Sincerely,
Kevin G. KeyesChief Executive Officer and PresidentApril 12, 2016Creation of the role ofLead Independent DirectorEnhancing our financial disclosure and risk management practicesScaling our operating platform to support growth anddiversification of our portfolioIIAnnaly Capital Management, Inc.► 2016 Proxy StatementSHAREHOLDER
ENGAGEMENT
Broad Outreach to Shareholders; Responsive Disclosure EnhancementsThroughout 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 SharesSince 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)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) (4) 4 Annaly Capital Management Inc. 2018 Proxy Statement
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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 26, 2016,23, 2018, at 9:00 a.m. (Eastern Time) online at the Warwick Hotel, 65 West 54th Street, New York, NY 10019,www.virtualshareholdermeeting.com/NLY2018, to:
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WeThe Company will also transact any other business as may properly come before our annual meetingthe Annual Meeting or any adjournmentpostponement or postponementadjournment thereof. Only our common stockholders of record at the close of business on March 29, 2016,26, 2018, the record date for the annual meeting,Annual Meeting, may vote at the annual meetingAnnual Meeting and any adjournmentspostponements or postponementsadjournments thereof.
Your vote is very important. Please exercise your right to vote.
To view the Proxy Statement and other materials about the annual meeting, go to www.annalyannualmeeting.com.
If you attend the annual meeting in person, you will need to present proof of your ownership of our common stock as of the record date, and valid government-issued photo identification.
By Order of theThe Company’s Board of Directors
R. Nicholas SinghSecretaryApril 12, 2016
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The Board of Directors (the “Board”) of Annaly Capital Management, Inc. (“Annaly,” the “Company,” “we,” “our” or “us”Board”) is soliciting proxies in connection with our 2016 annual meeting of stockholders (the “Annual Meeting”). We arethe 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 12, 2016.10, 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 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. The Annual Meeting will begin promptly at 9:00 a.m. (Eastern Time). Online check-in will begin at 8:30 a.m. (Eastern Time), and you should allow ample time for the online check-in procedures.
>If you wish to 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 will be in attendance at this location. If you would like to view the Annual Meeting webcast at Venable LLP’s office, please follow the directions for doing so set forth in the “Questions and Answers about the Annual Meeting” section in this Proxy Statement.
By Order of the Board of Directors,
Chief Legal Officer and Secretary
April 10, 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 Company and the Annual Meeting. This summary does not contain all of the information that you should consider in advance of the Annual Meeting, and we encouragethe Company encourages you to read the entire proxy statementProxy Statement and our 2015the Company’s 2017 Annual Report on Form 10-K carefully before voting.
2016 Annual Meeting of Stockholders
| 2018 ANNUAL MEETING OF STOCKHOLDERS | |||
 | AND DATE: | Wednesday, May | |
 | www.virtualshareholdermeeting.com/NLY2018 | ||
| Close of business on March 26, 2018 | ||
| VOTING: | Stockholders are able to vote by Internet at | |
Voting MattersVOTING MATTERS
| Board Vote Recommendation | Page Number | |||||
| Proposal No. 1: Election of Directors | FOR each Director nominee | |||||
| Proposal No. 2: Approval, on an advisory basis, | FOR | |||||
| Proposal No. 3: Ratification of the appointment | FOR |
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.
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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 | |||
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1997 | $15 billion(1) |
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The Company has |
We have been externally managedexternally-managed by Annaly Management Company LLC (our(the “Manager”) since July 2013. OurThe Manager is responsible for managing ourthe Company’s affairs pursuant to a management agreement. OurThe Manager pays all of the compensation, including benefits, to ourits employees (which include the named executive officers (who are employees(“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 ourthe Manager) and our Manager’s other employees.. Although limitedcertain personnel (but none of our executive officers)the NEOs) are employed by our subsidiaries of the Company for regulatory or corporate efficiency reasons, all compensation and benefits paid to such personnel by ourthese subsidiaries reduce, on a dollar-for-dollar basis, the management fee we paythe Company pays to ourthe 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,Proxy Statement, the NEOs and the other employees of ourthe Manager, (including our executive officers) and ourtogether with employees of Annaly’s subsidiaries, are sometimes referred to as “our”Annaly’s employees.
Key Accomplishments
Despite challenging market conditions for mortgage real estate investment trusts ("REITs") during 2015, we performed strongly and achieved a number of significant accomplishments that are discussed below.
Transitioned Leadership
Kevin G. Keyes was appointed Annaly’s Chief Executive Officer effective September 30, 2015. On the same date, Wellington J. Denahan, our former Chief Executive Officer, transitioned to the position of Executive Chairman. Ms. Denahan continues to serve as Chairman of the Board and Jonathan D. Green continues to serve as our Lead Independent Director.
Diversified Investment Strategy
Over the last few years, we have diversified our investment strategy by investing in credit assets with complementary cash flows to achieve superior risk-adjusted returns over the long term. During 2015, we invested $1.3 billion by growing our commercial real estate business, launching our own residential credit platform and nearly tripling the size of our middle market lending portfolio. On a standalone basis of roughly $3 billion of equity capital, these three businesses would amount to one of the largest hybrid mortgage REITs in the world, and three times the size of the average market capitalization for the 40 other mortgage REITs in the industry. The majority of our credit assets tend to have shorter-term maturities and floating interest rates. We expect that combining these credit assets with our core agency strategy should lead to a smoother earnings profile over various interest rate cycles. Given the relatively low price correlation between credit and agency-backed assets, we also expect that our diversified strategy will lead to lower book value volatility as markets fluctuate.
| 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 2017. 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, the sum of net management fees, compensation & benefits (if any), general & administrative expenses and other operating expenses. |
| (5) | Includes dividend reinvestments. |
| Annaly Capital Management Inc. | 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.
| 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 | ||||||||
Our diversification strategy is reflected in the following allocation of our capital across four businesses – agency, commercial real estate, residential credit and middle market lending – as of December 31, 2015.
Dividends
From our inception in 1997 through December 31, 2015, we have paid over $13 billion in dividends to our stockholders, as set forth in the table below. In 2015, we declared over $1.2 billion in dividends.
| $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 | ||||||
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| Countercyclical/ Defensive | Cyclical/Growth | Cyclical/Growth | Countercyclical/ 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
Delivering Significant Value for Stockholders
In August 2015, the Board authorized a $1 billion share repurchase program, which gives us another avenue to
Economic return capital to our stockholders alongside our quarterly dividend program.
| 32% | 883% | ||
From January 1, 2016 through March 31, 2016, we have repurchased an additional $102.7 million of common stock and have $783 million remaining authorization under the share repurchase program.
Total Common Stock Return Performance
Since 2014 (the first full year we werethe Company was externally-managed, as more fully described in “Management Structure” below)on page38), we haveAnnaly has performed well against what we consider to be our relevant benchmarks. As illustrated by the graphgraphs below, shares of ourthe Company’s common stock (including the reinvestment of dividends) have returned significant value to our stockholders over the long term relative to both our mortgage REITthe Company’s mREIT peers and other yield-focused investments.
| Total Shareholder Return since 2014(2) |
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| 2017 Total Shareholder Return(2) |
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| (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 |
Note: Graph reflects daily market data from December 31, 2013 through March 31, 2016. For the share performance graph required by the Securities and Exchange Commission (SEC) in accordance with Item 201(c) of Regulation S-K for the five-year period ended December 31, 2015, please see page 42 of our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on February 26, 2016.Source: Bloomberg. mREITs represent the members of the Bloomberg mREIT (“BBREMTG”) Index; Utilities represent the members of the Russell 3000 Utility Index; MLPs represent the members of the Alerian MLP Index; Asset Managers represent the members of the S&P 500 Asset Management and Custody Bank Index; Banks represent the members of the KBW Bank Index; and S&P represents the members of the S&P 500 Index.
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Proxy Summary
STOCKHOLDER OUTREACH AND RESULTS OF 2017 SAY-ON-PAY VOTE
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 |
Economic Return Performance
Since we are organized as a REIT and therefore must distribute at least 90% of our taxable incomeThe Company is committed to our stockholders annually, we believe that economic return, comprised of dividends paidand changes in book value measured over a specified period, is an especially meaningful performance metric for the Company. Concerns over increases in interest rates led us to maintain this relatively conservative leverage over the period compared to our Agency mREIT peers. Our Agency mREIT Peers consist of American Capital Agency Corp. (“AGNC”), Hatteras Financial Corp. (“HTS”), CYS Investments, Inc. (“CYS”), Capstead Mortgage Corp. (“CMO”), Armour Residential REIT, Inc. (“ARR”), and Anworth Mortgage Asset Corp. (“ANH”) (collectively, the “Agency mREIT Peers”), and represent the agency mortgage REITs included in the BBREMTG Index as of March 31, 2016ongoing engagement with market capitalization above $200 million. From the beginning of 2014 through the end of 2015, we generated an economic return of 16.5% and operated at 30% less leverage than this peer group.
Stockholder Outreach and Engagement
Since September 2015, we have had a renewed focus on developing and maintaining relationships with both our retail and institutional stockholders. Asstockholders through a wide range of March 31, 2016, our outreach has included six non-deal roadshows with institutional investors, encompassing eight cities and meetings with 42 different investors. Over the same period, we held an additional 37 one-on-one meetings with investors to gain and share valuable insightsmediums. These engagement efforts have yielded meaningful feedback on a variety of topics, including the Company’s diversified investment strategy and ourits corporate governance, compensation and management structures. In addition, we have enhanced our
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 | ||||
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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 to personalize our interaction with retail investors, providing high-touch responses to allrequestsgenerated significant feedback for information. Members of our Board may participate in investor outreach when appropriate. Stockholders are invited to communicate withboth the Board as described under “Communications withand 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 Board” as described below.
| 11 | |||
Proxy Summary
STOCKHOLDER ENGAGEMENT
COMPANY HEARD |
Our Manager and Our Management Agreement
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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.
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| ■ | 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 |
| |
For |
Over the past several years, ourthe Manager has made significant investments in our personnel corresponding to the diversification of ourits investment strategy into more people-intensive asset classes (including residential credit, commercial real estateResidential Credit, Commercial Real Estate and middle market lendingMiddle Market Lending assets), as well as to the enhancement of our corporate infrastructure.infrastructure enhancements. These investments include the build out of teams for our agency, residential credit, commercial real estatethe Agency, Residential Credit, Commercial Real Estate and middle market lending businesses,Middle Market Lending groups, and significant hires in our risk, legal, accounting, capital markets, middle office, regulatory, licensing, modeling, project management, forecastingbusiness support functions, such as Risk Management, Legal and information technology departments.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 ourthe Manager rather than by us.the Company. Unlike a number of other externally-managed REITs, we doAnnaly does not reimburse ourthe Manager for any portion or subset of employment costs, all of which are borne by ourthe Manager. An increase to these costs does not result in any increase to the management fee, which is a fixed percentage of our stockholders’ equity as described above.
The independent membersDespite the costs associated with the diversification of our Board reviewits investment strategy, the effortsManager 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 | |
Table of our Manager to ensure that it continues to invest in our personnel. The Board has concluded that the efforts of our Manager to developContentsand enhanceour personnelhave resulted in the establishment of a robust and high quality management team having a full complement of human capital to drive our business performance. We believe our management team compares very favorably in terms of size, scope and experience with our mortgage REIT peers.
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 ourthe Manager, ourthe management agreement and executive compensation, see “Certain Relationships and Related Party Transactions,” “Our Management Structure”, “Compensation Paid by the Manager to the Named Executive Officers” and “Compensation Discussion and Analysis.Analysis.”
