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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, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| ☑ | | Definitive Proxy Statement |
| ☐ | | Definitive Additional Materials |
| ☐ | | Soliciting Material Under Rule 14a-12 |
ANNALY CAPITAL MANAGEMENT, INC.Annaly Capital Management, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
| PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX): |
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| May 22, 2019 |
| 9:00 a.m. (Eastern Time) |
| www.virtualshareholdermeeting.com/NLY2019 |
Notice of 2018
Annual Meeting of Stockholders
and Proxy Statement
May 23, 2018
9:00 a.m. (Eastern Time)
www.virtualshareholdermeeting.com/NLY2018
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Message from our Chairman, CEO and President
Dear Fellow Shareholders,
20172018 was a year of realizationtransformation for Annaly. We entersuccessfully delivered on many of the key corporate goals we communicated to you last year, and despite a difficult macro environment, reached a number of significant strategic milestones made possible by the institutionalization and diversification of Annaly over the past five years. The progress made in 2018 havingfurther establishes Annaly as a market and governance leader and positions the Company to continue executing upon the most integral components of our platform and strategy, which are outlined in the themes below.
Operating & Investment Platform
Diversified Shared Capital Model
The most important theme of 2018 was diversification. Annaly has transformed into a diversified operating company built to capitalize on numerous strategic opportunities across multiple complementary businesses. Since our diversification strategy began in 2014, Annaly has broadly invested in over $10 billion of credit assets through continued development of our platform, expanded institutional partnerships and corporate acquisitions.(1)As a result, today each of our three credit businesses would rank among the top ten industry leaders in their respective industry sectors by size on a standalone basis.
Financing, Capital & Liquidity
Diversification in the ways we access capital and the broadening of our financing alternatives are equally important in driving our outperformance and capital efficiency. Since the beginning of 2016, we have increased our capital base by $6.5 billion, more than half of which was sourced from avenues besides common equity offerings, further illustrating our leadership in the capital markets.(2)
We continue to enhance our capital efficiency through non-recourse, dedicated financing structures for each of our credit businesses – improving terms of existing arrangements, increasing financing capacity and establishing new counterparty relationships. Specifically, since the beginning of 2018, we have added $2.4 billion of additional borrowing capacity across our three credit businesses and expanded our financing diversification by establishing Annaly as a repeat issuer in the residential and commercial securitization markets.(3)
Operational Efficiency
Continuing to scale our differentiated operating platform has provided a foundation for growth, diversification and efficiency that is unmatched in the industry. Since 2014, we have made significant progressinvestments across our four businesses, adding expertise and depth to our investment teams and best-in-class infrastructure to support our strategies. Notably, we have grown our total number of IT professionals by over 40% during this time period. Our expanded in-house technology capabilities have led to the development of proprietary portfolio analytics, financial and capital allocation models, risk testing and accounting software, providing Annaly with distinct competitive advantages and cost savings.
Growth Strategies & Performance
Growth & Income
We have demonstrated, and the market has clearly validated, that size and scale drive performance. 2018 marked another successful year for Annaly and the execution of our long-term growth strategy. We capitalized on a number of key goalsopportunities that continue to solidify Annaly’s brand as a market and initiatives further strengthening Annaly’sgovernance leader. Since 2016, amidst a market leadership.backdrop with the Fed raising rates eight times and the yield curve flattening by 86%, Annaly has grown its market capitalization 64%, while delivering an additional $4.2 billion in cumulative dividends to shareholders.
SHAREHOLDER
ENGAGEMENT
Broad Outreach to Shareholders; Responsive Disclosure Enhancements | | Throughout the past year, we have continued to expand the shareholder outreach efforts undertaken since I became CEO in 2015. We’ve redoubled our efforts to engage in meaningful dialogue around critical strategic and governance issues with our shareholders. In 2017, these efforts spanned new and existing investors in the U.S., Canada and Europe and included our inaugural investor day with over 100 participants in attendance. Across our ownership base, we engaged with shareholders representing over 70% of the Company’s institutional ownership. We concluded 2017 with over 170 new institutional investors and our overall institutional shareholder base has increased over 30% since 2014(1). In response to shareholder feedback, and in line with the Company’s ongoing commitment to improved transparency, we’ve added enhanced disclosure to this proxy statement regarding the operating efficiencies of our diversified model, the parameters and makeup of our manager’s executive pay program and our enhanced corporate governance practices. We look forward to your feedback. |
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HUMAN CAPITAL &
OWNERSHIP CULTURE
Investing in Intellectual Capital with 125+ New Hires since 2014; 100% of Employees Subject to Stock Ownership Guidelines Have Purchased Annaly Shares | | Since the initiation of our diversification strategy in 2014, we have hired over 125 professionals including senior members of our diversified investment and management teams. Many of these professionals – and over 40% of the entire firm – have been asked to purchase predetermined amounts of shares based on criteria including seniority, compensation level and role. I’m pleased that as of March 31, 2018, all individuals either met, or within the applicable period are expected to meet, the stock ownership guidelines. Recently, I voluntarily increased my ownership commitment to $15 million of Annaly shares to further instill an ownership culture at the Firm and to emphasize my belief in the Company and its future. |
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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) | Shareholder data per Ipreo based on investor filings as of December 31, 2017.
Note: For footnoted information, please refer to “Message from our Chairman, CEO and President” in Endnotes section. |
(2) | 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.
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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. |
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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. |
After 20 years as a publicly-traded company,Organically, we have provencontinued to grow each of our longevityfour business platforms by expanding our internal investment options and delivered consistent outperformance while transformingcontinuing to broaden our proprietary partnerships. Today, Annaly into anhas established over 20 strategic relationships with industry leading, diversified “Yield Manufacturer”. Our continuous reflectiondedicated partners across our four businesses, which have resulted in improved efficiencies and increased origination capabilities. In addition to our organic growth, expansion of partnerships and superior capital markets access, Annaly remains well-positioned to continue to gain market share through further consolidation, as demonstrated by our acquisition of Hatteras Financial Corp. in 2016 and most recently of MTGE Investment Corp. in 2018.
Risk-Adjusted Returns
The diversification and size of Annaly’s lower-levered capital base and investment businesses, along with our prudent risk management processes, continue to drive outperformance of Annaly’s total return. Since 2014, our total shareholder return of 83% is 1.2x higher than mREITs, 1.3x higher than the past, self-assessment ofS&P 500 and 2.3x higher than the present and strategic planning for the future enables usYield Sectors.(4)In addition to be opportunistic rather than reactive. It is humbling to remember where Annaly began and to celebrate the ingenuity and dedication it has taken to get Annaly where it is today. Our performance is attributable toour absolute returns, our proprietary model is producing higher cash flow margins than most any other financial services company – our pre-tax margins of approximately 60% are 3x higher than the average for corporations in the Yield Sectors.(5)
Corporate Responsibility and exceptional people. Each businessGovernance
Corporate Governance
Our dedication to corporate responsibility and every strategic movegovernance also sets us apart from the market – and undoubtedly is another contributor to Annaly’s historical outperformance. We believe that continually evaluating the framework of our corporate responsibility and governance practices ensures alignment and transparency, resulting in increased value to our shareholders over the long term. In order to more specifically frame our efforts and illustrate our industry leading commitment to governance, we recently published a comprehensive narrative on our website detailing our commitment to ESG, which others are now, of course, beginning to emulate.
In 2018, we also announced two important governance enhancements: the decision to declassify our Board initiating annual election of all Directors, along with adopting an enhanced Board Refreshment Policy that contains both tenure and age limit provisions. Our commitment to Board refreshment is further demonstrated by the election of four new independent directors since the beginning of 2018, three of whom are women, which will bring the percentage of women on the Board to 45% following the 2019 Annual Meeting of Stockholders(6), which is nearly 2x higher than the average for the S&P 500.
Human Capital
Behind the achievements and successes highlighted in this letter, and in everything we do, is the productdeep and varied expertise of our long developed plan. Our architecture is designedmost important asset – our people. Today we have over 170 talented professionals, the largest number in the Company’s history, who have supported our successful evolution from a mono-line Agency mortgage REIT to capitalize on the numerous opportunitiesIndustry Innovator we are uniquely positionedtoday.(7)We are very proud of how hard we work at the Company each day and how well we treat each other as partners, and in 2018 we recorded the highest level of employee satisfaction since we initiated our annual employee engagement survey in 2015.(8)
We continue to realizeexpand our initiatives focused on advancing diversity throughout the Firm, which remains a key business priority. In 2018, 47% of new hires identified as racially diverse, increasing overall firm diversity to 32%, which is 60% higher than our industry based on Bureau of Labor Statistics data.(9)Additionally, nearly 40% of new hires in the years ahead.2018, 40% of Managing Director promotions and 50% of additions to Annaly’s Operating Committee since 2015 have been women.
I thankNote: For footnoted information, please refer to “Message from our investors for their supportChairman, CEO and trust, our Board for its guidance and each one of our employees for their deep commitment to Annaly and its shareholders.President” in Endnotes section.
Finally, this year we are excited to hold our Annual Shareholder Meeting online for the first time via live webcast. The more interactive online format also enables us to open our Annual Meeting to shareholders from locations around the world. We look forward to speaking to you then.
Sincerely,
Kevin Keyes
Chairman, Chief Executive Officer & President
April 10, 2018
(3) | Represents total shareholder return (“TSR”) for the year ended December 31, 2017.
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(4) | Board composition as of January 1, 2018.
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Responsible Investments
Finally, our dedication to ESG principles, as well as our deep investment capabilities, uniquely positions us to support the vitality of local communities and the economy. This past year, we collaborated once again with Capital Impact Partners, a national mission-driven non-profit community development financial institution, to launch our second social impact joint venture, which is specifically aimed at supporting affordable housing and other community development projects in Washington, D.C.
As we look ahead, we will continue our diversified and complementary growth strategies and reward our shareholders by taking advantage of opportunities in the market that are unique to Annaly. We are more prepared than ever to benefit from our size, liquidity, optionality and operational efficiency. I am grateful for the confidence of our Board, which has empowered us to be the industry leader we have become. I want to thank my fellow shareholders for their steadfast commitment, support and trust of this management team. And, to each Annaly employee, I sincerely appreciate all of the hard work and dedication, every day. We have so much opportunity in front of us.
Finally, this year we are excited to once again virtually “host” investors from around the world at our Annual Shareholder Meeting. The meeting will be conducted online via live webcast for the second consecutive year and we look forward to engaging with you then.
Kevin Keyes
Chairman, Chief Executive Officer & President
April 9, 2019Note: For footnoted information, please refer to “Message from our Chairman, CEO and President” in Endnotes section.
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Notice of Annual Meeting of Stockholders
To the Stockholders of Annaly Capital Management, Inc.:
Annaly Capital Management, Inc., a Maryland corporation (“Annaly” or the “Company”), will hold its annual meeting of stockholders (the “Annual Meeting”) on May 23, 2018,22, 2019, at 9:00 a.m. (Eastern Time) online at www.virtualshareholdermeeting.com/NLY2018, to:NLY2019, to consider and vote upon:
The Company will also transact any other business as may properly come before the Annual Meeting or any postponement or adjournment thereof. Only common stockholders of record at the close of business on March 26, 2018,25, 2019, the record date for the Annual Meeting, may vote at the Annual Meeting and any postponements or adjournments thereof.
Your vote is very important. Please exercise your right to vote.
The Company’s Board of Directors (“Board”) is soliciting proxies in connection with the Annual Meeting. The Company is sending the Notice of Internet Availability of Proxy Materials (“Notice”), or a printed copy of the proxy materials, as applicable, commencing on or about April 10, 2018.9, 2019.
To view the Proxy Statement and other materials about the Annual Meeting, go to www.annalyannualmeeting.com or www.proxyvote.com.
All stockholders are cordially invited to attend the Annual Meeting, which will be conducted via a live webcast.webcast for a second consecutive year. The Company is excited to embrace the environmentally-friendly virtual meeting format, which it believes will enablesaw increased stockholder attendance and participation.participation at its first virtual stockholder meeting in 2018 and is confident that this format will once again allow enhanced interaction with our global stockholder base. During thisthe upcoming virtual meeting, you may ask questions and will be able to vote your shares electronically.electronically from your home or any remote location with Internet connectivity. You may also submit questions in advance of the Annual Meeting by visiting www.proxyvote.com. The Company will respond to as many inquiries at the Annual Meeting as time allows.
An audio broadcast of the Annual Meeting will also be available to stockholders by telephone toll-free at 1-877-328-2502. If you plan to attend the Annual Meeting online or listen to the telephonic audio broadcast, you will need the 16-digit control number included in your Notice, on your proxy card or on the instructions that accompany your proxy materials. Please note that listening to the audio broadcast will not be deemed to be attending the Annual Meeting, and you cannot ask questions or vote from such audio broadcast. The Annual Meeting will begin promptly at 9:00 a.m. (Eastern Time). Online check-in will begin at 8:30 a.m. (Eastern Time), and you should allow ample time for the online check-in procedures.
If you wish to watchview the webcast at a location provided by the Company, the Company’s Maryland counsel, Venable LLP, will air the webcast at its offices located at 750 E. Pratt Street, Suite 900, Baltimore, MD 21202. Please note that no members of management or the Board will be in attendance at this location. If you would like to view the Annual Meeting webcast at Venable LLP’s office, please follow the directions for doing so set forth in the “Questions and Answers about the Annual Meeting” section in this Proxy Statement.