GOVERNANCE TIMELINE
| Annaly Strives for Best-in-Class Governance Practices |
■Added new Independent Director |
Recent Enhancements to our Corporate Governance, Compensation and Management Structures
We regularly review and update our practices related to our corporate governance, compensation and management structures to align the interests of our management team with those of our stockholders and to respond to changes in applicable laws, regulations, stock exchange requirements and best practices and the evolving needs of our business. Over the last two years, we have made a number of enhancements to these structures, which include the following:
■Enhanced financial disclosure, including additional financial metrics | ■Added new Independent Director | ||||
■Robust Lead Independent Director role created ■Established Risk Committee ■Detailed succession planning process with Board | |||||
| ■Kevin Keyes appointed as CEO ■Initiated extensive investor outreach | ||||
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| 2016 | ■Adopted broad-based stock ownership guidelines for ■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 ■Hosted inaugural Investor Day ■Launched Women's Interactive Network | |||
■Added 2 Independent Directors ■Virtual meeting format for Annual Meeting ■Adopted enhanced Board evaluation process, including individual directors assessments and | ■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 | ||||
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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. | 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
| Name | Age | Principal Occupation | Independent | Committees | |||||||
 | Wellington J. Denahan | 54 | Former Executive Chairman | No | ■PR | ||||||
| Annaly Capital Management, Inc. | ■Risk | ||||||||||
| Michael Haylon | 60 | Managing Director | Yes | ■Audit | |||||||
| Conning, Inc. | ■Risk | ||||||||||
| Donnell A. Segalas | 60 | Chief Executive Officer and | Yes | ■Compensation | |||||||
| Managing Partner | (Chair) | ||||||||||
| Pinnacle Asset Management, L.P. | ■NCG | ||||||||||
■PR | |||||||||||
 | |||||||||||
| Kevin G. Keyes | Chairman, Chief Executive Officer | No | |||||||||
| and President | |||||||||||
| Annaly Capital Management, Inc. | |||||||||||
| Kevin P. Brady | Chief Executive Officer | Yes | ■Audit (Chair) | ||||||||
| ARMtech, LLC | ■NCG | ||||||||||
■Risk | |||||||||||
| E. Wayne Nordberg | Chairman | Yes | ■Audit | ||||||||
| Hollow Brook Wealth Management, LLC | ■Compensation | ||||||||||
■NCG | |||||||||||
| Vicki Williams | 45 | Senior Vice President Compensation, | Yes | ■Audit | |||||||
| Benefits and HRIS | ■Compensation | ||||||||||
| NBCUniversal | |||||||||||
 | Francine J. Bovich | Former Managing Director | Yes | ■NCG (Chair) | |||||||
| Morgan Stanley Investment Management | ■PR | ||||||||||
| Katie Beirne Fallon | 42 | Global Head of Corporate Affairs | Yes | ■NCG | |||||||
| Hilton Worldwide Holdings Inc. | ■PR | ||||||||||
| Jonathan D. | Former Vice Chairman | Yes | ■PR (Chair) | ||||||||
| Rockefeller Group | ■Compensation | ||||||||||
■Risk | |||||||||||
| John H. Schaefer | 66 | Former President and | Yes | ■Risk (Chair) | |||||||
| Chief Operating Officer | ■Audit | ||||||||||
| Morgan Stanley Global Wealth | |||||||||||
| Management | ■Compensation |
| * | Lead Independent Director. For more details, see page30. |
| Annaly Capital Management Inc. 2018 Proxy Statement | 19 | ||||||||
* Lead Independent Director. For more details, see page10.
Corporate Governance at Annaly
|
Nominees to Serve for a Three-Year Term Expiring in 2019 (Class II Directors)CLASS I DIRECTORS
| Wellington J. Denahan | |||
Committees |
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Class III Directors (Terms Expire in 2017)
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Class I Directors (Terms Expire in 2018)
| 2017, Ms. Denahan | |
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 |
| Michael Haylon | |||
| 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 believes that Mr. Haylon’s qualifications include his significant leadership and management experience from his years of management and oversight of large financial asset portfolios, his prior board experience with other companies and his expertise in financial matters. |
| 20 | Annaly Capital Management Inc. 2018 Proxy Statement | |
Corporate Governance at Annaly
Director since
| Mr. Segalas | |
Director Qualification Highlights |
| The Board believes that Mr. |
| Kevin G. Keyes | |
Director since Chairman of the Board | Mr. Keyes serves as Annaly’s Chairman, Chief Executive Officer and President. Mr. Keyes has served as Chairman since January 2018, Chief Executive Officer since September 2015 and President since October 2012. Previously, Mr. Keyes served as Chief Strategy Officer and Head of Capital Markets of Annaly from September 2010 until October 2012. Prior to joining Annaly as a Managing Director in 2009, Mr. Keyes worked for 20 years in senior 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. |
| Director Qualification Highlights |
| 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 | |
Director since Committees | Mr. Brady has served as the Chief Executive Officer of ARMtech, LLC, a venture capital firm he founded that invests and incubates technology start-ups, since 2007. ARMtech’s current portfolio includes companies in the financial reporting and data spaces. Prior to ARMtech, Mr. Brady founded TaxStream, a software company that specialized in financial reporting, tax and internal controls for multinational corporations. Mr. Brady served as Chief Executive Officer of TaxStream from 2002 to 2008, when the company was sold to Thomson-Reuters. Mr. Brady previously worked for eight years at PricewaterhouseCoopers in New York City, where he consulted on M&A transactions and international tax issues. He was awarded a patent from the U.S. Patent and Trademark Office for the invention of the TaxStream product. Mr. Brady received a B.A. from McGill University, a M.B.A. from New York University and is a Certified Public Accountant (inactive). |
| Director Qualification Highlights |
| The Board believes that Mr. Brady’s qualifications include his expertise in financial and accounting matters as well as his significant experience managing systems and companies focusing on the financial accounting market. |
| Annaly Capital Management Inc. 2018 Proxy Statement | 21 | |
IndependenceTable of Our DirectorsContents
OurCorporate Governance at Annaly
| E. Wayne Nordberg | |
Director since Committees | Mr. Nordberg has served as Chairman of Hollow Brook Wealth Management, LLC, a SEC-registered investment advisor that manages or advises $900 million of investment assets, since 2008. From 2003 to 2008, Mr. Nordberg served as a senior director of Ingalls & Snyder LLC, an NYSE member and registered investment advisor. From 1998 to 2002, Mr. Nordberg served as Vice Chairman of the board of KBW Asset Management, Inc., an affiliate of Keefe, Bruyette, & Woods, Inc., a registered investment advisor. From 1988 to 1998, he served in various capacities for Lord Abbett & Co., a mutual fund company, including as partner and director of its family of funds. He is a member of the Financial Analysts Federation and the New York Society of Security Analysts and is a Trustee of the Atlantic Salmon Federation, the American Museum of Fly Fishing and the National Wildlife Federation Endowment Fund. Mr. Nordberg is also a director of PetroQuest Energy, Inc. and Reaves Utility Income Fund, both NYSE-listed companies. Mr. Nordberg received a B.A. from Lafayette College, where he is a trustee emeritus. |
| Director Qualification Highlights |
| The Board believes that Mr. Nordberg’s qualifications include his significant experience in serving at a senior executive level with a SEC-registered investment advisor, his experience as a director of an asset management company and his service as a board member of other public companies. |
| Vicki Williams | |
Director since Committees | 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 a member of the Economic Club of New York and an emeritus trustee of Connecticut College and chair of the Investment Sub-Committee for its endowment. Ms. Bovich received a B.A. in Economics from Connecticut College and a M.B.A. in Finance from New York University. |
| Director Qualification Highlights |
| The Board believes that Ms. Bovich’s qualifications include her significant investment management experience and her experience serving as a trustee and board member. |
| Katie Beirne Fallon | |
Director since Committees | Ms. Fallon has served as Global Head of Corporate Affairs for Hilton Worldwide Holdings Inc., a multinational hospitality company, since November 2016, where she is responsible for managing the company’s communications, government relations and corporate responsibility efforts. Prior to Hilton, from 2014 to 2016, Ms. Fallon was Senior Advisor and Director of Legislative Affairs for President Obama. Before becoming the President’s chief liaison to 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 Dame and as a Marshall Scholar received a M.A. in Conflict Regulation from Queen’s University Belfast, Northern Ireland and a M.Sc. in Comparative Politics from the London School of Economics. |
| Director Qualification Highlights |
| The Board believes that Ms. Fallon’s qualifications include her significant experience in serving at a senior executive level with a multinational public company and her experience serving as a top leadership aide in the highest levels of the U.S. government. |
| Annaly Capital Management Inc. 2018 Proxy Statement | 23 | |
Corporate Governance at Annaly
| Jonathan D. Green | |
Director since Committees Lead Independent | Mr. Green served as a special advisor to Rockefeller Group International, Inc., a wholly owned subsidiary of Mitsubishi Estate Company, Ltd., operating under the brand of the Rockefeller Group, from January 2011 until December 2014. He joined the Rockefeller Group in 1980 as Assistant Vice President and Real Estate Counsel. In 1983, he was appointed Vice President, Secretary and General Counsel, and in 1990 was elected Chief Corporate Officer. In 1995, he was named President and Chief Executive Officer of Rockefeller Group Development Corporation and Rockefeller Center Management Corporation, both subsidiaries of the Rockefeller Group. In 2002, Mr. Green was named President and Chief Executive Officer of Rockefeller Group International, Inc., becoming Vice Chairman in January 2009. He served as Vice Chairman until December 2010. In his role as Vice Chairman, Mr. Green was active in formulating the strategic planning for the company and its subsidiaries, which include Rockefeller Group Development Corporation, Rockefeller Group Investment Management, Rockefeller Group Technology Solutions, Inc. and Rockefeller Group Business Centers. Before joining the Rockefeller Group, Mr. Green was associated with the New York City law firm of Thacher, Proffitt & Wood. He also serves on the board of trustees of the Wildlife Conservation Society. Mr. Green graduated from Lafayette College and the New York University School of Law. |
| Director Qualification Highlights |
| The Board believes that Mr. Green’s qualifications include his significant experience as a chief executive, his diverse and significant background in the real estate industry and his legal expertise. |
| John H. Schaefer | |
Director since Committees | Mr. Schaefer has over 40 years of financial services experience including serving as a member of the management committee of Morgan Stanley from 1998 through 2005. He was President and Chief Operating Officer of the Global Wealth Management division of Morgan Stanley from 2000 to 2005. Mr. Schaefer was Executive Vice President and Chief Strategic and Administrative Officer of Morgan Stanley from 1998 to 2000. From 1997 to 1998, he was Managing Director and Head of Strategic Planning and Capital Management. Prior to the 1997 merger of Dean Witter, Discover and Morgan Stanley, Mr. Schaefer was Executive Vice President, Investment Banking and Head of Corporate Finance at Dean Witter, a position he had held since 1991. He began his investment banking career at E.F. Hutton & Company in 1976. Mr. Schaefer served as a board member and chair of the audit committee of USI Holdings Corporation from 2008 through 2012. He received a B.B.A. in Accounting from the University of Notre Dame and a M.B.A. from the Harvard Graduate School of Business. |
| Director Qualification Highlights |
| The Board believes that Mr. Schaefer’s qualifications include his broad financial services management experience, including management of strategic planning, capital management, human resources, internal audit and corporate communications, as well as his board and audit committee experience. |
| 24 | 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 our Board members are Independent Directors. We haveThe Board has adopted the definition of “independent director” set forth in Section 303A of the NYSE rules and havehas affirmatively determined that each Director (other than Ms. Denahan and Mr. Keyes) has no material relationships with usthe 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 ourAnnaly’s Corporate Governance Guidelines.
| Two new, highly qualified female Independent Directors joined the Annaly Board in 2018 |
Director Nomination ProcessDIRECTOR NOMINATION PROCESS
The Nominating/Corporate Governance (“NCG”)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 develophave an understanding of the Company’s business and be willing to devote sufficient time and effort to carrying out their duties and responsibilities effectively.