By Order of the Board of Directors,
Anthony C. Green
Chief Corporate Officer, Chief Legal Officer and Secretary
April 10, 20189, 2019
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to be Held on May 23, 2018.
22, 2019. |
The Company’s Proxy Statement and 20172018 Annual Report to Stockholders are available at www.proxyvote.com. |
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Proxy Summary
This summary contains highlights about the Company and the Annual Meeting. This summary does not contain all of the information that you should consider in advance of the Annual Meeting, and the Company encourages you to read the entire Proxy Statement and the Company’s 20172018 Annual Report on Form 10-K carefully before voting.
2018 ANNUAL MEETING OF STOCKHOLDERS2019 Annual Meeting of Stockholders |
| | | | |
  | | TIMETime
AND DATE:and Date: | Wednesday, May 23, 201822, 2019 at 9:00 a.m. (Eastern Time) |
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  | | PLACE:Place: | www.virtualshareholdermeeting.com/NLY2018NLY2019 |
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  | | RECORD DATE:Record Date: | Close of business on March 26, 201825, 2019 |
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  | | VOTING:Voting: | Stockholders are able to vote by Internet at www.proxyvote.com; telephone at 1-800-690-6903; by completing and returning their proxy card; or online at the Annual Meeting |
VOTING MATTERS
| | Board Vote
Recommendation | | Page
Number |
Proposal No. 1:1:Election of Directors | | FOR each Director
nominee | | 1914 |
Proposal No. 2:2:Approval, on an advisory basis, of the Company’s executive compensation | | FOR | | 4541 |
Proposal No. 3:3:Approval of an amendment to the Company’s charter to increase the number of authorized shares of capital stock to 3,000,000,000 shares | | FOR | | 46 |
| Proposal No. 4:Ratification of the appointment of Ernst & Young LLP for the year ending December 31, 2019 | | FOR | | 4948 |
PARTICIPATE IN THE ANNUAL MEETING
| Participate in the Annual Meeting |
Voting Stockholders may
vote by |
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Internet
www.proxyvote.com |
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Telephone
1-800-690-6903 |
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Mail
completing and returning
their proxy card |
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Online
at the Annual Meeting Information
www.annalyannualmeeting.com |
After years of declining attendance by stockholders at Annaly’s in-person annual meetings and marked growth of our international stockholder base over the same time period, the Company is moving to an online format for this year’s Annual Meeting. By hosting the Annual Meeting virtually, Annaly is able to communicate more effectively with its stockholders, enablesaw increased stockholder attendance and participation from locations aroundat its first virtual annual meeting in 2018. The Company is excited to once againembrace the worldvirtual meeting format for the 2019 Annual Meeting. This environmentally-friendly approach also aligns with the Company’s broader sustainability goals and reducereduces costs for both the Company and its stockholders. This approach also aligns with the Company’s broader sustainability goals. The virtual meeting will be available to stockholders across the globe via any Internet-connected device and has been designed to provide the same rights to participate as you would have at an in-person meeting, including providing opportunities to make statements and ask questions.
VOTING
Stockholders are entitled
to vote by
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INTERNET
www.proxyvote.com
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TELEPHONE
1-800-690-6903
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MAIL
completing and returning
their proxy card
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ONLINE
at the Annual Meeting
INFORMATION
www.annalyannualmeeting.com
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You are entitled to participate and vote at the Annual Meeting by visiting www.virtualshareholdermeeting.com/NLY2018.NLY2019. An audio broadcast of the Annual Meeting will also be available to stockholders by telephone toll-free at 1-877-328-2502. If you plan to attend the Annual Meeting online or listen to the telephonic audio broadcast, you will need the 16-digit control number included in your Notice, on your proxy card or on the instructions that accompany your proxy materials. Please note that listening to the audio broadcast will not be deemed to be attending the Annual Meeting and you cannot vote from such audio broadcast. Stockholders can access Annaly’s interactive pre-meeting forum, where you can submit questions in advance of the Annual Meeting and view copies of the Company’s proxy materials, by visiting www.proxyvote.com.
If you wish to watchview the webcast at a location provided by the Company, the Company’s Maryland counsel, Venable LLP, will air the webcast at its offices located at 750 E. Pratt Street, Suite 900, Baltimore, MD 2102.21202. Please note that no members of management or the Board will be in attendance at this location. If you wish to view the Annual Meeting via webcast at Venable LLP’s office, please complete theReservation Request Form found at the end of this Proxy Statement. For additional information on the Annual Meeting, and for copies of the Company’s Proxy Statement and 2017 Annual Report, please visit Annaly’s Annual Meeting informational website at www.annalyannualmeeting.com.
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Proxy Summary
ANNALY AT A GLANCEAnnaly at a Glance |
NLY
New York Stock
Exchange (“NYSE”) Traded | | 1997
Initial Public Offering | | $1514.6 billion(1)
Largest mortgage REIT
in the world(1) |
The Company has been externally-managed by Annaly Management Company LLC (the “Manager”) since July 2013. The Manager is responsible for managing the Company’s affairs pursuant to a management agreement. The Manager pays allagreement and, as of December 31, 2018, directly employed 95% of the compensation, including benefits,individuals who provide services to its employees (which include the named executive officers (“NEOs”) other than Mr. Keyes, who receives no compensation for his services as the Company’s Chief Executive Officer (“CEO”), but has an interest in the management fee as an indirect equityholder of the Manager).Company. Although certain personnel (but none of the NEOs) are employed by subsidiaries of the Company for regulatory or corporate efficiency reasons, all compensation and benefits paid to such personnel by these subsidiaries reduce, on a dollar-for-dollar basis, the management fee the Company pays to the Manager. As of December 31, 2017, the Manager had 146 employees and Annaly’s subsidiaries collectively had six employees. Forfor ease of reference, throughout this Proxy Statement, the NEOsNamed Executive Officers (“NEOs”) and the other employees of the Manager, together with employees of Annaly’s subsidiaries, are sometimes referred to as Annaly’s employees.
RECENT OPERATING ACHIEVEMENTSRecent Operating Achievements |
| Performance | | Capital Raising | | Dividends |
| |
32%
83%
Total Shareholder
Return in
2017, the single best year in
the last decadesince 2014
| | $2.8 billionOver 50%
of capital raised acrosssince the
beginning of 2016 was
sourced from avenues
besides follow-on common and preferred
markets over 6 monthsequity offerings(2) | |
$1.41.6 billion
Common and preferred
dividends declared
in 2017; Q1
represents the 18thconsecutive
quarter of a $0.30 dividend(3)2018
|
| |
| Diversification | | Optionality | | Efficiency |
| |
24%$4.2 billion
Capital dedicated toof originations and purchases
across Annaly’s three credit
assets at the end of 2017, an
increase from 11%businesses in 20142018(3)
| | 3637
Available investment options
is nearly 3x more than in 2013
| | 48%50%
Lower operating expense as a
percentage of equity than the
mREIT index in 20172018(4)
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AlignmentConsolidation | | Financing | | Human Capital |
| |
$5.9906 million
Acquisition of common stock purchasedMTGE
by Investment Corp., representing
Annaly’s NEOs in 2017(5),third successful
with the CEO voluntarily
increasing his stock ownership
commitment to $15 milliontransaction since 2013 | | 7$900 million
Newof additional financing relationships ascapacity
partadded since 2018 through
three new credit facilities and
upsizing of initiative to broaden and
diversify counterpartiesexisting facilities(5)
| | 2744%
New hires in 2017, bringing
total new hires since 2014
to 125+, including several
members of managementOperating Committee
and Managing Director
promotions since
2015 were women
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(1) | Represents capital as of December 31, 2017.
Note: For footnoted information, please refer to “Annaly at a Glance & Recent Operating Achievements ” in Endnotes section. |
(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.
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(3) | The first quarter 2018 common stock cash dividend was declared on March 15, 2018 and is payable on April 30, 2018.
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(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.
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(5) | Includes dividend reinvestments.
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Proxy Summary
ANNALY’S DIVERSIFIED INVESTMENT STRATEGYAnnaly's Diversified Shared Capital Model
Diversification is a key component of the Annaly strategy.strategy, which has four distinct investment groups. Since 2014, Annaly has diversified its business model by investing in credit assets, which complement the Company’s primary portfolio of interest rate sensitivefixed-rate investments. This strategy is designed to achieve stable risk-adjusted earningsreturns and book value performance over various interest rate and economic cycles by pairing shorter duration floating-rate credit loans and securities with the Company’s longer duration, fixed-rate agency portfolio. Annaly now
The Company has 37 investment options across its four distinct investment groups, which provide access to over 36 investmentis nearly three times more than in 2013 and up from 26 options and structures.at the end of 2015. While managing investment decisions, the Company combines a robust capital allocation process with careful risk management. This process enables Annaly to take advantage of market fluctuations and inefficiencies and rotate into credit markets when dislocations occur and pricing is attractive on a risk-adjusted, relative value basis.
Agency | | | Residential Credit | | | Commercial Real Estate | | | Middle Market Lending |
|
Invests in agency
MBS collateralized by
residential mortgages,
which are guaranteed by
Fannie Mae, Freddie Mac
or Ginnie Mae | | | Invests in non-agency
residential mortgage
assets within securitized
product and whole
loan markets | | | Originates and invests
in commercial mortgage
loans, securities, and
other commercial real
estate debt and equity
investments | | | Provides financing to
private equity backed
middle market
businesses across
the capital structure |
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| | | Assets1 | | | Capital2 | | | |
| | | | | | | | | |
$107.3bn | $11.6bn | | | $2.8bn | $1.6bn | | | $2.0bn | $1.1bn | | | $1.0bn | $0.8bn |
| | | Sector Rank3 | | | |
#1/6 | | | #6/18 | | | #4/12 | | | #14/42 |
| | | Strategy | | | |
Countercyclical/
Defensive | | | Cyclical/Growth | | | Cyclical/Growth | | | 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”).
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(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.
|
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The Company has 36 investment options across its four investment groups, which is nearly three times more than in 2013 and up from 26 options at the end of 2015.
| Number of Available Investment Options |
DIVIDENDSNote: For footnoted information, please refer to “Annaly’s Diversified Shared Capital Model” in Endnotes section.
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From Annaly’s IPO in 1997 through December 31, 2017, the Company has declared over $16 billion in commonTable of Contents
Proxy Summary
Growth and preferred dividends to its stockholders. In 2017, Annaly declared over $1.4 billion in common and preferred dividends.Income
$165.7 billion
The cumulative dividendsof market cap growth
Annaly has delivered to
stockholders since its IPOthe beginning of 2016 | | $1.44.2 billion
of common and preferred
dividends delivered todeclared
stockholders in 2017since the beginning of 2016 | | 1855%
Consecutive quarterstotal return to stockholders
since the beginning of a $0.30
dividend through Q1 20182016
|
Since January 2016, Annaly has grown its market cap by $5.7 billion, or 64%, and declared over $4.2 billion in cumulative dividends to stockholders amidst a challenging market backdrop, where the Federal Reserve has raised rates 8 times and the Treasury curve has flattened by 86%.
Cumulative Dividends Declared since Annaly’s IPOGrowth & Outperformance Over Time |
Note: For footnoted information, please refer to “Growth and Income” in Endnotes section.
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DELIVERING SIGNIFICANT VALUE FOR STOCKHOLDERSDelivering Significant Value For Stockholders
12.4%(1)24.4%
Economic return in 2017, which represents the change in book value plus dividends declared over the yeargenerated
by Annaly with its current
investment teams since 2014(1)
| | 32%83%
Total shareholder return in 2017, the single best year in the last decadegenerated
by Annaly since 2014
| | 883%869%
Total shareholder return
since Annaly’s IPO (including reinvestment of dividends)(2)
|
Since 2014 (the first full year the Company was externally-managed, as more fully described in “Management Structure” on page3834), Annaly has performed well against relevant benchmarks. As illustrated by the graphs below, shares of the Company’s common stock (including reinvestment of dividends) have returned significant value to stockholders over the long term relative to both the Company’s mREIT peers and other yield-focused investments.
Total Shareholder Return since 2014(2)(3) |
 |
(1) | Economic return is shown for full year 2017 and represents change in book value plus dividends declared over prior period book value.
|
(2) | Source: Bloomberg. mREITs represent BBREMTG Index. Utilities represent the Russell 3000 Utilities Index. MLPs represent the Alerian MLP Index. Asset Managers represent the S&P 500 Asset Management and Custody Bank Index. Banks represent the KBW Bank Index. S&P represents the S&P 500 index. Note: Total shareholder return shown for period of December 31, 2013 to December 31, 2017 in top graph. Total shareholder return shown for period of December 31, 2016 to December 31, 2017 in bottom graph.
|
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STOCKHOLDER OUTREACH AND RESULTS OF 2017 SAY-ON-PAY VOTEStockholder Outreach and Results of 2018 Say-on-Pay Vote
7~275
Points of outreach to
Non-deal roadshows across the U.S., Canada and Europeinvestors for proxy
engagement since 2015
| | 72~110
One-on-one meetings and phone calls with
stockholders across the
globe since 2015
| | 100+Over 94%
of votes cast supported
Participants attended Annaly’s inaugural Investor Day2018 Say-on-Pay vote
|
The Company is committed to ongoing engagement with both retail and institutional stockholders through a wide range of mediums. These engagement efforts have yielded meaningful feedback on a variety of topics, including the Company’s diversified investment strategymediums, including: in-person meetings, conferences, phone calls and its corporate governance, compensation and management structures.
electronic communication. Following the results of Annaly’s 20172018 advisory resolution on executive compensation (commonly known as a “Say-on-Pay” vote), which received strong support from 69%over 94% of votes cast, the Company has continued its multi-pronged stockholder outreach campaign to solicit feedback from key stakeholders on a number of issues, including (i) the Manager’s executive compensation program and proposed compensationrelated disclosure, for 2018, board(ii) the structure, composition and refreshment of the Board, and corporate social responsibility(iii) the Company’s Corporate Responsibility and Environmental, Social and Governance (“ESG”) initiatives.