AlthoughBOARD 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 believes that diversity is an important factor in determiningrecognizes the compositionimportance of the Board. Additionally, the Company endeavors to havehaving 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, as this contributes to our success and is in the best interests of our stockholders.company.
| Annaly Capital Management Inc. | 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 CandidatesSTOCKHOLDER RECOMMENDATION OF DIRECTOR CANDIDATES
Stockholders who wish the NCG Committee to consider their recommendations for Director candidates should submit their recommendations in writing to ourthe Chief Legal Officer and Secretary at ourthe Company’s principal executive offices. Following verification of the stockholder status of persons proposing candidates, recommendations are aggregated and considered by ourthe 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 ourthe 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 Board’s Role and Responsibilities
We areCompany is committed to maintaining a strong ethical culture and robust governance practices that benefit the long-term interests of stockholders. Our corporate governance practicesstockholders, which include:
| DIRECTOR INDEPENDENCE AND OVERSIGHT | DIRECTOR QUALIFICATIONS | STOCKHOLDER RIGHTS AND ENGAGEMENT | GOOD GOVERNANCE/ CORPORATE CITIZENSHIP | ||||||
■The Board is a Full Board Member of the NACD |
| ■4 of 11 Directors have tenure of less than 5 years ■Annual Board, committee and |
| ■Stockholders can submit questions for the Annual Meeting through an interactive pre-meeting forum |
| ■Member of the 2018 Bloomberg Gender-Equality Index |
| 26 | Annaly Capital Management Inc. 2018 Proxy Statement | |||||
Risk management begins with our Board, through the review and oversight of the risk management framework, and continues with executive management, through the ongoing formulation of risk management practices and related execution in managing risk. The Board exercises its oversight of risk management primarily through its Risk Committee and Audit Committee. The Risk Committee isresponsible for assisting the Board in its oversight of our risk governance structure, our risk management and risk assessment guidelines and policies, our risk tolerance, and our capital, liquidity, and funding. The Audit Committee assists the Board in its oversight of the quality and integrity of our accounting, internal controls and financial reporting practices, including independent auditor selection, evaluation and review, and oversight of the internal audit function. At least annually, the full Board reviews our risk management program, which identifies and quantifies a broad spectrum of enterprise-wide risks and related action plans, with management. For additional information on the responsibilities of the Risk Committee and the Audit Committee, please see the “Board Committees” section of this proxy statement.
Corporate Governance at Annaly
Risk management begins with the Board, through review and oversight of the Company’s risk management framework, and continues with executive management, through ongoing formulation of risk management practices and related execution in managing risk. The Board exercises its oversight of risk management primarily through its Risk Committee and Audit Committee. At least annually, the full Board reviews the Company’s risk management program, which identifies and quantifies a broad spectrum of enterprise-wide risks and related action plans, with management | |||||
RISK COMMITTEE | AUDIT COMMITTEE | ||||
Assists the Board in its oversight of the Company’s risk governance structure, risk management and risk assessment guidelines and policies, and risk appetite, including risk appetite levels and capital targets and limits | Assists the Board in its oversight of the quality and integrity of the Company’s accounting, internal controls and financial reporting practices, including appointing the independent auditor and reviewing its qualifications, performance and independence, and compliance with legal and regulatory requirements | ||||
Risk
| MANAGEMENT |
Responsible for day-to-day risk assessment and risk |
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.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 Audit and Risk Committees have primary Board oversight of the Company’s risk management framework |
Management Succession PlanningMANAGEMENT SUCCESSION PLANNING
The Board approvesoversees and maintains a succession plan for the Chief Executive OfficerCEO 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
Other DirectorshipsBOARD 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 hold equivalent positions at other companies should not serve on more than two other boards of public companies in addition to the Company’s Board; | |
Other Directors should not serve on more than four other boards of public companies in addition to the Company’s Board; and | |
A member of the Audit Committee should not serve on the audit committee of more than two other public companies. |
All Directors are currently in compliance with this policy. Directors are required to notify the Chairman of the Board and the chair of the NCG Committee in advance of accepting an invitation to serve on another public company board.
Communications with the BoardCOMMUNICATIONS WITH THE 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.Board to the appropriate parties. Certain items such as business solicitation or advertisements;advertisements, product-related inquiries;inquiries, junk mail or mass mailings;mailings, resumes or other job-related inquiries;inquiries, spam and unduly hostile, threatening, potentially illegal or similarly unsuitable communications will not be forwarded.
| Stockholders may any |
Table of ContentsCERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Certain Relationships and Related Party Transactions
Approval of Related Party Transactions
Each of ourAnnaly’s Directors, Director nominees and executive officers is required to report all transactions with usthe Company in which they or theiran immediate family member had or will have a direct or indirect material interest with respect to us in an annual disclosure questionnaire and on an on-going basis. We reviewManagement reviews these annual questionnaires and anyrequires interim reports and, if we determine itdetermined to be necessary, discussdiscusses any reported transactions with the entire Board. Other than as discussed in this section, there were no reported transactions for 20152017 and there is no transaction currently pending for 2016. We do2018. 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 we believemanagement believes a transaction is significant to us and raisescould be a related party transaction or could raise particular conflict of interest issues, weit will discuss it with our legal counsel, and if necessary, wethe Board will form an independent BoardIndependent committee whichthat 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
We haveThe Company has entered into a management agreement (the “Management Agreement”) with AnnalyManagementthe Manager. Management of the CompanyLLC (our “Manager”). Our management is conducted by ourthe Manager through the authority delegated to it in the Management Agreement and pursuant to the policies established by ourAnnaly’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 usthe Manager and our Manager.the Company.
The Management Agreement provides for a two-yearAgreement’s current term endingends on December 31, 2016 with automatic2018 and will automatically renew for successive two-year renewalsterms unless at least two-thirds of ourthe Independent Directors or the holders of a majority of ourthe 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 ourthe Manager is the terminating party, such earlier date as determined by usthe Company in ourits sole discretion. There is no termination fee for a termination of the Management Agreement by either usthe Manager or our Manager.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 ourthe Manager without cause, for a period of one year following such termination, ourthe Manager will not, without ourthe Company’s prior written consent, manage any REIT, which engages in the management of mortgage-backed securities in any geographical region in which we operate.the Company operates.
Pursuant to the terms of the Management Agreement, we pay ourthe Company pays the Manager a monthly management fee equal to 1/12th12th of 1.05% of ourthe Company’s stockholders’ equity, as defined in the Management Agreement, for its management services. WeThe Company incurred approximately $150.3$164.3 million in management fees under the Management Agreement during the year ended December 31, 2015.2017.
The Manager
Our Manager
OurThe Manager is a Delaware limited liability company and is indirectly owned by ourcertain members of senior management. For additional information about ourthe Manager, please see “Our Management Structure”, “Compensation Paid by the Manager to the Named Executive Officers” and “Compensation Discussion and Analysis.”
fee of 1.05% of stockholders’ equity (as defined in the Management Agreement) compares favorably to the industry average |
| Annaly Capital Management Inc. 2018 Proxy Statement | ||
>Board Structure and Processes
The Board Leadership Structure
We carefully consideredbelieves that whether to have the leadership structuresame person occupy the offices of the Board in 2015. While we consider the appropriateness of this structure regularly, the deliberation is never more critical than in the context of a leadership transition. Effective September 30, 2015, Ms. Denahan transitioned from the role of Chief Executive Officer to the newly-created position of Executive Chairman and Mr. Keyes assumed the role of Chief Executive Officer. Ms. Denahan continues to serve as Chairman of the Board and Mr. Green continuesCEO 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 ourLead 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.
We believeThe Board believes that ourthe current leadership structure which comprises a separate Chairmanprovides effective independent oversight of management, while allowing both the Board and Chief Executive Officer,management to benefit from Mr. Keyes’s day-to-day familiarity with Mr. Green serving as Lead Independent Director, is effective and serves the best interests of our stockholders. This structure allows Mr. Keyes to focus on his duties in managing the day-to-day operations of the Company, while benefitting from Ms. Denahan’s invaluable knowledge and expertise regarding the Company’s business. The Lead Independent Director has the following responsibilities:
significant authority and responsibilities |
◆ | THE LEAD INDEPENDENT DIRECTOR | |
■Presides at full meetings of the Board and the Annual Meeting of Stockholders ■Meets with the Lead Independent Director to receive feedback from executive sessions of Independent Directors ■Communicates with all Directors on key issues and concerns outside of Board meetings ■Advises on the selection of committee chairs ■Draws on his knowledge of the Company’s business, operations, industry and competitive developments in setting Board agendas ■Consults with the Lead Independent Director to ensure that Board agendas and information empower the Board to fulfill its responsibilities ■Has authority to call special meetings of the Board if necessary and otherwise updates Directors between meetings through one-on-one or group phone calls ■Authorizes the retention of advisors and consultants who report to management ■Presents the Company’s message and strategy to stockholders, employees and regulators | ■Presides at all meetings of the Board in the absence of or at the request of the Chairman, | |
■Facilitates communication between the Independent Directors and the Chairman of the Board and | ||
CEO ■Advises on the selection of committee chairs | ||
■Approves the quality, quantity and timeliness of information sent to the Board | ||
■Approves Board meeting agendas | ||
■Approves Board meeting schedules to assure there is sufficient time for discussion of all agenda items | ||
■Has authority to call meetings of the Independent Directors | ||
■Authorizes the retention of outside advisors and consultants who report directly to the Board | ||
■If requested by stockholders, ensures that he is available, when appropriate, for consultation and direct communication with major stockholders |
We believeThe Board believes that the Board’sits independent oversight function is further enhanced by ourits policy to hold regular executive sessions of the Independent Directors without management present and the fact that our four standing committees are comprised entirelya majority of Independent Directors.the Company’s Directors (and every member of the Board’s three key committees) is independent.
Executive Sessions of Independent DirectorsEXECUTIVE SESSIONS OF INDEPENDENT DIRECTORS
OurThe Corporate Governance Guidelines require that the Board have at least two regularly scheduled meetingsexecutive sessions of Independent Directors each year for our Independent Directors.year. These meetings,executive sessions, which are designed to promote unfettered discussions among ourthe Independent Directors, are presided over by ourthe Lead Independent Director.Director, or in his or her absence, the chair of the Compensation Committee. During 2015, our2017, the Independent Directors, without the participation of Board members who are members of management, held five meetings.executive sessions.
| 30 | Annaly Capital Management Inc. 2018 Proxy Statement | |
Table of ContentsBoard and Committee Evaluations
Board Structure and Processes
BOARD AND COMMITTEE EVALUATIONS
The Lead Independent Directorand 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. Each standing committeeIn 2018, the Board adopted an enhanced Board self-evaluation process that includes annual assessments of the full Board, evaluateseach 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 annualongoing basis and reportsshares 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 such evaluation.governance trends and board practices.
Governing DocumentsGOVERNING DOCUMENTS
Code of Business Conduct and Ethics
We haveThe 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 our business. This codeCode of Conduct is applicable to ourAnnaly’s Directors, executive officers and employees.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
We haveThe Board has adopted Corporate Governance Guidelines which,that, in conjunction with the charters of ourthe Board committees, provide the framework for the governance of ourthe 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 Our Governing Documents
Ourthe Code of Business Conduct, Corporate Governance Guidelines and Ethics,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 ourAnnaly’s website (www.annaly.com)(www.annaly.com). WeThe 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
Board CommitteesBOARD COMMITTEES
The Board has fourfive standing committees: the Audit Committee, the Compensation Committee, the NCG Committee, and the Risk Committee. Each committee is governed by a written charter approved by the Board and is comprised entirely of Independent Directors, as required under the existing rules of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the NYSE. In addition, each member of the Audit Committee and the Compensationrecently-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 meetsin late 2017. At the additional independence criteria applicable to directors serving on these committees undersame time, the NYSE listing rules.Board reorganized the membership of most of its other committees.