2018–2019 Stockholder Engagement Efforts in 2017 |
| |
Outreach included
approximately | | | Outreach included
approximately | | | Management hosted meetings
with investors representing |
 | | |  | | |  |
 | | |  | | |  |
The Company’s stockholder outreach efforts to solicit feedback on the Manager’s executive compensation program and the Company’s proposed disclosure were complemented by related initiatives, including:
|
■ | Analysis of market practices at peer companies
|
■ | Advice from compensation consultants
|
■ | Attendance at investor conferences
|
■ | Discussions with proxy advisory services and corporate governance research firms
top 5 largest shareholders |
TheseAnnaly’s stockholder engagement efforts generated significant feedback for both the Board and management and have resulted in a number of enhancements to corporate governance and compensation practices and disclosures.disclosures over the last few years. Annaly’s stockholders have been extremely instrumental to, and supportive of, these governance and disclosure enhancements and the Company looks forward to continuing to find innovative ways to engage over the course of 20182019 and beyond.
The Company’s stockholder outreach is complemented by related initiatives, including:
| ■ | Analysis of market governance and compensation practices at peer companies |
| ■ | Advice from external advisors, including governance and compensation consultants, Board search firms and proxy solicitors |
| ■ | Attendance at investor conferences |
| ■ | Discussions with proxy advisory services and corporate governance research firms |
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STOCKHOLDER ENGAGEMENTStockholder Engagement
WHAT THEWhat The
COMPANY HEARDCompany Heard | | WHAT THE COMPANY DIDWhat The Company Did
|
Improve Disclosure toReview Classified
Enable Fully Informed
Say-on-Pay Vote | Board Structure | ■Provided additional clarity and transparency onThe Board conducted a review regarding the Manager’s executive compensation program, including disclosure of:potential declassification of the Board in favor of annual elections of all directors ■Following this review, in December 2018, the portion ofBoard approved and amended the management fee that is allocatedCompany’s bylaws to NEO compensation paid bydeclassify the ManagerBoard over a three-year period ■The amended bylaws provide that Directors will be nominated for one-year terms beginning with the 2019 Annual Meeting of this compensation,Stockholders with all Directors standing for annual elections commencing with the portion2021 Annual Meeting of fixed vs. variable/incentive pay ■the metrics utilized to measure performance to determine variable/ incentive payStockholders
|
Further IncreaseFocus on Board
Alignment of SeniorComposition and
Executives with
Stockholders | Diversity | ■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 BoardComprehensive third-party facilitated self-evaluation process that includes annual assessments of the full Board, each Board committeeCommittee and individual Directors which will be facilitated by an external evaluator on a periodic basis
–Focus areas of the evaluation included Board and Committee skills, structure, dynamics, processes, leadership and refreshment ■Assessed all DirectorsEngaged professional search firm to ensure continued matchassist the Board in identifying qualified director candidates with a mandate to present equal representation of skills against the Company’s needswomen and minority candidates ■Refreshed Board Committee memberships and chairmanships ■Appointed 2Elected four new highly qualified Independent Directors tosince the Board asbeginning of January 1, 2018, including three women
■–Doubled the number45% of women Directors (from 2 to 4) as a result of these appointments
■36% ofContinuing Directors are women
■4 and 45% of 11Continuing Directors have tenure of less than 5 years(1)
|
ElevateEnhance Board Education |
Refreshment Policy | ■The Nominating/Corporate Governance (“NCG”) Committee Chair, in conjunction with an outside governance expert, led a full review of options to facilitate Board became a Fullrefreshment ■Following this review, in October 2018, the Board Memberadopted an enhanced Board refreshment policy providing that an independent Director may not stand for re-election at the next annual meeting of stockholders following the National Associationearlier of Corporate Directors (NACD), which gives Directors access to an extensive menuhis or her: (i) 12th anniversary of board education programs, along with researchservice on governance trends and board practicesthe Board or (ii) 73rd birthday |
ExpandDeepen Corporate
Social Responsibility | | ■Created PublicDedicated resources and personnel to enhancing Annaly’s corporate responsibility function, including the 2018 hire of a community development veteran Tanya Rakpraja as the Company’s Head of Corporate Responsibility Committee of the Board to provide oversight of corporate philanthropy, culture and reputation, social impact investments and initiatives related to sustainability and public policyGovernment Relations ■The Company partneredAdded extensive disclosure on the Company’s Corporate Responsibility and ESG efforts to Annaly’s corporate website ■Partnered with Capital Impact Partners to launch a newsecond joint venture dedicated to supporting affordable housing and other community development projects in underserved cities across the countryWashington D.C. ■RecognizedCommenced an energy audit of our Corporate Headquarters in the 2018 Bloomberg Gender-Equality Index, reflecting the Company’s commitmentorder 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 attendancemore fully track and participation
■Established interactive pre-meeting forum, where stockholders can submit questions in advance of the Annual Meetingmonitor our impact and energy usage
|
Note: For footnoted information, please refer to “Stockholder Engagement” in Endnotes section.
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ENHANCED DISCLOSURE ON THE MANAGER’S EXECUTIVE COMPENSATION PROGRAMCorporate Responsibility
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 |
OverAs responsible stewards of capital, Annaly takes into account ESG factors that contribute to our ability to drive positive impacts and deliver attractive risk-adjusted returns over the last two years,long term. Annaly’s Corporate Responsibility efforts were institutionalized by the Company has engagedestablishment of a dedicated Corporate Responsibility team in extensive outreach2018, which is led by Tanya Rakpraja as Annaly’s Head of Corporate Responsibility and Government Relations. The Corporate Responsibility team collaborates across business areas to understand the information stockholders need in order to fully evaluate the Manager’s executive compensation program for purposes of making an informed Say-on-Pay vote. In response to this feedback, the Manager has provided the information below about the compensation it paiddevelop initiatives, monitor progress and manage reporting, and provides routine updates to the NEOs for 2017.Corporate Responsibility Committee(1) of the Board (and, as appropriate, to the full Board). The Company provides extensive disclosure on its ESG efforts on the “Corporate Responsibility” section of Annaly’s corporate website at www.annaly.com/corporate-responsibility.
The Manager and The Management Agreement
0.75% | | 29% | | $300 million |
In 2019, the Manager reduced
its fee on Incremental
Stockholders’ Equity(2)
from 1.05% to 0.75% | | Annaly’s management fee is
29% lower than the industry
average of 1.47%(3) | | Approximate compensation
savings since the Externalization
in July 2013(4) |
| ■ | All of the NEOs are indirect owners and/or employees of the Manager |
| ■ | With the exception of Mr. Keyes, (who does not receive any direct or indirecteach of the other NEOs receives compensation frompaid by the Manager or the CompanyManager. Mr. Keyes receives no compensation for his services as the Company’s CEO, but does haveChairman, Chief Executive Officer (“CEO”) and President, although, as an indirect equityholder of the parent of the Manager, Mr. Keyes has an interest in the fees paid to the Manager as an indirect equityholder of |
| ■ | The Manager is responsible for the Manager), eachcompensation of the NEOs received a base salary(other than Mr. Keyes). Annaly does not pay any cash or equity compensation to its NEOs, and a performance-based cash incentive bonus for 2017.does not provide pension benefits, perquisites or other personal benefits |
| ■ | During 2017,The Manager uses the management fees paid by the Company to, among other things, pay the compensation and benefits of the NEOs. However, the Company does not allocate any specific portion of the management fees to NEO compensation or otherwise determine such compensation or reimburse the Manager for the costs thereof
|
| ■ | For 2018, the Company’s payments to the Manager included the management fee of $179.8 million and expense reimbursements of $9.2 million |
| ■ | In March 2019, the Manager and the Company amended the Management Agreement solely to reduce the management fee on Incremental Stockholders’ Equity. Pursuant to this amendment, which recognizes the efficiencies that have been gained with scale, the Company pays the Manager a monthly management fee equal to 1/12th of the sum of: (i) 1.05% of Base Stockholders’ Equity(5), and (ii) 0.75% of Incremental Stockholders’ Equity(2) |
Note: For footnoted information, please refer to “Corporate Responsibility & The Manager and the Management Agreement”
in Endnotes section.
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The Manager’s Executive Compensation Program
90.5% | | 9.5% | | 16.8% |
of NEO compensation was variable and paid in the form of performance-based incentive bonuses | | of NEO compensation was paid in the form of fixed base salaries | | of aggregate management fees and expense reimbursements paid to the Manager were allocated by the Manager as NEO compensation |
Although Annaly neither employs nor compensates the NEOs, the Company is committed to providing its stockholders with information about the Manager’s executive compensation program in order to enable an informed Say-on-Pay vote.
The Manager’s Executive Compensation Philosophy and Process
The key principle of the Manager’s compensation philosophy for all employees, including the NEOs, is to pay for performance. The Manager’s NEO compensation planning process incorporates key areas of evaluation including: external market data, internal benchmarking, and quantitative and qualitative assessments of Company, group and individual performance. Individuals are evaluated based on mid-year and year-end manager reviews and the utilization of a 9-box talent review model, which assesses individual performance and potential. In establishing and reviewing individual NEO compensation packages, the Manager also considers the nature and scope of each NEO’s role and responsibilities, retention considerations and feedback from stakeholders.
Overview of the Manager’s 2018 Executive Compensation Program
| ■ | With respect to 2018(1), the NEOs as a group received aggregate salaries of $2.8$3.0 million and aggregate performance-based cash incentive bonuses of $23.9$28.7 million from the Manager. These amounts collectively represent 16.2%16.8% of the aggregate management fees and reimbursements the Company paid to the Manager during 2017.for 2018. On an aggregated basis, the NEOs received 10.3%9.5% of their total compensation in the form of base salaries and the remaining 89.7%90.5% in the form of performance-based cash incentive bonuses. |
| ■ | In determining the cash bonuses it paid to the NEOs for 2017,2018, the Manager considered achievement of both rigorous Company performance metrics(1)(2), including core return on equity, core return on assets and operating expenses as a percentage of average equity and as percentage of average assets, along with group and individual performance objectives. |
■ | 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.
|
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THE MANAGER AND THE MANAGEMENT AGREEMENT
1.05%
The Manager receives a fee equal to 1.05% of the Company’s stockholders’ equity | | 29%
Annaly’s management fee is 29% lower than the industry average of 1.48%(1) | | $276 million
Approximate compensation savings since the Externalization in July 2013(2) |
■ | All of the NEOs are indirect owners and/or employees of the Manager
|
■ | With the exception of Mr. Keyes, each of the other NEOs receives compensation paid by the Manager. Mr. Keyes receives no compensation for his services as CEO, although, as an indirect equityholder of the parent of the Manager, Mr. Keyes has an interest in the fees paid to the Manager
|
■ | The Manager is responsible for the compensation of its employees (including the NEOs other than Mr. Keyes) who provide services to the Company. Annaly does not pay any cash or equity compensation to its executive officers, does not provide pension benefits, perquisites or other personal benefits, and has no employment agreements or arrangements to pay any cash severance upon their termination or a change in control of the Company
|
■ | The Manager receives a flat management fee equal to 1.05% of the Company’s stockholders’ equity (as defined in the Management Agreement), which is used by the Manager to, among other things, pay the compensation and benefits of the Manager’s employees (including the NEOs). However, the Company does not determine the compensation payable by the Manager to the NEOs, the Company does not allocate any specific portion of the management fee it pays to the compensation of the NEOs, nor does the Company reimburse the Manager for the cost of such compensation
|
■ | For 2017, the management fee was approximately $164.3 million
|
Over the past several years, the Manager has made significant investments in personnel corresponding to the diversification of its investment strategy into more people-intensive asset classes (including Residential Credit, Commercial Real Estate and Middle Market Lending assets), as well as to corporate infrastructure enhancements. These investments include the build out of teams for the Agency, Residential Credit, Commercial Real Estate and Middle Market Lending groups, and significant hires in business support functions, such as Risk Management, Legal and Compliance, Finance and Information Technology, among others.
| Investment in Annaly’s People |
| |
| 91 | | 96% |
| Dedicated staff supporting best-in-class Risk Management, Technology, Legal, Finance and Business Development functions | | of employees feel Annaly is committed to exceeding stockholder expectations, compared to the Financial Services average of 88%(3) |
| | | |
| 10 | | 7 |
| Internal development programs in place with 100% employee participation | | Management committees with broad representation designed to provide guidance and oversight |
The costs of these personnel expansions and improvements have been paid by the Manager rather than by the Company. Unlike a number of other externally-managed REITs, Annaly does not reimburse the Manager for any portion or subset of employment costs, all of which are borne by the Manager. An increase to these costs does not result in any increase to the management fee, which is a fixed percentage of stockholders’ equity as described above.
Despite the costs associated with the diversification of its investment strategy, the Manager has continued to operate the business in an efficient manner with appropriately scaled operating costs (including the management fee). As illustrated by the table below, Annaly’s average operating expense levels have remained significantly lower than both its internally- and externally-managed mREIT peers over the last six years.