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 2015.2017.
| Director | Audit Committee | Compensation Committee | NCG Committee | Risk Committee | ||||
| Francine J. Bovich(1) | M | M | ||||||
| Kevin P. Brady | C | M | M | |||||
| Jonathan D. Green(2) | M | C | ||||||
| Michael Haylon | M | M | ||||||
| E. Wayne Nordberg | M | C | ||||||
| John H. Schaefer | M | M | M | |||||
| Donnell A. Segalas | C | M | ||||||
| 2015 Meetings: | 5 | 4 | 2 | 4 |
M = MemberC = Chairperson(1) Ms. Bovich was appointed to the NCG Committee in March 2016.(2)Mr. Green serves as the Lead Independent Director. For more details, see page10.
| 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 |
| 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
Committee Members: Kevin P. Brady (Chair) Michael Haylon E. Wayne Nordberg John H. Schaefer Vicki Williams
| Key Responsibilities: ■Reviews and pre-approves the audit and permitted non-audit services and proposed fees of the independent registered public accounting firm ■Prepares the report of the Audit Committee required by the rules of the SEC to be included in the Proxy Statement |
For more information on the Audit Committee’s responsibilities and activities, |
| COMPENSATION COMMITTEE | |||
Committee Members: Donnell A. Segalas (Chair) Jonathan D. Green E. Wayne Nordberg John H. Schaefer Vickie Williams
| Key Responsibilities: ■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, |
| 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. Segalas
| Key Responsibilities: | ||
Each member of the NCG Committee is independent of the Company and management under the applicable listing standards of the NYSE. For more information on the NCG Committee’s responsibilities and activities, |
| PUBLIC RESPONSIBILITY COMMITTEE | |
Committee Members: Jonathan D. Green (Chair) Francine J. Bovich Wellington J. Denahan Katie Beirne Fallon Donnell A. Segalas
| Key Responsibilities: Assists the Board in its oversight of the Company’s items of public responsibility, including: ■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: | ||
| For more information on the Risk Committee’s responsibilities and activities, |
| (1) | The Public Responsibility Committee did not hold any meetings in 2017, as it was established in November 2017. |
| Annaly Capital Management Inc. | |||
Board Structure and Processes
|
Director AttendanceDIRECTOR ATTENDANCE
During 2015, our2017, the Board held 1413 meetings. Each Director attended at least 75% of the aggregate number of meetings held by ourthe Board and 75% of the aggregate number of meetings of each committee on which the Director served.served during the period he or she was on such committee.
We expectThe Company expects each member of the Board to attend ourthe Annual Meeting. All of the Company’s then-Directors attended Annaly’s 2017 annual meeting of stockholders. All of ourstockholders (the “2017 Annual Meeting”). Ms. Fallon and Ms. Williams were appointed as Directors attended our 2015 annual meeting of stockholders.effective January 1, 2018 and, therefore, did not attend the 2017 Annual Meeting.
Compensation of DirectorsCOMPENSATION OF DIRECTORS
We compensate ourThe Company compensates the Independent Directors. Any Director who is also an employee or owner of ourthe Manager does not receive compensation for serving on ourthe Board. OurThe Compensation Committee is responsible for reviewing, and recommending to the Board, the form and amount of compensation paid to ourthe Independent Directors.
The compensation elements paid to ourthe Independent Directors for service on the Board and its committees for 20152017 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 | $ | |
| $ | ||
| $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 | ||
| $ |
| (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 Public Responsibility Committee were paid in 2017, as the committee |
Each DSU is equivalent in value to one share of ourthe Company’s common stock. DSUs are granted on the date of the annual stockholder meeting and vest immediately. DSUs convert to shares of ourthe 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. OurThe Independent Directors are also eligible to receive other stock-based awards under ourthe Company’s equity incentive plan.
We reimburse ourThe Company reimburses the Directors for their reasonable out-of-pocket travel expenses incurred in connection with their attendance at full Board and committee meetings.
Director Stock Ownership Guideline
the Board increased the stock ownership guideline for Directors to 5x the retainer, which is currently $100,000 |
| Annaly Capital Management Inc. 2018 Proxy Statement | 35 | |
No ConflictsTable of Interest forContents
Board Structure and Processes
Role of the Independent Compensation Consultant
During 2015, our2017, the Compensation Committee retained an independent compensation consultant, Frederic W. Cook & Co., a nationally-recognized compensation consulting firm (“F. W. Cook”), to assist the Compensation Committee in its review of the compensation arrangements provided to ourthe 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 the continued engagementno conflict of interest exists that would prevent F. W. Cook does not raise any conflicts of interest.from independently representing the Compensation Committee.
Director Compensation
The table below summarizes the compensation paid by usthe Company to ourthe Independent Directors for the fiscal year ended December 31, 2015.2017.
| Name | Fees Earned or Paid in Cash | Stock Awards(1) | Total | Fees Earned or Paidin Cash | Stock Awards(2) | Total | |||||||
| Francine J. Bovich | $106,000 | $135,000 | $241,000 | $113,000 | $135,000 | $248,000 | |||||||
| Kevin P. Brady | $131,500 | $135,000 | $266,500 | $140,000 | $135,000 | $275,000 | |||||||
| Jonathan D. Green | $133,500 | $135,000 | $268,500 | $154,000 | $135,000 | $289,000 | |||||||
| Michael Haylon | $113,500 | $135,000 | $248,500 | $115,000 | $135,000 | $250,000 | |||||||
| E. Wayne Nordberg | $119,000 | $135,000 | $254,000 | $122,000 | $135,000 | $257,000 | |||||||
| John H. Schaefer | $122,000 | $135,000 | $257,000 | ||||||||||
| Donnell A. Segalas | $119,000 | $135,000 | $254,000 | $122,000 | $135,000 | $257,000 | |||||||
| John H. Schaefer | $119,500 | $135,000 | $254,500 | ||||||||||
| (1) | Ms. Fallon and Ms. Williams were appointed to the Board effective January 1, 2018 and did not receive any compensation for the fiscal year ended December 31, 2017. |
| (2) | The amounts in this column represent the aggregate grant date fair value of the DSU awards, computed in accordance with FASB ASC Topic 718 and based on the closing price of |
The following table sets forth information with respect to the aggregate outstandingunexercised option awards at December 31, 20152017 of each of ourthe Independent Directors. All such option awards have vested. Options are no longer granted as part of the Company’s Director compensation program.
| Name | Option Awards at 12/31/ | ||
| Francine J. Bovich | — | ||
| Kevin P. Brady | 42,500 | ||
| Jonathan D. Green | 90,000 | ||
| Michael Haylon | 75,000 | ||
| E. Wayne Nordberg | |||
| John H. Schaefer | — | ||
| Donnell A. Segalas | |||
| 77,500 |
| Annaly Capital Management Inc. | |||
The following table sets forth certain information with respect to ourthe Company’s executive officers, all of whom are indirect owners and/or employees of ourthe Manager:
| Name | Age | Title | ||
| Kevin G. Keyes | Chairman, Chief Executive Officer | |||
| Glenn A. Votek | Chief Financial Officer | |||
| Chief Investment Officer | ||||
| Timothy P. Coffey | 44 | Chief Credit Officer | ||
| Anthony C. Green | 43 | Chief Legal Officer and Secretary |
Biographical information on Mr. Keyes and Ms. Denahan is provided above under the heading “Election of Directors.Directors.” Certain biographical information for Mr.Messrs. Votek, Finkelstein, Coffey and Mr. SinghGreen 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, (FIDAC)a former wholly-owned subsidiary of the Company, from August 2013 until October 2015.2015 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.
R. Nicholas SinghDavid L. Finkelsteinishas served as Chief LegalInvestment Officer of Annaly since November 2016. Mr. Finkelstein previously served as Annaly’s Chief Investment Officer, Agency and SecretaryRMBS beginning in February 2015 and as Annaly’s Head of Annaly.Agency Trading beginning in August 2013. Prior to joining Annaly, Mr. Singh joinedFinkelstein 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 February 2005.2010, Mr. Singh alsoCoffey 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 FIDACAnnaly since March 2017. Mr. Green previously served as Annaly’s Deputy General Counsel from 2009 until February 2005 until October 2015. From 2001 until he joined2017. Prior to joining Annaly, heMr. Green was a partner in the Corporate, Securities, Mergers & Acquisitions Group at the law firm of McKee NelsonK&L Gates LLP. Mr. SinghGreen has over 18 years of experience in corporate and securities law. Mr. Green holds a B.A. in Economics and Political Science from Carleton College, a M.A. from Columbiathe University of Pennsylvania and a J.D. and LL.M. in International and Comparative Law from American University.Cornell Law School.
Stock Purchases by Executive OfficersSTOCK PURCHASES BY EXECUTIVE OFFICERS SINCE 2011
Since 2011, ourthe executive officers have purchased nearly 1.9over 1.4 million shares of ourthe Company’s common stock (including open market purchases, dividend reinvestments, and option exercises) with an aggregate purchase price of over $22$16.3 million as set forth in the table below.
| Executive Officer | Shares Purchased | Purchase Price | Shares Purchased | Purchase Price(1) | No NEO has ever sold shares of the Company’s common stock | |||||||
| Kevin G. Keyes | 550,000 | $ | 6,313,500 | 934,779 | $ | 10,560,000 | ||||||
| Wellington J. Denahan | 1,059,871 | $ | 12,311,251 | |||||||||
| R. Nicholas Singh | 235,284 | $ | 2,897,730 | |||||||||
| Glenn A. Votek | 50,000 | $ | 525,250 | 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 | No NEO has ever sold shares of the Company’s common stock | ||||||||
| TOTAL | 1,895,155 | $ | 22,047,731 | 1,459,376 | $ | 16,336,000 | ||||||
Rounded to the nearest thousand. |
| 37 | |||
favorably to the management agreements of managed peers |
Management Agreement TermsMANAGEMENT AGREEMENT TERMS
We believeThe Compensation Committee believes that the terms and conditions of the Management Agreement compare favorably to the terms and conditions that exist between ourAnnaly’s externally-managed mortgage REITmREIT 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 ourthe 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 | Mean | Median | Min | Max | Annaly | |||||||||||||
| Agency Residential REITs | ||||||||||||||||||||||
| Base management fee(1) | 1.13% | 1.23% | 0.72% | 1.36% | 1.05% | 1.29% | 1.29% | 1.20% | 1.37% | 1.05% | ||||||||||||
| Initial term in years | 4.5 | 3.0 | 2.0 | 10.0 | 1.5 | 6.0 | 6.0 | 2.0 | 10.0 | 2.0 | ||||||||||||
| Termination fee multiple(2) | 3.3x | 3.0x | 3.0x | 4.0x | None | 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% | 1.50% | 1.50% | 1.50% | 1.50% | 1.05% | |||||||||||||
| Initial term in years(3) | 5.0 | 3.0 | 1.0 | 20.0 | ||||||||||||||||||
| Termination fee multiple(3) | 2.8x | 3.0x | 1.0x | 4.0x | ||||||||||||||||||
| 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 | 1.50% | 1.50% | 1.50% | 1.50% | ||||||||||||||||||
| Base management fee(4) | 1.49% | 1.50% | 1.41% | 1.50% | 1.05% | |||||||||||||||||
| Initial term in years | 2.8 | 3.0 | 1.0 | 3.0 | 4.0 | 3.0 | 1.0 | 15.0 | 2.0 | |||||||||||||
| Termination fee multiple(4) | 3.0x | 3.0x | 1.0x | 3.0x | ||||||||||||||||||
| 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, 2015.2017. 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 representsrepresent the Agency mREIT Peers, withexternally-managed agency mortgage REITs included in the exceptionBBREMTG Index as of CYSDecember 31, 2017 and CMO, which are internally-managed companies;includes Anworth Mortgage Asset Corporation (“ANH”) and ARMOUR Residential REIT, Inc. (“ARR”). Commercial REITs representsrepresent the externally-managed commercial mortgage REITs included in the BBREMTG Index as of MarchDecember 31, 2016 with market capitalization above $200mm2017 and includes Northstar Realty Finance Corp., 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 Inc.(“STWD”) and Newcastle Investment Corp.Sutherland Asset Management (“NCT”SLD”);. Non-Agency Residential/Residential / Hybrid REITs represents the externally-managed non-agency
| 38 | Annaly Capital Management Inc. 2018 Proxy Statement | |
Management Structure
| (1) | For |
| (2) | ARR’s termination fee is calculated |
| (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 |
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, | |
| (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. |
Table of ContentsSTRUCTURE AND AMOUNT OF THE MANAGEMENT FEE
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 management teamManager 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 feeformulatedfee formulated as a percentage of stockholders’ equity (as defined in the Management Agreement) represents a responsible and prudent method of compensating the management team.Manager. In particular, in the context of a mortgage REITan mREIT that uses leverage as a key component of its business strategy, the Compensation Committee considersbelieves that providing for a contractually required payment structured as an “incentive fee” may misalign the goals of the management teamManager from those of the stockholders. For example, an “incentive fee” based on the achievement of return thresholds may encourage the management team to seek the targeted returns by employing an excessive amount of leverage that constitutes an unacceptable risk to the Company and its capital base.
|
Moreover, the Compensation Committee believes that a management fee that is based upon stockholders’ equity along(along with the stock ownership guidelines discussed on page 22, align47) aligns the management team to the goals of the Company. We believeCompany, and that focusing the managementfeemanagement fee on the preservation and growth of the Company’s book value incentivizes ourthe Manager to achieve long-term performance that protects our 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 markets believe our performance warrants it.
We also believe that ourstructure of the management fee structure is more favorable to ourthe Company’s stockholders than if it werethe 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 termshort-term incentive payouts.
Continued Cost Savings RelatedClawback for the Management Fee
Pursuant to the Externalization2016 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
We believeCONTINUED 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 wethe Company paid for the fiscal years ended December 31, 2013,2014, 2015, 2016 and 20152017 against the estimated compensation costs (including tax costs) wethe Company would have paid for the same period if those costs remained what they were in 2012, we estimatemanagement estimates that the Externalization has resulted in total compensation savings, including tax savings, (calculated in accordance with GAAP) of approximately $100$276 million.
As illustrated by the table below, the management fee for each of 2013(1), 2014, 2015, 2016 and 20152017 is significantly lower than ourthe Company’s 2012 compensation expenses (which is represented by the dashed bluedark gray line):
| Management Fee/Compensation Expense(2),(3) |
| (1) | Although |
| (2) | Assumes compensation costs for each of 2013, 2014, 2015, 2016 and |
| (3) | Gray shaded area represents compensations savings (exclusive of tax savings). |
Annual Review of Manager Performance and Management Fee ConsiderationsANNUAL REVIEW OF MANAGER PERFORMANCE AND MANAGEMENT FEE CONSIDERATIONS
The Compensation Committee annually reviews ourthe Manager’s performance and management fee against both our historical results and our mortgage REITthe Company’s mREIT peers, based on a number of metrics, including those discussed above in the “Proxy Summary” and the expense ratios discussed below.
| The Compensation Committee annually reviews both the Manager’s performance and the terms and conditions of the Management Agreement |
| 40 | Annaly Capital Management Inc. 2018 Proxy Statement | |
Management FeeStructure
Peer Comparison of Operating Expenses as a Percentage of OurAverage Assets and Average Stockholders’ Equity
The Compensation Committee reviews (i) the management fee and (ii) ourCompany’s total operating expenses (including the management fee), as a percentage of ourboth average assets and average stockholders’ equity.equity, among other metrics. The CompensationCommitteeCompensation Committee believes this ratio is an important indicatorthese ratios, which allow comparison of the Manager’s performance of our Manager as it measuresagainst the Company’s internally- and externally-managed mREIT peers, measure the extent to which we operatethe Manager operates in an economically efficient manner.
As illustrated by the following table, as a percentage of average stockholders’ equity, the management fee for 2015 is lower than the Company’s pre-Externalization peak expense ratio.
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | Average | |||||||
| 0.19% | 0.22% | 0.24% | 0.25% | 0.25% | 0.25% | 0.23% | ||||||
| Internally-Managed Peers | 0.54% | 1.05% | 0.87% | 0.72% | 0.37% | 0.44% | 0.67% | ||||||
| Externally-Managed Peers | 0.67% | 0.63% | 0.75% | 0.81% | 0.74% | 0.74% | 0.72% | ||||||
| mREIT Index | 0.62% | 0.74% | 0.77% | 0.80% | 0.60% | 0.62% | 0.69% |
| 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% |
We believe this analysis indicates that our Manager continued to preserve our capital in an economically efficient manner in 2015.
Peer Comparison of Operating Expenses as a Percentage of Average Stockholders’ Equity
Reviewing our annual total operating expenses as a percentage of average stockholders’ equity allows the Compensation Committee to compare the performance of our Manager to both our internally- and externally-managed mortgage REIT peers.
| 2012 | 2013 | 2014 | 2015 | Average | |||||||||||||||
 | ANNALY | 1.45 | % | 1.66 | % | 1.61 | % | 1.58 | % | 1.58 | % | ||||||||
| Internally-Managed Peers | 2.72 | % | 3.83 | % | 4.13 | % | 3.84 | % | 3.63 | % | |||||||||
| Externally-Managed Peers | 2.20 | % | 2.88 | % | 3.57 | % | 3.75 | % | 3.10 | % |
Source: Company Filings, SNL and Bloomberg. Averages are market weighted based on market capitalization as of DecemberDec. 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 with market capitalization above $200mm 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 ourits internally- and externally-managed mortgage REITmREIT peers over the last foursix fiscal years. In this regard, the Compensation Committee has viewed the Company’s performance as an indicator that, among other things, ourthe Manager has managed the Company in an efficient manner with appropriately scaled operating costs (including the management fee).
| 41 | |||
>Compensation Paid by the Manager to the Named Executive Officers
The NEOs for 2017 are:
| Name | Title | |
| Kevin G. Keyes | Chairman, Chief Executive Officer (CEO) and President | |
| Glenn A. Votek | Chief Financial Officer (CFO) | |
| David L. Finkelstein | Chief Investment Officer (CIO) | |
| Timothy P. Coffey | Chief Credit Officer (CCO) | |
| Anthony C. Green | Chief Legal Officer (CLO) and Secretary |
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:
| ■ | The portion of the management fee that is allocated to NEO compensation paid by the Manager; |
| ■ | Of this compensation, the breakdown of fixed vs. variable/incentive pay; and |
| ■ | The metrics the Manager uses to measure performance to determine the NEOs’ variable/incentive pay. |
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.
| 42 | Annaly Capital Management Inc. 2018 Proxy Statement | |
Compensation Paid by the Manager to the Named Executive Officers
Summary of 2017 NEO Compensation
| ■ | 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 CEO, but does have an interest in the fees paid to the Manager as an equityholder of the parent of the Manager), each of the other 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, 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 below under “Company Market Data”), together with advice from the Manager’s compensation consultants, to develop appropriate compensation packages for the NEOs. |
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.
| Compensation Element | What It Does | Key Measures | ||
| Base Salary | ■Provides a level of fixed pay appropriate to an executive’s role and responsibilities ■Evaluated on an annual basis, may be adjusted up or down | ■Experience, duties and scope of responsibility ■Internal and external market factors | ||
| Performance - Based Cash Incentive Bonus | ■Provides a competitive annual cash incentive opportunity ■Links executives’ interests with stockholders’ interests ■Incentivizes and rewards superior individual and Company performance | ■Based on achievement of both rigorous Company performance metrics (including core return on equity, core return on assets and operating expenses as percentage of average equity), together with individual performance objectives |
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.
| Annaly Capital Management Inc. 2018 Proxy Statement | 43 | |
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.
| 2017 NEO Fixed vs. Variable Pay Mix |
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.
| The Manager considers both industry and company- specific dynamics to identify the peers with which the Company competes for assets, stockholders and talent |
COMPENSATION PEER GROUP
| Affiliated Managers Group, Inc. | Fortress Investment Group LLC | Northern Trust Corporation |
| AGNC Investment Corp. | Franklin Resources, Inc. | Raymond James Financial, Inc. |
| Ameriprise Financial, Inc. | Invesco Ltd. | Starwood Property Trust, Inc. |
| Ares Capital Corporation | KKR & Co. L.P. | T. Rowe Price Group, Inc. |
| Ares Management, L.P. | Lazard Ltd | TD Ameritrade Holding Corporation |
| ARMOUR Residential REIT, Inc. | Legg Mason, Inc. | The Blackstone Group L.P. |
| E*TRADE Financial Corporation | Leucadia National Corporation | The Carlyle Group L.P. |
| Eaton Vance Corp. | New Residential Investment Corp. | Waddell & Reed Financial, Inc. |
| 44 | Annaly Capital Management Inc. 2018 Proxy Statement | |
The Board is committed to corporate governance best practices and recognizes the significant interest of stockholders in executive compensation matters. As described in detail under the headings “
The Board recommends that the stockholders vote in favor of the following resolution: “RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and related narrative discussion, is hereby APPROVED.” While this vote is advisory and | ||||
 | The Board recommends a vote | |||
COMPENSATION DISCUSSION AND ANALYSIS
As discussed above, the Manager pays all of the compensation, including benefits, to its employees (including the NEOs other than Mr. Keyes). Although certain personnel (but none of the NEOs) are employed by the Company’s subsidiaries for regulatory or corporate efficiency reasons, all compensation and benefits paid to such personnel by the Company’s subsidiaries reduce, on a dollar-for-dollar basis, the management fee the Company pays to the Manager. The proceeds of the management fee are used in part to pay compensation to the Manager’s personnel, including the NEOs other than Mr. Keyes (who does not receive any compensation for serving as the Company’s CEO, but has an interest in the management fee as an indirect equityholder of the Manager); however, the Company does not determine the compensation payable by the Manager to the NEOs, the Company does not allocate any specific portion of the management fee it pays to the compensation of the NEOs, nor does it reimburse the Manager for the cost of such compensation.
| Annaly Capital Management Inc. 2018 Proxy Statement | 45 | |
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:
| ■ | Outreach to investors representing approximately 72% of shares held by institutional stockholders, including 92% of the Company’s 50 largest stockholders and 96% of the Company’s 25 largest stockholders |
| ■ | 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 |
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 reached out to 92% of its 50 largest stockholders |
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.”
| 46 | Annaly Capital Management Inc. 2018 Proxy Statement | |
Executive Compensation
EXECUTIVE COMPENSATION POLICIES
Stock Ownership Guidelines/Commitments
| Position | Number of Individuals | Annaly Stock Ownership Guideline/Commitment | Timeframe to Meet Guideline/Commitment | |||
| Chief Executive Officer(1) | 1 | $15,000,000 | July 2020 | |||
| Other Operating Committee Members(2) | 9 | 30% of Annual Total Compensation | 5 years | |||
| Managing Directors | 23 | 20% of Annual Total Compensation | 5 years | |||
| Director-Level Employees | 28 | 10% of Annual Total Compensation | 5 years | |||
| Total | 61 |
| (1) | In July 2017, Mr. Keyes voluntarily committed to increase his stock ownership position beyond his Board-approved ownership guideline of $10 million. Mr. Keyes has pledged to meet his enhanced $15 million commitment solely through additional open market purchases of the Company’s common stock. |
| (2) | In July 2017, other members of senior management (including the CIO, CCO, CFO and CLO) voluntarily committed to increase their stock ownership positions beyond the guideline of 30% of annual total compensation adopted by the Board. Like Mr. Keyes, these officers have agreed to achieve their increased stock ownership commitments by July 2020 solely through open market purchases of the Company’s common stock. |
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.
Under a policy adopted by the Compensation Committee Reportin 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.
| The NEOs voluntarily committed to increase their NLY positions beyond the amounts stated under their ownership guidelines |
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.
| Annaly Capital Management Inc. 2018 Proxy Statement | 47 | |
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 that the Compensation Discussion and Analysis be included in this proxy statement.
Donnell A. Segalas (Chair) John H. Schaefer Jonathan D. Green E. Wayne NordbergProxy Statement.
| Jonathan D. Green |
Summary Compensation Committee InterlocksTable
The Company did not pay any compensation to the NEOs with respect to the years ended December 31, 2017, December 31, 2016 or December 31, 2015.
Grants of Plan-Based Awards
The Company did not grant the NEOs any plan based awards in 2017.