(1) | The “industry average” reflects the average management fee of all externally-managed companies (excluding Annaly) included in the BBREMTG Index as of December 31, 2017. For additional information, including assumptions, about this calculation, please see “Management Agreement Terms” on pages38 - 39.
|
(2) | For additional information, including assumptions, about this calculation, please see “Continued Cost Savings Related to the Externalization” onpage 40.
|
(3) | “Financial Services” average is provided by Perceptyx based on a cross section of global and domestic banks, credit card companies, insurance companies, accountancy companies, consumer finance companies, stock brokerages, and investment funds.
|
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Operating Expense as a Percentage of Average Equity(1) |
| 2012 | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | Average |
 | 1.45% | | 1.66% | | 1.61% | | 1.58% | | 1.65% | | 1.68% | | 1.61% |
Internally-Managed
Peers | 2.71% | | 3.95% | | 3.92% | | 3.68% | | 2.14% | | 2.10% | | 3.08% |
Externally-Managed
Peers | 2.38% | | 3.06% | | 3.55% | | 3.82% | | 4.36% | | 4.00% | | 3.53% |
| mREIT Index | 2.33% | | 3.30% | | 3.62% | | 3.80% | | 3.53% | | 3.25% | | 3.30% |
For additional information about the Manager, the management agreement and executive compensation, see “Certain Relationships and Related Party Transactions,” “Management Structure”, “Compensation Paid by the Manager to the Named Executive Officers” and “Compensation Discussion and Analysis.”
GOVERNANCE TIMELINENote: For footnoted information, please refer to “Overview of Manager’s 2018 Executive Compensation Program” in Endnotes section.
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Board Composition, Structure And Refreshment
12 or 73 | | 2021 | | 45% |
Independent Directors may
not stand for re-election upon
the earlier of 12 years of
service or their 73rd birthday | | All Directors will stand for
annual election commencing
with the 2021 Annual Meeting | | of Annaly’s Continuing
Directors(1) are women, which is
over 2x the average of S&P 500
companies |
The NCG Committee seeks to achieve a balance of knowledge, experience and capability on the Board. Newer Directors offer fresh ideas and perspectives, while deeply experienced Directors bring extensive knowledge of the Company’s complex operations. The table below summarizes key qualifications, skills, and attributes most relevant to the Continuing Directors’(1)service on the Board. For additional information about individual Director’s qualifications and experience, please see the Director biographies beginning on page15.
Skill / Experience Summary of Continuing Directors(1) |
The Board annually evaluates its overall composition and rigorously evaluates individual Directors to ensure a continued match of their skill sets and projected tenure against the needs of the Company. As a result of this process, the Board elected new Independent Directors, Kathy Hopinkah Hannan and Thomas Hamilton, effective February 13, 2019 and March 6, 2019, respectively. In 2018, the Board also underwent a comprehensive third-party facilitated self-evaluation, which included assessments of the full Board, each Board committee and individual Directors. Focus areas of this evaluation included Board and Committee skills, structure, dynamics, processes, leadership and refreshment. Based on the results of its self-evaluation, the Board determined to conduct a follow-up review to further analyze considerations related to Board refreshment, including Director term and tenure. This review, which benefitted from significant stockholder feedback, ultimately led to the adoption of a Board refreshment policy requiring that Independent Directors may not stand for re-election following the earlier of their 12thanniversary of Board service or their 73rdbirthday. In addition, this analysis informed the Board’s unanimous approval and adoption of a bylaw amendment to declassify the Board over a three-year period beginning with the 2019 Annual Meeting, with all Directors standing for annual election commencing with the 2021 Annual Meeting.
Note: For footnoted information, please refer to “Board Composition, Structure and Refreshment” in Endnotes section.
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Corporate Governance at Annaly
| Annaly Strives for Best-in-Class Governance Practices |
| 2013 | | ■Annaly’s proposal to be externally managed received 83% support from stockholders | | ■Added new Independent Director (John H. Schaefer) ■Established Risk Committee
|
| | | | |
2014 | | ■Enhanced financial disclosure, including additional financial metrics
| | ■Added new Independent Director (Francine J. Bovich) |
| | | | |
2015 | | ■Robust Lead Independent Director role created ■Established Risk Committee ■DetailedInitiated detailed succession planning process with Board
■Introduced annual employee engagement survey | | ■Kevin Keyes appointed as CEO ■InitiatedLaunched extensive investor outreach |
| | | | |
| 2016 | | ■Adopted broad-based stock ownership guidelines for employees ■Increased BoardDirectors stock ownership guidelines | | ■Adopted clawback policy for external manager ■Adopted anti-pledging policy for employees ■Adopted four-year stock holding period |
| | | | |
| 2017 | | ■Established a new Public Relations Committee; rotatedCorporate Responsibility Committee(1) ■Rotated Board Committee chairs and members ■Launched initial social impact investing joint venture ■Inclusion ofIncluded Board skills matrix in proxy statement ■Joined Council of Institutional Investors (CII) as corporate member ■Launched Women's Interactive Network | | ■Designated second Audit Committee financial expert ■Joined National Association of Corporate Directors (NACD) as Full Board Member ■NEOs voluntarily committed to increase stock ownership positions ■Hosted inaugural Investor Day ■Launched Women's Interactive Network
|
| | | | |
| 2018 | | ■Added 2two new Independent Directors (Katie Beirne Fallon and Vicki Williams) ■VirtualIntroduced virtual meeting format for Annual Meeting ■Adopted enhanced Board evaluation process, including individual directors assessments and periodic use of external facilitator ■Amended bylaws to declassify Board beginning with the 2019 Annual Meeting with full Board standing for annual election commencing with the 2021 Annual Meeting ■Created new executive role to lead the Company’s Corporate Responsibility and ESG initiatives | | ■Enhanced compensation and other disclosure in proxy statement ■IncludedRecognized in the 2018 Bloomberg Gender-Equality Index ■Instructed Board search firm to present equal representation in the slate of potential director candidates, including women and minority candidates ■Adopted policy requiring that Independent Directors may not stand for re-election following the earlier of their 12thanniversary of Board service or 73rdbirthday |
(1) | Source: Company Filings, SNL and Bloomberg. Averages are market weighted based
| | | |
| 2019 | | ■Announced second social impact investing joint venture ■Added extensive disclosure 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.Corporate Responsibility and ESG efforts to Annaly’s corporate website ■The Manager reduced its management fee on Incremental Stockholders’ Equity(2) from 1.05% to 0.75% | | ■Added two new Independent Directors (Kathy Hopinkah Hannan and Thomas Hamilton) ■Recognized in the 2019 Bloomberg Gender-Equality Index |
Note: For footnoted information, please refer to “Corporate Governance at Annaly” in Endnotes section.
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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 |
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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.
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Corporate Governance at Annaly
01 | | Election of Directors The Company has three classesConsistent with its commitment to strong corporate governance practices, the Board is in the process of Directors.implementing a declassified Board structure. At the Annual Meeting, stockholders will vote to elect three Class Ifour nominees to serve as Directors (Wellington J. Denahan, Michael Haylon(Kevin G. Keyes, Thomas Hamilton, Kathy Hopinkah Hannan and Donnell A. Segalas)Vicki Williams), whose one-year terms will expire at the annual meeting of stockholders in 2021 (“2021 Annual Meeting”), one Class III Director (Katie Beirne Fallon, who was appointed to the Board, effective January 1, 2018), whose term will expire2020 and when their respective successors are duly elected and qualify. Directors elected at the annual meetingmeetings of stockholders in 2020 (“2020 Annual Meeting”),2017 and one Class II Director (Vicki Williams, who was appointed to the Board, effective January 1, 2018), whose term will expire at the annual meeting of stockholders in 2019 (“2019 Annual Meeting”), each subject to the election and qualification of his or her successor or to his or her earlier death, resignation or removal. Other than Ms. Williams and Ms. Fallon, the terms of the other Class II and Class III Directors expire at the 2019 Annual Meeting and the 2020 Annual Meeting, respectively, and2018 will not be voted upon at the Annual Meeting.Meeting and will serve out the remainder of their terms. All Directors will stand for annual election beginning with the annual meeting of stockholders in 2021. The table below provides summary information about each of the Directors.Directors other than Messrs. Brady and Nordberg who have not been renominated as Directors in line with the Board refreshment policy adopted in October 2018. The Company is grateful to Messrs. Brady and Nordberg for their years of service on the Board.
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  | The Board has nominated and recommends a voteFOReach of Wellington J. Denahan, Michael HaylonKevin G. Keyes, Thomas Hamilton, Kathy Hopinkah Hannan and Donnell A. SegalasVicki Williams as Directors, to hold office until the 2021 Annual Meeting,FORKatie Beirne Fallon as a Directorwith each to hold office until the 2020 Annual Meeting, andFORVicki Williams as a Director to hold office until the 2019 Annual Meeting.their respective successors are duly elected and qualify. Unless you specify a contrary choice, the persons named in the enclosed proxy will vote in favor of these nominees. In the event that these nominees should become unavailable for election due to any presently unforeseen reason, the persons named in the proxy will have the right to use their discretion to vote for a substitute. |
| | Name | | Age | | Principal Occupation | | Independent | | Committees |
 | | Director Nominees Standing for One-Year Terms |
| | Wellington J. DenahanKevin G. Keyes | | 5451 | | FormerChairman, Chief Executive ChairmanOfficerand President
Annaly Capital Management, Inc. | | No | | ■PR
|
| | | | | Annaly Capital Management, Inc. | | | | ■Risk
|
| Michael HaylonThomas Hamilton | | 6051 | | Managing DirectorPresident & CEO
Construction Forms, Inc. | | Yes | | ■Audit
Risk |
| | | | | Conning, Inc. | | | | ■Risk
|
| Donnell A. SegalasKathy Hopinkah Hannan | | 6057 | | Former National Managing Partner,
Global Lead Partner
KPMG LLP | | Yes | | Audit
NCG |
| | Vicki Williams | | 46 | | Chief ExecutiveHuman Resources Officer and
NBCUniversal | | Yes | | ■Audit
Compensation
|
| | | | | Managing Partner | | | | (Chair)
|
| | | | | Pinnacle Asset Management, L.P. | | | | ■NCG
|
| | | | | | | | | ■PR
|
| | Directors Whose Current Terms Expire in 2020 |
| | Francine J. Bovich | | 67 | | Former Managing Director
Morgan Stanley Investment Management | | Yes | | NCG (Chair)
CR |
| | Katie Beirne Fallon | | 43 | | Global Head of Corporate Affairs
Hilton Worldwide Holdings Inc. | | Yes | | CR
NCG |
| | Jonathan D. Green* | | 72 | | Former Vice Chairman
Rockefeller Group | | Yes | | CR (Chair)
Compensation
Risk |
| | John H. Schaefer | | 67 | | Former President and Chief Operating Officer
Morgan Stanley Global Wealth Management | | Yes | | Risk (Chair)
Audit
Compensation |
| | | | | | | | | | |
|  | Directors Whose Current Terms Expire in 2021 |
| | Kevin G. KeyesWellington J. Denahan | | 5055 | | Chairman, ChiefFormer Executive OfficerChairman
Annaly Capital Management, Inc. | | No | | CR
Risk |
| | | | | and President | | | | |
| | | | | Annaly Capital Management, Inc. | | | | |
| Kevin P. BradyMichael Haylon | | 6261 | | Managing Director and Head of Conning North America
Conning, Inc. | | Yes | | Audit
Risk |
| | Donnell A. Segalas | | 61 | | Chief Executive Officer and Managing Partner
Pinnacle Asset Management, L.P. | | Yes | | ■AuditCompensation (Chair)
|
| | | | | ARMtech, LLC | | | |
■CR
NCG
|
| | | | | | | | | ■Risk
|
| E. Wayne Nordberg | | 79 | | 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 | | 66 | | 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. Green* | | 71 | | 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 page3026. |
| Annaly Capital Management Inc. 2018 Proxy Statement | 19 |
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Corporate Governance at Annaly
CLASS I DIRECTORS
Wellington J. Denahan |
Director since
1997
Committees
PR, Risk
| Ms. Denahan co-founded Annaly in 1996 and has served as a Director since that time. Until December 2017, Ms. Denahan served as Chairman of the Board of Annaly (from November 2012) and Executive Chairman of Annaly (from September 2015). Previously, Ms. Denahan served as Chief Executive Officer of Annaly from November 2012 to September 2015 and as Co-Chief Executive Officer of Annaly from October 2012 to November 2012. Ms. Denahan was Annaly’s Chief Operating Officer from January 2006 to October 2012 and Chief Investment Officer from 2000 to November 2012. Ms. Denahan received a B.S. in Finance from Florida State University. |
Director Qualification Highlights |
The Board believes that Ms. Denahan’s qualifications include her significant oversight experience related to fixed income trading operations through years of serving as Annaly’s Chief Operating Officer and Chief Investment Officer, her industry experience and expertise in the mortgage-backed securities markets, and her operational expertise, including her service as Annaly’s former Chief Executive Officer. |
Michael Haylon |
Director since
2008
Committees
Audit, Risk
| 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. Mr. Haylon received a B.A. from Bowdoin College and a M.B.A. from the University of Connecticut. |
Director Qualification Highlights |
The Board believes that Mr. Haylon’s qualifications include his significant leadership and management experience from his years of management and oversight of large financial asset portfolios, his prior board experience with other companies and his expertise in financial matters. |
2014 | Annaly Capital Management Inc. 20182019 Proxy Statement | |
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Corporate Governance at Annaly
Donnell A. Segalas |
Director since
1997
Committees
Compensation (Chair),
NCG, PR
| Mr. Segalas has served as the Chief Executive Officer and a Managing Partner of Pinnacle Asset Management L.P., a New York-based alternative asset management firm, since 2003. Additionally, Mr. Segalas is a member of Pinnacle’s Investment Committee and sits on the boards of its offshore funds. Prior to joining Pinnacle, Mr. Segalas was Executive Vice President and Chief Marketing Officer for Alternative Investment Products at Phoenix Investment Partners. Mr. Segalas is a member of the Nantucket Historical Society. He received a B.A. from Denison University. |
Director Qualification Highlights |