Outstanding Equity Awards at Fiscal Year-End
None of the NEOs had outstanding equity awards at December 31, 2017.
Options Exercised and Insider ParticipationStock Vested
OurNo options were exercised and no stock vested for the NEOs during 2017.
| The Company did not pay any cash or equity compensation to the NEOs for 2017. The Company does not provide them with pension benefits, perquisites or other personal benefits. |
Pension Benefits and Nonqualified Deferred Compensation
The Company does not provide the NEOs with any benefits pursuant to defined benefit plans and nonqualified deferred compensation plans.
Potential Payments upon Termination or Change in Control
The Company is not responsible for any amounts payable or any additional vesting of outstanding equity awards for any termination of service by any of the NEOs. No amounts would have been payable by the Company to any of the NEOs upon a change in control as of December 31, 2017.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised solely of the following Independent Directors: Messrs. Segalas (Chair), Green, Nordberg and Schaefer and Nordberg.Ms. Williams. None of them is serving or has served as an officer or employee of usthe Company or any affiliate or has any other business relationship or affiliation with us,the Company, except his service as a Director, and there are no other Compensation Committee interlocks that are required to be reported under the rules and regulations of the Exchange Act.
Named Executive OfficersCEO PAY RATIO
Our named executive officers (“NEOs”) for 2015 are:
Compensation Discussion and Analysis
As discussed above, our Manager paysEffective July 1, 2013, all of the compensation, including benefits, to our executive officers (who areCompany’s employees were terminated by the Company and were hired by the Manager. However, a limited number of employees remain as employees of our Manager) and our Manager’s other employees. Although limited personnel (but none of our executive officers) are employed by ourthe Company’s subsidiaries for regulatory or corporate efficiency reasons, allreasons. All compensation and benefits paid to such personnel by ourthe Company’s subsidiaries reduce, on a dollar-for-dollar basis, the management fee we paythe Company pays to ourthe Manager.
Accordingly, we did not pay any cash At December 31, 2017, the Company’s measurement date for identifying the median employee, the Company’s subsidiaries had six full-time employees (and no part-time employees). The Company chose total compensation to our executive officers, nor did we grant them any plan-based awards, for 2015. We do not provide our executive officersin accordance with pension benefits, perquisites or other personal benefits. We do not have any employment agreements with our executive officers and do not have arrangements to pay them any cash severance upon their termination or a change in controlthe requirements of the Company. As a result, no compensation is includable in the Summary Compensation Table foras its consistently applied compensation measure to identify the NEOs for 2015.
Pursuantmedian employee. The Company’s median employee compensation as calculated using the Summary Compensation Table requirements was $229,408 in 2017. The Company does not provide any compensation to the terms ofCEO. As a result, the Management Agreement, weCEO to median employee pay our Manager a monthly management fee equal to 1/12th of 1.05% of our stockholders’ equity, as defined in the Management Agreement, for its management services, which was approximately $150.3 million during the year ended December 31, 2015. No specific portion of the management fee is allocated to the compensation of our NEOs.
Our Manager, which is a private company thatratio is not subject to the disclosure requirements of the SEC, has sole discretion to determine the compensation it pays to its employees, including our executive officers. Our Compensation Committee has no authority to influence or determine how our Manager compensates its employees, some of whom are our executive officers. Our Manager does not consult with or disclose toapplicable.
This information is being provided for compliance purposes. Neither the Compensation Committee any determinations made regarding the compensation of our executive officers, including how much such officers are paid. Rather, as discussed above, the Compensation Committee is responsible for annually reviewing the performance of, and fees paid to, our Manager under the Management Agreement and for making recommendations to the independent membersnor management of the Board. For additional information, please see “Certain Relationships and Related Party Transactions” and “Our Management Structure” above.Company used the pay ratio measure in making compensation decisions.
Consideration of “Say-on-Pay” Voting Results
At our 2015 annual meeting of stockholders, we submitted a non-binding advisory vote on the fiscal year 2014 compensation of our NEOs (commonly known as a “Say-on-Pay” vote) for the consideration of our stockholders. The Compensation Committee reviewed the results of this Say-on-Pay vote, which received support from approximately 94% of the votes cast.
As discussed above, in 2015, we paid our Manager a management fee, and the Manager paid all of the compensation of our NEOs. Although our NEOs are eligible to receive equity awards pursuant to our equity incentive plan administered by the Compensation Committee, no such awards were granted to any of our NEOs in 2015.
The Compensation Committee and the rest of our Board will continue to consider the outcome of future Say-on-Pay votes, as well as stockholder feedback received throughout the year, when making compensation decisions regarding any plan-based awards under our equity incentive plan. Stockholders are invited to express their views to the Compensation Committee as described under “Communications with the Board.”
Executive Compensation Policies
Clawback for the Management Fee
Pursuant to the 2016 amendment and restatement of the management agreement, the Company will seek, and be entitled to receive, reimbursement from our 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 our Manager.
Stock Ownership Guidelines for Certain Employees
To align the interests of the employees of our Manager with those of our stockholders, the Board has instituted expanded stock ownership guidelines for certain employees and Manager personnel, including our NEOs. In 2016, our Board approved revising our existing stock ownership guidelines to require stock ownership as follows:
| Position | Number of Individuals | Required Ownership of Annaly Stock | Timeframe to Meet Guideline | |||
| Chief Executive Officer | 1 | $10,000,000 | 3 years | |||
| Executive Chairman | 1 | Maintain current holdings(1) | N/A | |||
| Chief Legal Officer | 1 | $4,500,000 | July 1, 2016 | |||
| Other Operating Committee Members | 7 | 30% of Annual Total Compensation | 5 years | |||
| Managing Directors | 20 | 20% of Annual Total Compensation | 5 years | |||
| Director-Level Employees | 33 | 10% of Annual Total Compensation | 5 years | |||
| Total | 63 |
These stock ownership guidelines apply to more than 40% of our employees and Manager personnel. As of March 31, 2016, 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, our employees and Manager personnel (including our 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
We have a policy prohibiting our employees and Manager personnel (including our executive officers) from engaging in any hedging transactions with respect to our equity 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 our equity securities.
Prohibition on Pledging Company Securities
In 2016, we adopted a policy prohibiting our employees and Manager personnel (including our 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
In 2015, the Board reviewed its risk assessment of the Company’s compensation policies and practices applicable to the Company’s equity incentive plans with the Compensation Committee. Following this annual review, 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 us.
Summary Compensation Table
The table below sets forth the total compensation we paid to our NEOs with respect to the years ended December 31, 2015, December 31, 2014 and December 31, 2013.
| All Other | ||||||||
| Name and Principal Position(1) | Year | Salary($) | Compensation($) | Total($) | ||||
| Kevin G. Keyes Chief Executive Officer and President | 2015 | – | – | – | ||||
| 2014 | – | – | – | |||||
| 2013 | 375,000 | 3,448 | 378,448 | |||||
| Glenn A. Votek Chief Financial Officer | 2015 | – | – | – | ||||
| 2014 | – | – | – | |||||
| 2013 | 91,346 | 48 | 91,394 | |||||
| Wellington J. Denahan Executive Chairman and former Chief Executive Officer | 2015 | – | – | – | ||||
| 2014 | – | – | – | |||||
| 2013 | 1,500,000 | 5,148 | 1,505,148 |
Grants of Plan-Based Awards
We did not grant our NEOs any plan based awards in 2015.
Outstanding Equity Awards at Fiscal Year-End
The following table provides information about Ms. Denahan’s outstanding equity awards at December 31, 2015. Neither Mr. Keyes nor Mr. Votek had outstanding equity awards at December 31, 2015.
| Number of | Equity Incentive Plan | |||||||||
| Securities | Awards: Number of | |||||||||
| Underlying | Number of Securities | Securities Underlying | ||||||||
| Unexercised | Underlying | Unexercised | Option | Option | ||||||
| Options | Unexercised Options | Unearned | Exercise | Expiration | ||||||
| Name | Exercisable(#)(1) | Unexercisable(#) | Options(#) | Price($) | Date | |||||
| Wellington J. Denahan | 150,000 | – | – | 15.70 | 5/17/17 | |||||
| 200,000 | – | – | 16.46 | 5/8/18 | ||||||
| 200,000 | – | – | 15.61 | 9/19/18 |
Options Exercised and Stock Vested
No options were exercised and no stock vested for our NEOs during 2015.
Pension Benefits and Nonqualified Deferred Compensation
We do not provide our NEOs any benefits pursuant to defined benefit plans and nonqualified deferred compensation plans.
Potential Payments upon Termination or Change in Control
We are not responsible for any amounts payable or any additional vesting of outstanding equity awards for any termination of service by any of our NEOs. No amounts would have been payable by us to any of our NEOs upon a change in control as of December 31, 2015.
Report of REPORT OF THE AUDIT COMMITTEE
The Audit Committee operates pursuant to a charter which it reviews annually, and a brief description of the Audit Committee’s primary responsibilities is included under the heading “Board Committees – Audit Committee” in this Proxy Statement. Under the Audit Committee’s charter, management is responsible for the preparation of the Company’s financial statements and the independent registered public accounting firm is responsible for auditing those financial statements and expressing an opinion as to their conformity with U.S.generally accepted accounting principles. In addition, the independent registered public accounting firm is responsible for auditing and expressing an opinion on the Company’s internal controls over financial reporting.
| The Audit Committee is responsible for the appointment, compensation, retention and oversight of the independent auditors |
The Audit Committee has reviewed and discussed ourAnnaly’s audited financial statements with management and with Ernst & Young, ourthe Company’s independent auditorsauditor for 2015.2017.
The Audit Committee has discussed with Ernst & Young the matters required to be discussed by Statement on Auditing Standards No. 61, as amended.
The Audit Committee has received from Ernst & Youngapplicable standards adopted by the written statements required by Public Company Accounting Oversight Board, (PCAOB) Rule No. 3526, “Communications with Audit Committees Concerning Independence,” and has discussedincluding matters concerning Ernst & Young’s independence with Ernst & Young.independence.
In reliance on these reviews and discussions, and the report of the independent registered public accounting firm, the Audit Committee has recommended to ourthe Board, and ourthe Board has approved, that the audited financial statements be included in ourthe Company’s Annual Report on Form 10-K for the year ended December 31, 2015 for filing2017 filed with the SEC.
The foregoing report has been furnished by the Audit Committee:
Kevin P. Brady (Chair) Francine J. Bovich Michael Haylon John H. Schaefer
| Michael Haylon | E. Wayne Nordberg | John H. Schaefer | Vicki Williams |
| 49 | ||
Audit Committee Matters
|
Relationship with Independent Registered Public Accounting FirmRELATIONSHIP WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The aggregate fees billed for 20152017 and 20142016 by E&Y for each of the following categories of services are set forth below:
| Service Category | 2015 | 2014(1) | 2017 | 2016 | ||||||||
| Audit | $ | 2,129,350 | $ | 2,081,800 | $ | 2,498,876 | $ | 2,416,392 | ||||
| Audit-Related | 127,500 | 75,000 | 61,000 | 30,000 | ||||||||
| Tax | 238,310 | 96,070 | 232,000 | 239,900 | ||||||||
| All Other | – | – | – | – | ||||||||
| Total | $ | 2,495,160 | $ | 2,252,870 | $ | 2,791,876 | $ | 2,686,292 | ||||
| (1) | Audit fees primarily relate to integrated audits of the Company’s annual consolidated financial statements and |
| (2) | Audit-Related fees are primarily for assurance and related services that are traditionally performed by the independent registered public accounting firm and include due diligence and accounting consultations. |
| (3) | Tax fees are primarily for preparation of tax returns and compliance services and tax consultations. |
| (4) | All Other fees are for those services not described in one of the other categories. |
Audit fees primarily relate to integrated audits of our annual consolidated financial statements and internal control over financial reporting under Sarbanes-Oxley Section 404, reviews of our quarterly consolidated financial statements, audits of our subsidiaries’ financial statements and comfort letters and consents related to SEC registration statements.
Audit-Related fees are primarily for assurance and related services that are traditionally performed by the independent registered public accounting firm and include due diligence and accounting consultations.
Tax fees are primarily for preparation of tax returns and compliance services and tax consultations.
All Other fees are for those services not described in one of the other categories.
The Audit Committee has also adopted policies and procedures for pre-approving all non-audit work performed by ourthe independent registered public accounting firm. The Audit Committee retained E&Y to provide certain non-audit services in 2015.2017, all of which were pre-approved by the Audit Committee. Specifically, the Audit Committee pre-approved the use of E&Y for the following categories of non-audit services:
| |
accounting consultations on matters addressed during the audit or interim reviews | |
| |
tax compliance and consultations |
The Audit Committee determined that the provision by E&Y of these non-audit services is compatible with E&Y maintaining its independence.
The Audit Committee requires |
We understandThe Company understands the need for E&Y to maintain objectivity and independence as the auditor of ourits financial statements and our internal control over financial reporting. TheIn accordance with SEC rules, the Audit Committee requires the lead E&Y partner assigned to ourAnnaly’s audit to be rotated at least every five years, and we expect that the Audit Committee and its chair will beis involved in selecting each new lead audit partner. OurThe Audit Committee approved the hiring of E&Y to provide all of the services detailed above prior to such independent registered public accounting firm’s engagement. None of the services related to theAudit-Related Feesdescribed above was approved by the Audit Committee pursuant to a waiver of pre-approval provisions set forth in applicable rules of the SEC.
| Annaly Capital Management Inc. | |||
Security Ownership of Certain Beneficial Owners and ManagementSECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 29, 201626, 2018 relating to the beneficial ownership of ourthe Company’s common stock by (i) each NEO, (ii) each Director and nominee for Director, (iii) all of our executive officers and Directors as a group, and (iv) all persons that we knowthe Company knows beneficially own more than 5% of ourits outstanding common stock. Knowledge of the beneficial ownership of ourthe Company’s common stock is drawn from statements filed with the SEC pursuant to Section 13(d) or 13(g) of the Exchange Act.
| Amount and Nature of | ||||||||||
| Beneficial Owner(1) | Beneficial Ownership(2) | Percent of Class(3) | Amount and Nature of Beneficial Ownership(2) | Percent of Class(3) | ||||||
| Kevin G. Keyes | 609,080 | * | 984,779 | * | ||||||
| Glenn A. Votek | 93,597 | * | ||||||||
| David L. Finkelstein | 300,000 | * | ||||||||
| Timothy P. Coffey | 38,000 | * | ||||||||
| Anthony C. Green | 101,000 | * | ||||||||
| Kevin P. Brady(4) | 260,836 | * | ||||||||
| Francine J. Bovich | 76,574 | * | ||||||||
| Wellington J. Denahan | 2,223,134 | * | 2,198,414 | * | ||||||
| Glenn A. Votek | 53,059 | * | ||||||||
| Kevin P. Brady(4) | 228,810 | * | ||||||||
| Katie Beirne Fallon(5) | – | * | ||||||||
| Jonathan D. Green | 179,643 | * | 214,778 | * | ||||||
| Michael Haylon | 118,893 | * | 154,028 | * | ||||||
| Donnell A. Segalas | 194,060 | * | ||||||||
| E. Wayne Nordberg(5) | 196,143 | * | ||||||||
| E. Wayne Nordberg(6) | 231,278 | * | ||||||||
| John H. Schaefer | 75,171 | * | 108,679 | * | ||||||
| Francine J. Bovich | 28,548 | * | ||||||||
| All executive officers and Directors as a group (11 people) | 4,375,640 | * | ||||||||
| BlackRock, Inc.(6) | 73,835,633 | 8.0% | ||||||||
| The Vanguard Group, Inc.(7) | 63,028,900 | 6.8% | ||||||||
| Donnell A. Segalas(7) | 259,386 | * | ||||||||
| Vicki Williams(5) | – | * | ||||||||
| All executive officers and Directors as a group (15 people) | 5,021,349 | * | ||||||||
| BlackRock, Inc.(8) | 98,137,061 | 8.5% | ||||||||
| The Vanguard Group, Inc.(9) | 97,590,302 | 8.4% | ||||||||
| * | Represents beneficial ownership of less than one percent of the common stock. |
| (1) | The business address of each Director and NEO is c/o Annaly Capital Management, Inc., 1211 Avenue of the Americas, New York, NY 10036. To the best of |
| (2) | For purposes of this table, “beneficial ownership” is determined in accordance with Rule 13d-3 under the Exchange Act, pursuant to which a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person, or such group of persons, has the right to acquire within 60 days of the date of determination. |
| (3) | For purposes of computing the percentage of outstanding shares of common stock held by each person or group of persons named above, any shares which such person or group of persons has the right to acquire within 60 days, including vested options and DSUs, are deemed to be outstanding for the purpose of computing the percentage of outstanding shares of the class owned by such person or group of persons, but are not deemed to be outstanding for the purpose of computing the percentage of outstanding shares owned by any other person or group of persons. |
| (4) | Includes: (i) 48,750 shares owned by the Kevin P. Brady Family Trust, (ii) 42,500 shares owned by Mr. Brady’s wife, (iii) 1,500 shares owned by Mr. Brady’s |
| (5) | Appointed to the Board effective January 1, 2018. |
| (6) | Includes: (i) 10,000 shares owned by the Olivia Nordberg Trust and (ii) 9,000 shares owned by Mr. Nordberg’s spouse. |
Includes: (i) 3,000 shares owned by the Hercules Segalas Irrevocable Trust, (ii) 900 shares owned by Mr. Segalas’s daughters, and (iii) 2,100 shares owned by the Katherine Lacy Segalas Devlin Irrevocable Trust. Mr. Segalas disclaims beneficial ownership of these 6,000 shares. |
| Annaly Capital Management Inc. 2018 Proxy Statement | 51 | |
Stock Ownership Information
| (8) | BlackRock, Inc., 55 East 52nd Street, New York, NY |
The Vanguard Group, Inc., 100 Vanguard Blvd., Malvern, PA 19355, as a parent holding company or control person of certain named funds (“Vanguard”), filed a Schedule 13G/A on February 12, |
SectionSECTION 16(a) Beneficial Ownership Reporting ComplianceBENEFICIAL OWNERSHIP REPORTING COMPLIANCE
We believeThe Company believes that based solely on ourits review of the reports filed during the fiscal year ended December 31, 20152017 and on the written representations of those filing reports, all filing requirements under Section 16(a) of the Exchange Act, as amended, applicableforms required to ourbe filed by Annaly’s executive officers, Directors and beneficial owners of more than ten percent of ourits common stock were complied withfiled on a timely basis except thatand in compliance with Section 16(a) of the Statements of Changes in Beneficial Ownership of Securities on Form 4 were not timely filed to report the acquisition of DSUs on May 21, 2015 by each of our Independent Directors (and, in the case of Mr. Brady only, the conversion of previously granted DSUs into common shares and the acquisition of such common shares by Mr. Brady on May 22, 2015) and were filed on June 2, 2015. The Company files the required reports on behalf of its executive officers and Directors.Exchange Act.
| Annaly Capital Management Inc. | |||
Access to FormACCESS TO FORM 10-K
On written request, wethe Company will provide without charge to each record or beneficial holder of ourthe Company’s common stock as of the close of business on March 29, 201626, 2018 (the “Record Date”) a copy of our annual reportthe Company’s Annual Report on Form 10-K for the year ended December 31, 2015,2017, as filed with the SEC. You should address your request to Investor Relations, Annaly Capital Management, Inc., 1211 Avenue of the Americas, New York, NY10036 or email your request to us at investor@annaly.com.
You may also access such report on ourAnnaly’s website,www.annaly.com, under “Investors- SEC Filings.”
Stockholder ProposalsSTOCKHOLDER PROPOSALS
Any stockholder intending to presentpropose a proposalmatter for consideration at our 2017 annual meeting of stockholdersthe Company’s 2019 Annual Meeting and have the proposal included in the proxy statement and form of proxy for such meeting must, in addition to complying with the applicable laws and regulations governing submissions of such proposals (Rule 14a-8 of the Exchange Act), submit the proposal in writing to us no later than December 13, 2016.11, 2018.
Pursuant to ourthe Company’s current Amended and Restated Bylaws ("Bylaws"(“Bylaws”), any stockholder intending to nominate a Director or present a proposal at an annual meeting of our stockholders that is not intended to be included in the proxy statementProxy Statement for such annual meeting must notify us in writingprovide written notification not lesslater than 5:00 p.m. Eastern Time on the date that is 120 days prior to the first anniversary of the date of the proxy statement for the preceding year’s annual meeting nor moreearlier than 150 days prior to the first anniversary of the date of the proxy statementProxy Statement for the preceding year’s annual meeting. Accordingly, any stockholder who intends to submit such a nomination or such a proposal at our 2017 annual meeting of stockholdersthe 2019 Annual Meeting must notify us in writingprovide written notification of such proposal by December 13, 2016,11, 2018, but in no event earlier than November 13, 2016.11, 2018.
Any such nomination or proposal should be sent to Chief Legal Officer and Secretary, Annaly Capital Management, Inc., 1211 Avenue of the Americas, New York, NY 10036 and, to the extent applicable, must include the information required by ourthe Company’s Bylaws.
As of the date of this proxy statement,Proxy Statement, the Board does not know of any matter that will be presented for consideration at the Annual Meeting other than as described in this proxy statement.Proxy Statement.
Questions and Answers about the Annual MeetingQUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
| When and where is the Annual Meeting? | ||
| A | The Annual Meeting will be held on | |
| Q | Why did I receive a Notice in the mail regarding the Internet availability of proxy materials instead of a paper copy of proxy materials? | |
| A | The SEC has approved “Notice and Access” rules relating to the delivery of proxy materials over the Internet. These rules permit the Company to furnish proxy materials, including this Proxy Statement and the Annual Report, to stockholders by providing access to such documents on the Internet instead of mailing printed copies. Most stockholders will not receive paper copies of the proxy materials unless they request them. Instead, the Notice, which will be mailed to stockholders, provides instructions regarding how you may access and review all of the proxy materials on the Internet. The Notice also instructs you as to how you may authorize your proxy via the Internet or by telephone. If you would like to receive a paper or email copy of the Company’s proxy materials, you should follow the instructions for requesting such materials printed on the Notice. | |
| Annaly Capital Management Inc. 2018 Proxy Statement | 53 | |
Other Information
| Can I vote my shares by filling out and returning the Notice? | ||
| A | No. The Notice identifies the items to be voted on at the Annual Meeting, but you cannot vote by marking the Notice and returning it. The Notice provides instructions on how to authorize your proxy via the Internet or by telephone or how to vote at the Annual Meeting or to request a paper proxy card, which will contain instructions for authorizing a proxy by the Internet, by telephone or by returning a signed paper proxy card. | |
| Q | Who is entitled to vote at the Annual Meeting? | |
| A | Only common stockholders of record as of the close of business on the Record Date (March | |
| Q | How can I vote my shares? | |
| You may vote online during the Annual Meeting prior to the closing of the polls at www.virtualshareholdermeeting.com/NLY2018, or by proxy via Internet (www.proxyvote.com), telephone (1-800-690-6903), or by completing and returning your proxy card. The Company recommends that you vote by proxy even if you plan to virtually attend the Annual Meeting as you can always change your vote online at the meeting. You can authorize a proxy to vote via the Internet or by telephone at any time prior to 11:59 p.m., Eastern Time, May 22, 2018, the day before the meeting date. | ||
| Q | What quorum is required for the Annual Meeting? |
| A | A quorum will be present at the Annual Meeting if a majority of the votes entitled to be cast are present, in person or by proxy. |
“Majority” means (a) with regard to an uncontested election of Directors, the affirmative vote of a majority of all the votes cast on the election of each Director; provided, however, that in a contested election of Directors where the number of nominees exceeds the number of Directors to be elected, the Directors shall be elected by a plurality of the votes cast; and (b) with regard to the advisory approval of our executive compensation and the ratification of the appointment of Ernst & Young, a majority of the votes cast at the Annual Meeting.