The Board believes that Mr. Segalas’s qualifications include his significant experience from his years of investing and managing private and public investment vehicles and his experience serving on investment and executive committees of other companies. |
CLASS II DIRECTORSDirector Nominees Standing for One-Year Terms
| Kevin G. Keyes |
Director since
2012 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 bankingInvestment Banking and capital marketsCapital Markets roles. From 2005 untilto 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, from 1997 to 2005 he worked at Credit Suisse First Boston from 1997 until 2005 in various capital markets originationCapital Markets Origination roles, and from 1990 to 1997 at Morgan Stanley Dean Witter from 1990 until 1997 in the Mergers and Acquisitions Group and Real Estate Investment Banking Group. Mr. Keyes receivedis a member of the University of Notre Dame’s Campaign Cabinet, the President’s Circle, the Student-Athlete Advisory Council and the Jesse Harper Council, as part of the Rockne Athletics Fund. He is a member of the Wall Street Journal’s CEO Council and serves on the Board of Directors of the Rock and Roll Forever Foundation. Mr. Keyes holds 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 toprovides 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. BradyThomas Hamilton |
Director since
19972019 Committees
Audit, (Chair), NCG,
Risk | Mr. BradyHamilton has served as the President, Chief Executive Officer and Owner of ARMtech, LLC,Construction Forms, Inc., an industrial manufacturing company, since 2013. Prior to his current position, Mr. Hamilton spent 24 years in a venture capital firm he founded that invests and incubates technology start-ups, since 2007. ARMtech’s current portfolio includes companiesnumber of leadership positions in the financial reportingindustry. Most recently, Mr. Hamilton served as a Strategic Advisor to the Global Head of Fixed Income, Currencies and data spaces.Commodities at Barclays Capital in New York. Mr. Hamilton’s prior roles at Barclays include serving as the Global Head of Securitized Product Trading and Banking, in which capacity he was responsible for the build out of the Barclays’ Global Securitized Product businesses, and as the Head of Municipal Trading and Investment Banking. Prior to ARMtech,Barclays, Mr. Brady founded TaxStream, a software company that specialized in financial reporting, taxHamilton held various Managing Director roles at Citigroup, Inc. 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,Salomon Brothers, Inc., where he consulted on M&A transactions and international tax issues.began his career. Mr. Hamilton also serves as Chairman of the Board of Chondrial Therapeutics, Inc., a biotech company he started to cure a rare neurodegenerative disease called Friedreich’s Ataxia. He was awardedis also a patentDirector of the Friedreich’s Ataxia Research Alliance, along with Co-Founder of his own charitable scientific effort, the CureFA Foundation. Mr. Hamilton received a B.S. in Finance from the U.S. Patent and Trademark Office for the inventionUniversity 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).Dayton. |
| Director Qualification Highlights |
The Board believes that Mr. Brady’sHamilton’s qualifications include his expertise in financialfixed income, mortgage-related assets, strategies and accounting matters as well as hismarkets and significant experience managing systems and companies focusing on the financial accounting market.leadership experience. |
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Corporate Governance at Annaly
E. Wayne NordbergKathy Hopinkah Hannan, PhD, CPA |
Director since
20042019 Committees
Audit, Compensation,
NCG | Mr. NordbergDr. Hannan is a former Global Lead Partner, National Managing Partner and Vice Chairman of KPMG, LLP, the U.S. member firm of the global audit, tax and advisory services firm KPMG International. Dr. Hannan has over 30 years of industry experience and held numerous leadership roles during her distinguished career with KPMG. From 2015 until her 2018 retirement, Dr. Hannan served as Global Lead Partner, Senior Advisor for KPMG’s Board Leadership Center and National Leader Total Impact Strategy. Dr. Hannan also served as the Midwest Area Managing Partner for KPMG’s Tax Services from 2004 to 2009. Subsequent to that role, from 2009 to 2015, Dr. Hannan served as the National Managing Partner of Diversity and Corporate Responsibility. While at KPMG, Dr. Hannan also founded the KPMG Women’s Advisory Board. In addition to her roles at KPMG, as a Native American Indian and member of the Ho-Chunk Nation Tribe, Dr. Hannan served on President George W. Bush’s National Advisory Council on Indian Education. Currently, Dr. Hannan serves 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 Ingallsthe Board & Snyder LLC, an NYSE member and registered investment advisor. From 1998 to 2002, Mr. Nordberg served as Vice ChairmanNational President for Girl Scouts 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. HeUSA, is a member of the Financial Analysts FederationBoard of Trustees and Executive Committee of the New York SocietySmithsonian National Museum of Security Analyststhe American Indian and is a Trustee of the Atlantic Salmon Federation, the American Museum of Fly FishingCommittee for Economic Development in Washington D.C. Dr. Hannan received a Ph.D. in Leadership Studies from Benedictine University and the National Wildlife Federation Endowment Fund. Mr. Nordberga B.A. from Loras College. She is also a directorgraduate of PetroQuest Energy, Inc.the Chicago Management Institute at the University of Chicago, Booth School of Business and Reaves Utility Income Fund, both NYSE-listed companies. Mr. Nordberg received a B.A. from Lafayette College, where he is a trustee emeritus.the Institute of Comparative Political & Economic Systems at Georgetown University. |
| Director Qualification Highlights |
The Board believes that Mr. Nordberg’sDr. Hannan’s qualifications include hisher expertise in financial, tax and accounting matters as well as her significant experience in serving at a senior executive level with a SEC-registered investment advisor, his experience as a director of an asset management companyenterprise sustainability, corporate governance and his service as a board member of other public companies.organizational effectiveness. |
| Vicki Williams |
Director since
2018 Committees
Audit, Compensation | Ms. Williams has over 18 years of compensation and governance experience. Ms. Williams has served as Chief Human Resources Officer for NBCUniversal, a multinational media conglomerate, since July 2018, where she is responsible for the company’s global human resources function, including compensation, benefits, development and learning, talent acquisition, executive search, HR systems, and the HR service center. Ms. Williams previously served as Senior Vice President, Compensation, Benefits and HRIS at NBCUniversal 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.beginning in 2011. 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 MathematicsEducation with a concentration in mathematics education and Education and aan 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’sWilliams’ qualifications include her broad human resources, executive compensation and governance experience, including serving as a senior-levelchief human resources executiveofficer at a multinational company and as an external compensation consultant. |
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Corporate Governance at Annaly
CLASS III DIRECTORSDirectors Whose Current Terms Expire in 2020
| Francine J. Bovich |
Director since
2014 Committees
NCG (Chair), PRCR | 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
2018 Committees
NCG, PRCR | 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 theCapitol 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. |
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Corporate Governance at Annaly
| Jonathan D. Green |
Director since
1997 Committees
PRCR (Chair),
Compensation,
Risk Lead Independent
Director | 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
2013 Committees
Risk (Chair), Audit,
Compensation | 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. |
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Corporate Governance at Annaly
Directors Whose Current Terms Expire in 2021
| Wellington J. Denahan |
Director since
1997 Committees
PR, Risk | Ms. Denahan co-founded Annaly in 1996 and has served as a Director since that time. Until December 2017, Ms. Denahan served as Chairman of the Board of Annaly (from November 2012) and Executive Chairman of Annaly (from September 2015). Previously, Ms. Denahan served as Chief Executive Officer of Annaly from November 2012 to September 2015 and as Co-Chief Executive Officer of Annaly from October 2012 to November 2012. Ms. Denahan was Annaly’s Chief Operating Officer from January 2006 to October 2012 and Chief Investment Officer from 2000 to November 2012. Ms. Denahan received a B.S. in Finance from Florida State University. |
| Director Qualification Highlights |
| The Board believes that Ms. Denahan’s qualifications include her significant oversight experience related to fixed income trading operations through years of serving as Annaly’s Chief Operating Officer and Chief Investment Officer, her industry experience and expertise in the mortgage-backed securities markets, and her operational expertise, including her service as Annaly’s former Chief Executive Officer. |
| Michael Haylon |
Director since
2008 Committees
Audit, Risk | Mr. Haylon has served as Managing Director and Head of Conning North America at Conning, Inc., a global provider of investment management solutions, services and research to the insurance industry, since June 2018. Mr. Haylon has served as a Managing Director at Conning, Inc. since January 2012 and previously served as Head of Asset Management Sales, Products and Marketing from December 2014 until June 2018 and as Head of Investment Products from January 2012 until December 2014. From September 2010 to December 2011, Mr. Haylon served as Head of Investment Product Management at General Re – New England Asset Management. He was Chief Financial Officer of the Phoenix Companies, Inc. from 2004 until 2007, and Executive Vice President and Chief Investment Officer of the Phoenix Companies in 2002 and 2003. From 1995 until 2002, he held the position of Executive Vice President of Phoenix Investment Partners, Ltd., a NYSE-listed company, and President of Phoenix Investment Counsel, where he was responsible for the management and oversight of $25 billion in closed-end and open-end mutual funds, corporate pension funds and insurance company portfolios. From 1990 until 1994, he was Senior Vice President of Fixed-Income at Phoenix Home Life Insurance Company. From 1986 until 1990, he was Managing Director at Aetna Bond Investors where he was responsible for management of insurance company and pension fund portfolios. From 1980 until 1984, he was a Senior Financial Analyst at Travelers Insurance Companies. He began his career in 1979 in the commercial lending program at Philadelphia National Bank. Mr. Haylon has previously served on the boards of Aberdeen Asset Management and Phoenix Investment Partners. Mr. Haylon received a B.A. from Bowdoin College and a M.B.A. from the University of Connecticut. |
| Director Qualification Highlights |
| The Board believes that Mr. Haylon’s qualifications include his significant leadership and management experience from his years of management and oversight of large financial asset portfolios, his prior board experience with other companies and his expertise in financial matters. |
| Donnell A. Segalas |
Director since
1997 Committees
Compensation (Chair),
NCG, CR | Mr. Segalas has served as the Chief Executive Officer and a Managing Partner of Pinnacle Asset Management L.P., a New York-based alternative asset management firm, since 2003. Additionally, Mr. Segalas is a member of Pinnacle’s Investment Committee and sits on the boards of its offshore funds. Prior to joining Pinnacle, Mr. Segalas was Executive Vice President and Chief Marketing Officer for Alternative Investment Products at Phoenix Investment Partners. Mr. Segalas is a member of the Nantucket Historical Society. He received a B.A. from Denison University. |
| Director Qualification Highlights |
| The Board believes that Mr. Segalas’ qualifications include his significant experience from his years of investing and managing private and public investment vehicles and his experience serving on investment and executive committees of other companies. |
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Corporate Governance at Annaly
INDEPENDENCE OF DIRECTORSThe Board’s Role and Responsibilities
The Company is committed to maintaining a strong ethical culture and robust governance practices that benefit the long-term interests of stockholders, which include:
DIRECTOR
INDEPENDENCE
AND OVERSIGHT | | ■Board refreshment policy triggered upon earlier of 12 years of service or 73rd birthday ■9 of 11 Continuing Directors(1) are Independent ■Robust Lead Independent Director role ■Regular executive sessions of Independent Directors ■Independent key Board committees ■Board oversees a succession plan for the CEO and other senior executives |
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DIRECTOR
QUALIFICATIONS | | ■45% of Continuing Directors(1) are women ■45% of Continuing Directors(1) have tenure of less than 5 years ■Annual Board, committee and individual Director self-evaluations with periodic use of an external facilitator ■Comprehensive Board refreshment and succession planning process ■Over-boarding policy limits the number of outside Boards on which Directors can serve ■Multiple audit committee financial experts |
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STOCKHOLDER
RIGHTS AND
ENGAGEMENT | | ■Amended bylaws to declassify the Board over a three-year period ■Majority vote standard for uncontested elections ■Annual stockholder advisory vote on executive compensation ■Stockholders may amend the bylaws by a majority of votes entitled to be cast ■Virtual meeting format enables participation from global stockholder base ■Stockholders can submit questions for the Annual Meeting through an interactive pre-meeting forum |
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CORPORATE
RESPONSIBILITY | | ■Director and employee stock ownership guidelines ■Board created Corporate Responsibility Committee in 2017(2) ■Announced second joint venture dedicated to supporting community development in 2019 ■Member of the 2019 Bloomberg Gender-Equality Index ■Created executive role to lead the Company’s Corporate Responsibility initiatives ■Added extensive disclosure on Corporate Responsibility and ESG efforts to corporate website |
Independence of Directors
Annaly’s Corporate Governance Guidelines and NYSE rules require that at least a majority of Board members are Independent Directors. The Board has adopted the definition of “independent director” set forth in Section 303A of the NYSE rules and has affirmatively determined that each Director (other than Ms. Denahan and Mr. Keyes) has no material relationships with the Company (either directly or as partner, stockholder or officer of an organization that has a relationship with us)the Company) and is therefore independent under all applicable criteria for independence in accordance with the standards set forth in the NYSE rules and Annaly’s Corporate Governance Guidelines.
TwoFour new, highly qualified
female Independent Directors have
joined the Annaly Board insince
the beginning of 2018 |
Note: For footnoted information, please refer to “The Board’s Role and Responsibilities” in Endnotes section.DIRECTOR NOMINATION PROCESS
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Corporate Governance at Annaly
Director Nomination Process
The NCG Committee is responsible for identifying and screening nominees for Director and for recommending to the Board candidates for nomination for election or re-election to the Board and to fill Board vacancies. The NCG Committee also seeks to maintain an ongoing list of potential Board candidates. Nominees may be suggested by Directors, members of management,stockholders or professional search firms. In evaluating a Director nomination, the NCG Committee may review materials provided by the nominator, a professional search firm or any other party.
The NCG Committee seeks to
maintain an ongoing list of
potential Board candidates |
DIRECTOR CRITERIA AND QUALIFICATIONSDirector Criteria and Qualifications
The NCG Committee seeks to achieve a balance of knowledge, experience and capability on the Board and considers a wide range of factors when assessing potential Director nominees, including a candidate’s background, skills, expertise, diversity, accessibility and availability to serve effectively on the Board. All candidates should (i) possess the highest personal and professional ethics, integrity and values, exercise good business judgment and be committed to representing the long-term interests of the Company and its stockholders, and (ii) have an inquisitive and objective perspective, practical wisdom and mature judgment. It is expected that all Directors will have an understanding of the Company’s business and be willing to devote sufficient time and effort to carrying out their duties and responsibilities effectively.
The NCG Committee seeks
to achieve a balance of
knowledge, experience and
capability on the Board |
BOARD REFRESHMENT AND DIVERSITYConsideration of Board Diversity
On an annual basis, the NCG Committee evaluates the Board’s overall composition, including Director tenure, and rigorously evaluates all DirectorsThe Company endeavors to ensure a continued match of their skill sets against the needs of the Company. The NCG Committee seeks to achieve a balance between the deep knowledge and understanding of Annaly’s business that comes from longer-term service on the Board with the fresh ideas and perspectives that comes from having newer Directors on the Board. And although the NCG Committee does not have a formal diversity policy, it recognizes the importance of having a Board representing diverse backgrounds and a broad setwide range of experiences at policy-making levelsprofessional experiences. The NCG Committee also takes into account other factors that promote principles of diversity, including diversity of a candidate’s perspective, background, gender, race, nationality, age and other demographics. The NCG Committee instructs any search firm it engages to include women and minority candidates in business, finance, government, education, law and technology, and in other areas that are relevantevery director candidate pool presented to the Company’s business and its status as a public company.Committee.
| Three women have joined the
Annaly Capital Management Inc.Board since the
beginning of 2018 Proxy Statement | 25 |
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Corporate Governance at Annaly
The NCG Committee’s annual evaluation of the Board’s composition also informs Board succession planning, and contributed to the appointment, effective January 1, 2018, of two new Independent Directors (Ms. Fallon and Ms. Williams) with skills and backgrounds that complement the Company’s highly qualified Board. Ms. Fallon and Ms. Williams were respectively identified as potential Director nominees by the CEO and another member of senior management. Ms. Fallon and Ms. Williams were nominated by the NCG Committee after an extensive and careful search was conducted, and numerous other candidates proposed by Directors, members of management and professional search firms were considered.
STOCKHOLDER RECOMMENDATION OF DIRECTOR CANDIDATESStockholder Recommendation of Director Candidates
Stockholders who wish the NCG Committee to consider their recommendations for Director candidates should submit their recommendations in writing to Anthony C. Green, the Chief Corporate Officer, Chief Legal Officer and Secretary at the Company’s principal executive offices. Following verification of the stockholder status of persons proposing candidates, recommendations are aggregated and considered by the NCG Committee at a regularly scheduled or special meeting. If any materials are provided by a stockholder in connection with the nominationrecommendation of a Director candidate, such materials are forwarded to the NCG Committee. Properly submitted recommendations by stockholders will receive the same consideration by the NCG Committee as other suggested nominees.
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Corporate Governance at Annaly
THE BOARD’S ROLE AND RESPONSIBILITIESBoard Effectiveness, Self-Evaluations and Refreshment
| Tenure of Continuing Directors(1) |
The Company’s comprehensive Board and Committee refreshment and succession planning process is designed to ensure that the Board and each Committee is comprised of highly qualified Directors, with the independence, diversity, skills and perspectives to provide strong and effective oversight. The Board, led by the NCG Committee, annually evaluates the composition of the Board and each Committee, and rigorously evaluates individual Directors to ensure a continued match of their skill sets and tenure against the needs of the Company. In 2018, the NCG Committee engaged an international professional search firm to assist in the identification and preliminary vetting of potential Director candidates. Kathy Hopinkah Hannan and Thomas Hamilton were identified as potential Director nominees by two separate members of senior management. They were considered as part of an extensive and careful search, which involved numerous other candidates proposed by Directors, members of management and the professional search firm. As a result of this process, the Board elected Dr. Hannan and Mr. Hamilton as new Independent Directors, effective February 13, 2019 and March 6, 2019, respectively.
The NCG Committee is responsible for overseeing an annual self-evaluation process for the Board. The self-evaluation process seeks to identify specific areas, if any, that need improvement or strengthening in order to increase the effectiveness of the Board as a whole and its members and committees. In early 2018, the Board adopted an enhanced Board self-evaluation process that includes annual assessments of the full Board, each Board committee and individual Directors, along with periodic use of an external facilitator. In the summer of 2018, an outside governance expert facilitated this comprehensive self-evaluation. Focus areas included Board and Committee skills, structure, dynamics, processes, fulfillment of responsibilities, leadership and refreshment.
Based on the results of its self-evaluation, the Board determined to conduct a follow-up review to further analyze considerations related to Board refreshment, including Director term and tenure. This review, which benefitted from significant stockholder feedback, ultimately led to the adoption of a Board refreshment policy requiring that Independent Directors may not stand for re-election following the earlier of their 12thanniversary of Board service or their 73rdbirthday. In addition, this analysis informed the Board’s unanimous approval and adoption of a bylaw amendment to declassify the Board over a three-year period beginning with the 2019 Annual Meeting, with all Directors standing for annual election commencing with the 2021 Annual Meeting.
Board Commitment and Over-Boarding Policy
The Company is committedIn order to maintaining a strong ethical cultureprovide sufficient time for informed participation in their Board responsibilities:
| ■ | Directors who also serve as chief executive officers or hold equivalent positions at other companies should not serve on more than two other boards of public companies in addition to the Board; |
| ■ | Other Directors should not serve on more than four other boards of public companies in addition to the Board; and |
| ■ | A member of the Audit Committee should not serve on the audit committee of more than two other public companies. |
All Directors are currently in compliance with this policy. Directors are required to notify the Chairman of the Board and robust governance practices that benefit the long-term interestsChair of stockholders, which include:the NCG Committee in advance of accepting an invitation to serve on another public company board.
Note: For footnoted information, please refer to “Board Effectiveness, Self-Evaluations and Refreshment” in Endnotes section.
DIRECTOR
INDEPENDENCE
AND OVERSIGHT | | | DIRECTOR
QUALIFICATIONS | | | STOCKHOLDER
RIGHTS AND
ENGAGEMENT | | | GOOD
GOVERNANCE/
CORPORATE
CITIZENSHIP |
■9 of 11 Directors are Independent
■Robust Lead Independent Director role
■Regular executive sessions of Independent Directors
■Independent key Board committees
■Board oversees a succession plan for the CEO and other senior executives
■The Board is a Full Board Member of the NACD
| | | ■36% of Directors are women
■4 of 11 Directors have tenure of less than 5 years
■Annual Board, committee and individual Director self-evaluations
■Over-boarding policy limits the number of outside boards on which Directors can serve
■ 2 “audit committee financial experts”
| | | ■Majority vote standard for uncontested elections
■Annual stockholder advisory vote on executive compensation
■Stockholders may amend the bylaws by a majority of votes entitled to be cast
■Stockholders can submit questions for the Annual Meeting through an interactive pre-meeting forum
| | | ■Clawback policy with Manager
■Director and employee stock ownership guidelines
■Board created new Public Responsibility Committee
■Launched joint venture dedicated to supporting community development in underserved cities
■Member of the 2018 Bloomberg Gender-Equality Index
|
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Corporate Governance at Annaly
BOARD OVERSIGHT OF RISKBoard Oversight of Risk
| FULL BOARD |
Risk management begins with the Board, through review and oversight of the Company’s risk management framework, and continues with executive management, through ongoing formulation of risk management practices and related execution in managing risk. The Board exercises its oversight of risk management primarily through its Risk Committee and Audit Committee. At least annually, the full Board reviews with management the Company’s risk management program, which identifies and quantifies a broad spectrum of enterprise-wide risks, including cyber and technology-related risks, and related action plans 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 targetsadequacy 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 |
|
MANAGEMENT |
Responsible for day-to-day risk assessment and risk management. A series of management committees have decision-making responsibilities for risk assessment and risk management activities. These management committees include the Operating Committee, Enterprise Risk Committee, the Asset and Liability Committee, the Investment Committee and the Financial Reporting and Disclosure Committee |
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 and the Company’s Severance and Noncompetition Agreement (the “CEO Severance Agreement”) with the Compensation Committee.Mr. Keyes. For additional information on this review, please see the “Risks Related to Compensation Policies and Practices” section of this Proxy Statement. For additional information on the responsibilities of the Risk Committee and the Audit Committee, please see the “Board Committees” section of this Proxy Statement. TheAs part of their risk oversight
responsibilities, the Audit
Committee and Risk CommitteesCommittee
have primary Board oversight
of the Company’s risk
management frameworkheld two joint meetings in 2018 |
MANAGEMENT SUCCESSION PLANNINGCEO Performance Reviews and Management Succession Planning
The Lead Independent Director and the Chair of the Compensation Committee jointly coordinate and lead the Board’s annual performance evaluation of the CEO, which reflects input from all non-executive Directors. The Board oversees and maintains a succession plan for the CEO and other senior executives. Executive succession and talent development are a regular agenda item for the Board and, at least once per year, the Board has a fulsome discussion of talent at each business and functional leadership level across the Company. In carrying out this function, the Board endeavors to ensure that the Company’s management has the capabilities to cause the Company to operate in an efficient and business-like fashion in the event of a vacancy in senior management, whether anticipated or sudden.
The Board’s oversight of succession planning and talent development is complemented by management’s commitment to attracting, developing and recruiting top talent with diverse perspectives and backgrounds. Since 2015, the Company has introduced ten unique learning and development programs for its employees, which are intended to foster community, employee skills and engagement and shared cultural values through professional development, career management and cross-departmental collaboration and networking.
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Corporate Governance at Annaly
BOARD COMMITMENT AND OVER-BOARDING POLICY
In order to provide sufficient time for informed participation in their Board responsibilities:
■ | Directors who also serve as chief executive officers or 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 complianceCommunications with this policy. Directors are required to notify the Chairman of the Board and the chair of the NCG Committee in advance of accepting an invitation to serve on another public company board.
COMMUNICATIONS 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 all communications to the Directors and forwards those communications related to the duties and responsibilities of the Board to the appropriate parties. Certain items such as business solicitation or advertisements, product-related inquiries, junk mail or mass mailings, resumes or other job-related inquiries, spam and unduly hostile, threatening, potentially illegal or similarly unsuitable communications will not be forwarded.
Stockholders may Communicate with any Director, Including the
Lead Independent Director |
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONSCertain Relationships and Related Party Transactions
Approval of Related Party Transactions
Each of Annaly’s Directors, Director nominees and executive officers is required to report allThe Board recognizes the fact that transactions with related persons present a heightened risk of conflicts of interests and/or improper valuation (or the Company in which they or an immediate family member had or will haveperception thereof). The Board has adopted a direct or indirect material interest in an annual disclosure questionnaire andwritten policy on an on-going basis. Management reviews these annual questionnaires and requires interim reports and, if determined to be necessary, discusses any reported transactions with related persons that is in conformity with NYSE listing standards.
Under this policy any related person transaction, and any material amendment or modification to a related person transaction, must be reviewed and approved or ratified by any standing or ad hoc committee of the entireBoard composed solely of Independent Directors who are disinterested or by the disinterested members of the full Board. Other than as discussed in this section, there were no reported transactions for 2017
In connection with the review and there is no transaction currently pending for 2018. The Board does not, however, have a formal written policy for approval or ratification of such transactions, and all such transactions are evaluated on a case-by-case basis. If management believes a transaction could be a related partyperson transaction, management must:
| ■ | disclose the name of the related person and the basis on which the person is a related person, the material terms of the related person transaction, including the approximate dollar value of the amount involved in the transaction, and all the material facts as to the related person’s direct or indirect interest in, or relationship to, the related person transaction; |
| ■ | advise as to whether the related person transaction complies with the terms of agreements governing the Company's material outstanding indebtedness that limit or restrict the Company's ability to enter into a related person transaction; |
| ■ | advise as to whether the related person transaction will be required to be disclosed in the Company's filings under the Securities Act of 1933, as amended (the “Securities Act”) or the Securities Exchange Act of 1934, as amended (the “Exchange Act” and collectively with the Securities Act, the “Acts”), and related rules, and, to the extent such transaction is required to be disclosed, ensure that the related person transaction is disclosed in accordance with such Acts and related rules; and |
| ■ | advise as to whether the related person transaction constitutes a “personal loan” for purposes of Section 402 of the Sarbanes-Oxley Act of 2002. |
In addition, the related person transaction policy provides that the committee or could raise particular conflictdisinterested Directors, as applicable, in connection with any approval or ratification of interest issues, it will discuss it with legal counsel,a related person transaction involving a non-employee Director or Director nominee, should consider whether such transaction would compromise the Director or Director nominee’s status as an “independent,” or “non-employee” Director, as applicable, under the rules and if necessary,regulations of the Board will form an Independent committee that hasSEC, the right to engage its own legalNYSE and financial counsel to evaluate, approve or ratify the transaction.Code of Business Conduct and Ethics.