“Discretionary voting” occurs when a bank, broker, or other holder of record does not receive voting instructions from the beneficial owner and votes those shares in its discretion on any proposal as to which the rules of the NYSE permit such bank, broker, or other holder of record to vote. When banks, brokers, and other holders of record are not permitted under the NYSE rules to vote the beneficial owner’s shares on a proposal, and there is at least one other proposal on which discretionary voting is allowed, the affected shares are referred to as broker “non-votes.”
share. Abstentions and broker “non-votes” will be treated as shares that are present and entitled to vote for purposes of determining the presence of a quorum.
| |||
| Q | What are the voting requirements that apply to the proposals discussed in this Proxy Statement? |
| A | Proposal | Vote Required | Discretionary Voting Allowed? | Board Recommendation | ||||
| (1) | Election of Directors listed herein | Majority | No | FOR | ||||
| (2) | Advisory approval of executive compensation | Majority | No | FOR | ||||
| (3) | Ratification of the appointment of Ernst & Young for 2018 | Majority | Yes | FOR | ||||
| “Majority” means (a) with regard to an uncontested election of Directors, the affirmative vote of a majority of total votes cast for and against the election of each Director; and (b) with regard to the advisory approval of executive compensation and the ratification of the appointment of Ernst & Young, a majority of the votes cast at the Annual Meeting. | ||
| “Discretionary voting” occurs when a bank, broker, or other holder of record does not receive voting instructions from the beneficial owner and votes those shares in its discretion on any proposal as to which the rules of the NYSE permit such bank, broker, or other holder of record to vote (“routine matters”). When banks, brokers, and other holders of record are not permitted under the NYSE rules to vote the beneficial owner’s shares on a proposal (“non-routine matters”), if you do not provide voting instructions, your shares will not be voted on such proposal. This is referred to as a broker “non-vote.” | ||
| For each of the proposals above, you can vote or authorize a proxy to vote “FOR,” “AGAINST” or “ABSTAIN.” | ||
| Q | What is the effect of abstentions and broker | |
| A | Abstentions will have no effect on any of the proposals submitted at the Annual Meeting. | |
| Broker “non-votes”, if any, will have no effect on Proposal 1 or Proposal 2, and are not applicable to Proposal 3. | ||
| 54 | Annaly Capital Management Inc. 2018 Proxy Statement | |
Other Information
| How will my shares be voted if I do not specify how they should be voted? | |||
| A | Properly executed proxies that do not contain voting instructions will be voted as follows: | ||
| (1) | Proposal No. 1: FOR the election of | ||
| (2) | Proposal No. 2: FOR the approval, on a non-binding and advisory basis, of | ||
| (3) | Proposal No. 3: FOR the ratification of the appointment of Ernst & Young LLP as | ||
The Company officers you | |||
| Q | |||
| What do I do if I want to change my vote? | |||
| A | You may revoke a proxy at any time before it is | ||
| How will voting on any other business be conducted? | ||
| A | Other than the three proposals described in this | |
| Who will count the vote? | ||
| A | Representatives of | |
| A | All stockholders of record as of the Record Date can attend the Annual Meeting | |
| Meeting via webcast at Venable LLP’s office, please complete theReservation Request Form found at the end of this Proxy Statement. In addition, you must bring a valid, government-issued photo identification, such as a driver’s license or a | ||
| Q | What is the pre-meeting forum and how can I access it? | |
| A | One of the benefits of the online Annual Meeting format is that it allows the Company to communicate more effectively with its stockholders via a pre-meeting forum that you | |
| Annaly Capital Management Inc. 2018 Proxy Statement | 55 | |
Other Information
| A | After years of declining attendance by stockholders at Annaly’s in-person annual meetings, the Company is moving to an online format for | |
| Q | What if I have difficulties accessing the pre-meeting forum or locating my 16-digit control number prior to the day of the Annual Meeting |
| Prior to the day of the Annual Meeting on May 23, 2018, if you need assistance with your 16-digit control number and you hold your shares in your own name, please call toll-free 1-866-232-3037 in the United States or 1-720-358-3640 if calling from outside the United States If you hold your shares in the name of a bank or brokerage firm, you will need to contact your bank or brokerage firm for assistance with your 16-digit control number. | |
| Q | What if during the check-in time or during the Annual Meeting I have technical difficulties or trouble accessing the live webcast of the Annual Meeting? |
| A | If you encounter any difficulties accessing the live webcast of the Annual Meeting during the check-in or during the Annual Meeting itself, including any difficulties with your 16-digit control number, please call toll-free 1-855-449-0991 in the United States or 1-720-378-5962 if calling from outside the United States, for assistance. Technicians will be ready to assist you beginning at 8:30 a.m. Eastern Time with any difficulties. |
| Q | How will | |
| A | The expense of soliciting proxies will be borne by the Company. Proxies will be solicited principally through the use of mail, but | |
The Company has retained | ||
Stockholders have the option to vote over the Internet or by telephone. Please be aware that if you vote over the Internet, you may incur costs such as telephone and access charges for which you will be responsible. | ||
| What is “Householding” and does Annaly do this? | ||
| A | ||
| 56 | Annaly Capital Management Inc. 2018 Proxy Statement | |
Other Information
| Could the Annual Meeting be postponed or adjourned? | ||
| A | If a quorum is not present or represented, | |
| Who can help answer my questions? | ||
| A | If you have any questions or need assistance voting your shares or if you need copies of this | |
| Annaly Capital Management, Inc. 1211 Avenue of the Americas New York, NY 10036 Phone: 1-888-8 ANNALY Facsimile: (212) 696-9809 Email: investor@annaly.com Attention: Investor Relations |
Annaly Capital Management, Inc.1211 Avenue of the AmericasNew York, NY 10036Phone: 1-888-8 ANNALYFacsimile: (212) 696-9809Email: investor@annaly.comAttention: Investor Relations
OurThe Company’s principal executive offices are located at the address above.
Where You Can Find More InformationWHERE YOU CAN FIND MORE INFORMATION
We fileThe Company files annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information that we filethe Company files 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 usthe Company may also be inspected at the offices of the NYSE, which is located at 20 Broad Street, New York, NY10005.
OurAnnaly’s website is www.annaly.com. We makeThe Company makes available on this website under “Investors - SEC Filings,” free of charge, ourits 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 wesuch materials are electronically filefiled or furnish such materialsfurnished to the SEC.
| Annaly Capital Management Inc. | 57 | ||
2018 ANNUAL MEETING OF STOCKHOLDERS
RESERVATION REQUEST FORM
If you wish to view Annaly Capital Management, Inc.’s 2018 Annual Meeting of Stockholders webcast at the offices of Venable LLP (located at 750 E. Pratt Street, Suite 900, Baltimore, MD 21202), please complete the following information and return to Anthony C. Green, Chief Legal Officer and Secretary, Annaly Capital Management, Inc., 1211 Avenue of the Americas, New York, NY 10036. Please note that no members of management or of the Board of Directors will be present at Venable LLP’s offices. In addition, you must bring a valid, government-issued photo identification, such as a driver’s license or a passport to Venable LLP’s offices.
| Your name and address: | ||
| Number of Shares of NLY Common Stock You Hold: | ||
| If the shares listed above are not registered in your name, please identify the name of the registered stockholder belowand include evidence that you beneficially own the shares. | ||
| Registered Stockholder: | ||
| (Name of Your Bank, Broker or Other Nominee) | ||
| THIS IS NOT A PROXY CARD |
ANNALY CAPITAL MANAGEMENT, INC.
1211 AVENUE OF THE AMERICAS
NEW YORK, NY 10036
ATTN: GLENN A. VOTEK
 |
VOTE BY INTERNET
Before The Meeting - Go towww.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
During The Meeting - Go towww.virtualshareholdermeeting.com/NLY2018
You may attend the meeting via the Internet and vote during the meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
| TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | ||||
| E38745-P03314 | KEEP THIS PORTION FOR YOUR RECORDS | |||
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. | DETACH AND RETURN THIS PORTION ONLY | |||
ANNALY CAPITAL MANAGEMENT, INC.
| The Board of Directors recommends you vote FOR the following: | ||||||
| 1. | Election of Directors | |||||||
| Nominees: | For | Against | Abstain | |||||
| 1a. | Wellington J. Denahan | ☐ | ☐ | ☐ | ||||
| 1b. | Michael Haylon | ☐ | ☐ | ☐ | ||||
| 1c. | Donnell A. Segalas | ☐ | ☐ | ☐ | ||||
| 1d. | Katie Beirne Fallon | ☐ | ☐ | ☐ | ||||
| 1e. | Vicki Williams | ☐ | ☐ | ☐ | ||||
| For address changes and/or comments, please check this box and write them on the back where indicated. | ☐ | |||||||
| The Board of Directors recommends you vote FOR proposal 2: | For | Against | Abstain | |||||
| 2. | Advisory approval of the company's executive compensation. | ☐ | ☐ | ☐ | ||||
| The Board of Directors recommends you vote FOR | ||||||||
| 3. | Ratification of the appointment of Ernst & Young LLP as | ☐ | ||||||
| NOTE: | ||||||||
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. | |||||||||||
| Signature [PLEASE SIGN WITHIN BOX] | Date | Signature (Joint Owners) | Date | ||||
 |
Annaly Capital Management, Inc.Annual Meeting of StockholdersMay 26, 2016This proxy is solicited by the Board of Directors
Revoking all prior proxies, the undersigned hereby appoints Kevin G. Keyes and R. Nicholas Singh, and each of them, proxies, with full power of substitution, to appear on behalf1211 Avenue of the undersigned and to vote all sharesAmericas
New York, NY 10036
Important Notice Regarding the Availability of Common Stock, par value $.01 per share, of Annaly Capital Management, Inc. (the “Company”) that the undersigned is entitled to vote atProxy Materials for the Annual Meeting of Stockholders of the Company to be heldMeeting:
The 2017 ANNUAL REPORT TO STOCKHOLDERS and 2018 NOTICE & PROXY STATEMENT are available at the Warwick Hotel, 65 West 54th Street, New York, New York 10019, commencing at 9:00 a.m., New York time, on Thursday, May 26, 2016, and at any adjournment thereof, as fully and effectively as the undersigned could do if personally present and voting, hereby approving, ratifying and confirming all that said attorneys and agents or their substitutes may lawfully do in place of the undersigned as indicated below.
The Shares represented by this proxy when properly executed, will be voted as directed.If no directions are given, this proxy will be voted in accordance with the Board of Directors' recommendations as listed on the reverse side of this card and at their discretion on any other matter that may properly come before the meeting.www.proxyvote.com.
| E38746-P03314 | |||
Annaly Capital Management, Inc. Revoking all prior proxies, the undersigned hereby appoints Kevin G. Keyes and Anthony C. Green, and each of them, proxies, with full power of substitution, to appear on behalf of the undersigned and to vote all shares of Common Stock, par value $.01 per share, of Annaly Capital Management, Inc. (the "Company") that the undersigned is entitled to vote at the Annual Meeting of Stockholders of the Company, which will be a completely virtual meeting conducted via live webcast to be held at 9:00 a.m., Eastern Time, on Wednesday, May 23, 2018 at www.virtualshareholdermeeting.com/NLY2018, and at any adjournment thereof as fully and effectively as the undersigned could do if personally present and voting, hereby approving, ratifying and confirming all that said attorneys and agents or their substitutes may lawfully do in place of the undersigned as indicated below. The shares represented by this proxy when properly executed, will be voted as directed.If no directions are given, this proxy will be voted in accordance with the Board of Directors' recommendations as listed on the reverse side of this card and at their discretion on any other matter that may properly come before the meeting. | |||
Address Changes/Comments: | |||
| (If you noted any address change and/or comments above, please mark corresponding box on the reverse side.) Continued and to be signed on reverse side | |||