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Corporate Governance at Annaly
Management Agreement
The Company has entered into a management agreement (the “Management Agreement”) with the Manager. Management of the Company is conducted by the Manager through the authority delegated to it in the Management Agreement and pursuant to the policies established by Annaly’s Board. The Independent Directors periodically review the Management Agreement with the assistance of separate legal and financial advisors, who are selected and retained by the Independent Directors. The Management Agreement was effective as of July 1, 2013, and was amended in November 2014 and then2013, amended and restated in April 2016 and August 2018 and amended most recently in March 2019, and may be further amended by agreement between the Manager and the Company.
The Management Agreement’s current term ends on December 31, 20182019 and will automatically renew for successive two-year terms unless at least two-thirds of the Independent Directors or the holders of a majority of the outstanding shares of the Company’s common stock in their sole discretion elect to terminate the agreement in their sole discretion and for any or no reason. At any time during the term or any renewal term, either party may deliver to the other partyreason upon 365 days prior written notice of its intention(such notice, a “Termination Notice”).
If the Company elects to terminate the Management Agreement, no less than one year priorit may elect to its proposed terminationaccelerate the Termination Date to a date or, but only inthat is between seven and 90 days after the eventdate it delivers a Termination Notice (the “Notice Delivery Date”). If the Company does not elect to accelerate the Termination Date, then the Manager may elect to accelerate the Termination Date to the date that is 90 days after the terminating party, such earlierNotice Delivery Date. If the Termination Date is accelerated (such date, as determined by the Company in its sole discretion. There is no termination fee for a termination of the Management Agreement“Accelerated Termination Date”) by either the ManagerCompany or the Company.
See also “Disclosure Enhancements” on page42Manager, in addition to any amounts accrued for a discussion of compensation paidthe period prior to the Accelerated Termination Date, the Company shall pay the Manager an acceleration fee in an amount equal to the average annual management fee earned by the Manager during the 24-month period immediately preceding such Accelerated Termination Date multiplied by a fraction with a numerator of 365 minus the number of days from the Notice Delivery Date to the NEOs.Accelerated Termination Date, and a denominator of 365.
The Management Agreement provides that during its term and, in the event of termination of the Management Agreement by the Manager without cause, for a period of one year following such termination, the Manager will not manage, operate, join, control, participate in, or advise any person other than the Company without the Company’s prior written consent manage any REIT, which engagesof the Risk Committee of the Board.
Prior to the most recent amendment to the Management Agreement in the management of mortgage-backed securities in any geographical region in whichMarch 2019, the Company operates.
had paid the Manager a flat monthly management fee equal to 1/12thof 1.05% of Stockholders’ Equity(1)for its management services. Pursuant to this arrangement, during the termsyear ended December 31, 2018, the Company incurred $179.8 million in management fees and $9.2 million in permitted reimbursement payments under the Management Agreement. None of the reimbursement payments were attributable to compensation of the Company’s NEOs.
In March 2019, the Manager and the Company amended the Management Agreement for the sole purpose of reducing the monthly management fee on Incremental Stockholders’ Equity.(2)Pursuant to this amendment, which recognizes the efficiencies that have been gained with scale, the Company pays the Manager a monthly management fee equal to 1/12th of 1.05% of the Company’s stockholders’ equity, as defined in the Management Agreement, for its management services. The Company incurred approximately $164.3 million in management fees underservices equal to 1/12thof the Management Agreement during the year ended December 31, 2017.sum of: (i) 1.05% of Base Stockholders’ Equity(3), and (ii) 0.75% of Incremental Stockholders’ Equity.(2)
The Manager
The managementIn 2019, the Manager reduced
its fee ofon Incremental
Stockholders’ Equity to
0.75% from 1.05% of
stockholders’ equity (as defined
in the Management Agreement)
compares favorably to the
industry average |
Note: For footnoted information, please refer to “Management Agreement” in Endnotes section.
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Board Structure and Processes
BOARD LEADERSHIP STRUCTUREBoard Leadership Structure
The Board believes that whether to have the same person occupy the offices of Chairman of the Board and CEO should be decided by the Board, from time to time, in its business judgment after considering relevant factors, including the specific needs of the business and what is in the best interests of the Company at that point in time. Under the Corporate Governance Guidelines, the Independent Directors will annually select an Independent Director to serve as Lead Independent Director when the CEO and Chairman of the Board roles are combined or if the Chairman is not otherwise independent. Currently, Mr. Keyes serves as Chairman, CEO and President, while Mr. J. Green serves as Lead Independent Director.
The Board believes that the current leadership structure provides effective independent oversight of management, while allowing both the Board and management to benefit from Mr. Keyes’sKeyes’ day-to-day familiarity with the Company’s business.
The Lead Independent Director
has significant authority
and responsibilities |
THE CHAIRMAN OF THE BOARDThe Chairman of the Board | ◆ | THE LEAD INDEPENDENT DIRECTORThe 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, including executive sessions of Independent Directors ■Facilitates communication between the Independent Directors and the Chairman of the Board and CEO ■Advises on the selection of committee chairs ■Approves the quality, quantity and timeliness of information sent to the Board ■Approves Board meeting agendas ■Approves Board meeting schedules to assure there is sufficient time for discussion of all agenda items ■Has authority to call meetings of the Independent Directors ■Authorizes the retention of outside advisors and consultants who report directly to the Board ■If requested by stockholders, ensures that he is available, when appropriate, for consultation and direct communication with major stockholders |
The Board believes that its independent oversight function is further enhanced by its policy to hold regular executive sessions of the Independent Directors without management present and the fact that a majority of the Company’s Directors (and every member of the Board’s three key committees)Audit Committee, Compensation Committee and NCG Committee) is independent.
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Board Structure and Processes
EXECUTIVE SESSIONS OF INDEPENDENT DIRECTORSExecutive Sessions of Independent Directors
The Corporate Governance Guidelines require that the Board have at least two regularly scheduled executive sessions of Independent Directors each year. These executive sessions, which are designed to promote unfettered discussions among the Independent Directors, are presided over by the Lead Independent Director, or in his or her absence, the chair of the Compensation Committee. During 2017,2018, the Independent Directors, without the participation of Board members who are members of management, held fiveseven executive sessions.
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Board Structure and Processes
BOARD AND COMMITTEE EVALUATIONS
The Lead Independent Director Orientation and the NCG Committee are responsible for overseeing an annual self-evaluation process for the Board. The self-evaluation process seeks to identify specific areas, if any, that need improvement or strengthening in order to increase the effectiveness of the Board as a whole and its members and committees. In 2018, the Board adopted an enhanced Board self-evaluation process that includes annual assessments of the full Board, each Board committee and individual Directors. Such assessments will be facilitated by an external evaluator on a periodic basis. In addition to these formal self-evaluations, the Board considers its performance as well as that of its members and committees on an ongoing basis and shares relevant feedback with management.
DIRECTOR ORIENTATION AND CONTINUING EDUCATIONContinuing Education
The Board believes that Director orientation and continuing education is critical to the Board’s ability to fulfill its responsibilities in a dynamic and constantly evolving business environment. New Directors participate in a robust onboarding process, which includes extensive training materials and personal briefings by senior management on the Company’s strategic plans, financial statements, and key policies and practices. In addition, the Company encourages Directors to participate in external continuing director education programs, and the Company provides reimbursement for related expenses. Continuing director education is also provided during Board meetings and as stand-alone information sessions outside of meetings. In line with the Company’s commitment to continuing board education, in 2017, the Board became a Full Board Member of the NACD, which gives Directors access to an extensive menu of board education programs, along with research on governance trends and board practices.
GOVERNING DOCUMENTSGoverning Documents
Code of Business Conduct and Ethics
The Board has adopted a Code of Business Conduct and Ethics (the “Code of Conduct”), which sets forth the basic principles and guidelines for resolving various legal and ethical questions that may arise in the workplace and in the conduct of business. This Code of Conduct is applicable to Annaly’s Directors, executive officers and employees, and is also a “code of ethics” as defined in Item 406(b) of Regulation S-K. The Company will make any legally required disclosures regarding amendments to, or waivers of, provisions of the Code of Conduct on the Company’s website.
Corporate Governance Guidelines
The Board has adopted Corporate Governance Guidelines that, in conjunction with the charters of the Board committees, provide the framework for governance of the Company.
Other Governance Policies
Annaly’s Directors, executive officers and employees are also subject to the Company’s other governance policies, including a Foreign Corrupt Practices Act and Anti-Bribery Compliance Policy, an Insider Trading Policy, and a Regulation FD Policy.
Where You Can Find the Code of Conduct, Corporate Governance Guidelines and Committee Charters
The Code of Conduct, Corporate Governance Guidelines, Compensation Committee Charter, Audit Committee Charter, NCG Committee Charter, PublicCorporate Responsibility Committee Charter and Risk Committee Charter are available on Annaly’s website (www.annaly.com). The Company will provide copies of these documents free of charge to any stockholder who sends a written request to Investor Relations, Annaly Capital Management, Inc., 1211 Avenue of the Americas, New York, NY 10036.
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Board Structure and Processes
BOARD COMMITTEESBoard Committees
The Board created the new
Corporate Responsibility
Committee in late 2017 |
The Board has five standing committees: the Audit Committee, the Compensation Committee, the NCG Committee, the Risk Committee and the
recently-formed PublicCorporate Responsibility Committee.
As part of the Board’s continuing review of its Board committee structure and responsibilities, and in response to dialogue with stockholders, the Board created the new Public Responsibility Committee in late 2017. At the same time, the Board reorganized the membership of most of its other committees.
The Board created the
new Public Responsibility
Committee in late 2017 |
| Director | | Audit
Committee | | Compensation
Committee | | NCG
Committee | | CR
Committee(1) | | Risk
Committee |
| Francine J. Bovich | | | | | |  | | • | | |
| Kevin P. Brady(2) | | E | | | | • | | | | • |
| Wellington J. Denahan | | | | | | | | • | | • |
| Katie Beirne Fallon | | | | | | • | | • | | |
| Jonathan D. Green* | | | | • | | | | | | • |
| Thomas Hamilton(3) | | • | | | | | | | | • |
| Kathy Hopinkah Hannan(4) | | • E | | | | • | | | | |
| Michael Haylon | | • E | | | | | | | | • |
| E. Wayne Nordberg(2) | | • | | • | | • | | | | |
| John H. Schaefer | | • | | • | | | | | | |
| Donnell A. Segalas | | | | | | • | | • | | |
| Vicki Williams | | • | | • | | | | | | |
| % of Independent Members: | | 100% | | 100% | | 100% | | 80% | | 80% |
| 2018 Meetings: | | 9 | | 3 | | 3 | | 2 | | 4 |
•Member  Chairperson |
(1) | Member | | Chairperson | Mr. Green serves as the E
| Financial Expert | * | 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.Director |
Committee Membership Determinations
The Board annually reviews the membership and chairmanship of each Board Committee as part of its broader Board and Committee refreshment and succession planning. This review, which is led by the NCG Committee, takes into account, among other factors, the needs of the Committees, the experience, availability and projected tenure of Directors and the desire to balance Committee continuity with fresh insights. For additional detail, see the “Board Effectiveness, Self-Evaluations and Refreshment” section of this Proxy Statement.
Note: For footnoted information, please refer to “Board Committees” in Endnotes section.
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Board Structure and Processes
AUDIT COMMITTEEAudit Committee
|
Committee Members: Kevin P. Brady(Chair)(1)
Thomas Hamilton(2)
Kathy Hopinkah Hannan(3)
Michael Haylon
E. Wayne Nordberg(1)
John H. Schaefer
Vicki Williams Number of Meetings:Meetings
in 2018:69 | Key Responsibilities: ■Appoints the independent registered public accounting firm and reviews its qualifications, performance and independence ■Reviews the plan and results of the auditing engagement with the Chief Financial Officer and the independent registered public accounting firm ■Oversees internal audit activities ■Oversees the quality and integrity of financial statements and financial reporting process ■Oversees the adequacy and effectiveness of internal control over financial reporting ■Reviews and pre-approves the audit and permitted non-audit services and proposed fees of the independent registered public accounting firm ■Prepares the report of the Audit Committee required by the rules of the SEC to be included in the Proxy Statement ■Together with the Risk Committee, jointly oversees practices and policies related to cybersecurity |
Each member of the Audit Committee is financially literate and independent of the Company and management under the applicable rules of the Securities Exchange Act, of 1934, as amended (the “Exchange Act”), and the listing standards of the NYSE. The Board has designated Messrs. Brady and Haylon and Dr. Hannan as “auditaudit committee financial experts”experts under applicable SEC rules. For more information on the Audit Committee’s responsibilities and activities, see the “Board Oversight of Risk” and “Report of the Audit Committee” sections of this Proxy Statement. |
|
COMPENSATION COMMITTEECompensation Committee
|
Committee Members: Donnell A. Segalas
(Chair)
Jonathan D. Green
E. Wayne Nordberg(1)
John H. Schaefer
VickieVicki Williams Number of Meetings:Meetings
in 2018:23 | Key Responsibilities: ■Evaluates the performance of the Manager and the terms of the Management Agreement ■Reviews the fees payable to the Manager ■Administers the Company’s equity incentive plans and other equity compensation programs ■Reviews the form and amount of Director compensation ■Evaluates the performance of the Company’s officers ■Reviews and discusses with management the Compensation Discussion and Analysis and related disclosures as required by the SEC ■Prepares the report of the Compensation Committee required by the rules of the SEC to be included in the Proxy Statement |
Note: For footnoted information, please refer to “Audit Committee & Compensation Committee” in Endnotes section.
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Board Structure and Processes
NCG COMMITTEECommittee |
Committee Members: Francine J. Bovich
(Chair)
Kevin P. Brady(1)
Katie Beirne Fallon
Kathy Hopinkah Hannan(2)
E. Wayne Nordberg(1)
Donnell A. Segalas Number of Meetings:Meetings in
2018:43 | Key Responsibilities: ■Develops and recommends criteria for considering potential Board candidates ■Identifies and screens individuals qualified to become Board members, and recommends to the Board candidates for nomination for election or re-election to the Board and to fill Board vacancies ■Develops and recommends to the Board a set of corporate governance guidelines and recommends modifications as appropriate ■Provides oversight of the evaluation of the Board and management ■Considers other corporate governance matters such as Director retirement policies, management succession plans and potential conflicts of interest of Board members and senior management, and recommends changes as appropriate |
PUBLIC RESPONSIBILITY COMMITTEECorporate Responsibility Committee(3)
|
Committee Members: Jonathan D. Green
(Chair)
Francine J. Bovich
Wellington J. Denahan
Katie Beirne Fallon
Donnell A. Segalas Number of Meetings:Meetings
in 2018:N/A(1)2 | Key Responsibilities: Assists the Board in its oversight of the Company’s items of publiccorporate responsibility, including: ■corporate philanthropy ■social impact investments ■sustainability initiatives ■corporate culture and reputation ■public policy initiatives |
RISK COMMITTEERisk Committee
|
Committee Members: John H. Schaefer(Chair)
Kevin P. Brady(1)
Wellington J. Denahan
Jonathan D. Green
Thomas Hamilton(4)
Michael Haylon Number of Meetings:Meetings
in 2018:54 | Key Responsibilities: Assists the Board in its oversight of the Company’s: ■risk governance structure ■risk management and risk assessment guidelines and policies regarding capital, liquidity and funding risk, investment/market risk, credit risk, counterparty risk, operational risk, compliance, regulatory and legal risk and such other risks as necessary to fulfill the committee’s duties and responsibilities ■risk appetite, including risk appetite levels and capital targetsadequacy and limits ■practices and policies related to cybersecurity (together with the Audit Committee) |
| For more information on the Risk Committee’s responsibilities and activities, see the “Board Oversight of Risk” section of this Proxy Statement. |
|
& Risk Committee” in Endnotes section.3430 | Annaly Capital Management Inc. 20182019 Proxy Statement | |
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Table of Contents
Board Structure and Processes
DIRECTOR ATTENDANCEDirector Attendance
During 2017,2018, the Board held 1314 meetings. Each DirectorAll Directors attended at least 75% of the aggregate number of meetings held byof the full Board and each committeethe committees on which the Directorthey served, during the period he or she was on such committee.in which they served, in 2018.
The Company expects each member of the Board to attend the Annual Meeting. All of the Company’s then-Directors attended Annaly’s 20172018 annual meeting of stockholders (the “2017“2018 Annual Meeting”). Ms. FallonDr. Hannan and Ms. WilliamsMr. Hamilton were appointedelected as Directors effective January 1, 2018February 13, 2019 and March 6, 2019, respectively, and therefore did not attend the 20172018 Annual Meeting.
COMPENSATION OF DIRECTORSCompensation of Directors
The Company compensates the IndependentNon-Executive Directors. Any Director who is also an employee or owner of the Manager does not receive compensation for serving on the Board. The Compensation Committee is responsible for reviewing, and recommending to the Board, the form and amount of compensation paid to the IndependentNon-Executive Directors.
The annual compensation elements paid to the IndependentNon-Executive Directors for service on the Board and its standing committees for 2017 is2018 are set forth below:
| Annual Compensation Element | | Amount |
| Annual Cash Retainer | | $100,000 |
| Deferred Stock Unit (“DSU”) Grant | | $135,000 in DSUs |
| Lead Independent Director Retainer | | $30,000 |
| Committee Member Retainer | | $8,000 – Audit Committee |
| | $7,000 – Compensation Committee |
| | $7,000 – Risk Committee |
| | $5,000 – NCG Committeeall Board Committees |
| Committee Chair Retainer(1) | | $20,000 – Audit Committee |
| | $10,000 – Compensation Committee |
| | $10,000 – Risk Committee |
| | $10,000 – NCG Committeeall other Board Committees |
____________________
(1)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 did not meet during such year, having been established in November 2017. |
Each DSU is equivalent in value to one share of the Company’s common stock. DSUs are granted on the date of the annual stockholder meeting and vest immediately. DSUs convert to shares of the Company’s common stock one year after the date of grant unless the Director elects to defer the settlement of the DSUs to a later date. DSUs do not have voting rights. DSUs pay dividend equivalents in either cash or additional DSUs at the election of the Director. The Independent Directors are also eligible to receive other stock-based awards under the Company’s equity incentive plan.
The Company reimburses the Directors for their reasonable out-of-pocket travel expenses incurred in connection with their attendance at full Board and committee meetings.
Director Stock Ownership Guideline
In 2016, the Board increased the stock ownership guideline for the Independent Directors to provide that each Independent Director should strive to own an amount of the Company’s common stock equal to five times the annual cash retainer. Shares counting toward the guideline include shares that are owned outright, DSUs and any other shares held in deferral accounts. To facilitate achievement of the guideline, the Board has adopted and implemented a “retention ratio” that requires Independent Directors to retain and hold 50% of the net profit shares from DSUs until the specified ownership level is achieved. As of MarchDecember 31, 2017,2018, all of the Independent Directors havehad met or arewere on their way to meeting their stock ownership guideline.
In 2016, the Board increased the
The stock ownership guideline
for
Independent Directors tois 5x
the
annual cash retainer which is
currently $100,000 |
| | Annaly Capital Management Inc. 20182019 Proxy Statement | 3531 |
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Table of Contents
Board Structure and Processes
Role of the Independent Compensation Consultant
During 2017,2018, the Compensation Committee retained an independent compensation consultant, Frederic W. Cook & Co. (“F. W. Cook”), to assist the Compensation Committee in its review of the compensation arrangements provided to the IndependentNon-Executive Directors. The Compensation Committee considered F. W. Cook’s independence in light of SEC regulations and NYSE listing standards. The Compensation Committee discussed all relevant factors and concluded that no conflict of interest exists that would prevent F. W. Cook from independently representing the Compensation Committee.
Director Compensation
The table below summarizes the compensation paid by the Company to the IndependentNon-Executive Directors for the fiscal year ended December 31, 2017.2018.
| Name(1) | | Fees Earned or
Paidin Cash | | Stock
Awards(2) | | Total | | Fees Earned or
Paid in Cash
($) | | Stock
Awards(2)
($) | | Total
($) |
| Francine J. Bovich | | $113,000 | | $135,000 | | $248,000 | |
| Francine J. Bovich | | | 126,000 | | 135,000 | | 261,000 |
| Kevin P. Brady | | $140,000 | | $135,000 | | $275,000 | | 144,000 | | 135,000 | | 279,000 |
| Jonathan D. Green | | $154,000 | | $135,000 | | $289,000 | |
| Michael Haylon | | $115,000 | | $135,000 | | $250,000 | |
| E. Wayne Nordberg | | $122,000 | | $135,000 | | $257,000 | |
| Wellington J. Denahan | | | 116,000 | | 135,000 | | 251,000 |
| Katie Beirne Fallon | | | 116,000 | | 135,000 | | 251,000 |
| Jonathan D. Green(3) | | | 182,000 | | 135,000 | | 317,000 |
| Michael Haylon(3) | | | 124,000 | | 135,000 | | 259,000 |
| E. Wayne Nordberg(3) | | | 132,000 | | 135,000 | | 267,000 |
| John H. Schaefer | | $122,000 | | $135,000 | | $257,000 | | 134,000 | | 135,000 | | 269,000 |
| Donnell A. Segalas | | $122,000 | | $135,000 | | $257,000 | |
| Donnell A. Segalas(3) | | | 142,000 | | 135,000 | | 277,000 |
| Vicki Williams | | | 116,000 | | 135,000 | | 251,000 |
____________________
(1)1. | Ms. FallonDr. Hannan and Ms. WilliamsMr. Hamilton were appointedelected to the Board effective January 1, 2018February 13, 2019 and March 6, 2019, respectively, and did not receive any compensation for the fiscal year ended DecemberDecembert 31, 2017.
2018. |
(2)2. | The amounts in this column represent the aggregate grant date fair value of the DSU awards, computed in accordance with FASB ASC Topic 718 and based on the closing price of the Company’s common stock on the date of grant. DSUs are vested at grant and accrue dividend equivalents as additional DSUs or cash at the election of the Director. |
| 3. | The amount in the “Fees Earned or Paid in Cash ($)” column includes fees earned for service on a special committee of the Board established to evaluate changes to the terms of the Management Agreement and related agreements. The fees include a retainer in the amount of $8,000 for each special committee member and an additional retainer in the amount of $10,000 for the special committee chair Mr. J. Green. |
The following table sets forth information with respect to the aggregate unexercised option awards at December 31, 20172018 of each of the IndependentNon-Executive Directors. All such option awards have vested. Options are no longer granted as part of the Company’s Non-Executive Director compensation program.
| Name(1) | | Unexercised
Option Awards
Awards at 12/31/1718 |
Francine J. Bovich | | — |
| Kevin P. Brady | | 42,50012,500 |
| Jonathan D. Green | | 90,00050,000 |
| Michael Haylon | | 75,00050,000 |
| E. Wayne Nordberg | | 90,000 |
John H. Schaefer | | —50,000 |
| Donnell A. Segalas | | 77,50037,500 |
____________________
| 1. | Ms. Bovich, Ms. Denahan, Ms. Fallon, Mr. Schaefer and Ms. Williams did not hold any unexercised option awards at December 31, 2018. Dr. Hannan and Mr. Hamilton were elected to the Board effective February 13, 2019 and March 6, 2019, respectively. |
3632 | Annaly Capital Management Inc. 20182019 Proxy Statement | |
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Table of Contents
Management
The following table sets forth certain information with respect to the Company’s executive officers, all of whom are indirect owners and/or employees of the Manager:
| Name | | Age | | Title |
| Kevin G. Keyes | | 5051 | | Chairman, Chief Executive Officer and President |
| Glenn A. Votek | | 5960 | | Chief Financial Officer |
| David L. Finkelstein | | 4546 | | Chief Investment Officer |
| Timothy P. Coffey | | 4445 | | Chief Credit Officer |
| Anthony C. Green | | 4344 | | Chief Corporate Officer, Chief Legal Officer and Secretary |
Biographical information on Mr. Keyes is provided above under the heading “Election“Election of Directors.Directors.” Certain biographical information for Messrs. Votek, Finkelstein, Coffey and Green is set forth below.
Glenn A. Votekhas served as Chief Financial Officer of Annaly since August 2013. Mr. Votek also served as Chief Financial Officer of Fixed Income Discount Advisory Company, a former wholly-owned subsidiary of the Company, from August 2013 until October 2015 and as Annaly’s Chief Administrative Officer from May 2013 until August 2013. Mr. Votek joined Annaly in May 2013 from CIT Group where he was an Executive Vice President and Treasurer since 1999 and President of Consumer Finance since 2012. Prior to that, Mr. Votek worked at AT&T and its finance subsidiary from 1986 until 1999 in various financial management roles. Mr. Votek has a B.S. in Finance and Economics from the University of Arizona/Kean College and a M.B.A. in Finance from Rutgers University.
David L. Finkelsteinhas served as Chief Investment Officer of Annaly since November 2016. Mr. Finkelstein previously served as Annaly’s Chief Investment Officer, Agency and RMBS beginning in February 2015 and as Annaly’s Head of Agency Trading beginning in August 2013. Prior to joining Annaly, Mr. Finkelstein served for four years as an Officer in the Markets Group of the Federal Reserve Bank of New York where he was the primary strategist and policy advisor for the MBS purchase program. Mr. Finkelstein has over 20 years of experience in fixed income investment. Prior to the Federal Reserve Bank of New York, Mr. Finkelstein held Agency MBS trading positions at Salomon Smith Barney, Citigroup Inc. and Barclays PLC. Mr. Finkelstein received his B.A. in Business Administration from the University of Washington and his M.B.A. from the University of Chicago, Booth School of Business. Mr. Finkelstein also holds the Chartered Financial Analyst®designation.
Timothy P. Coffeyhas served as Chief Credit Officer of Annaly since January 2016. Mr. Coffey served as Annaly’s Head of Middle Market Lending from 2010 until January 2016. Mr. Coffey has over 20 years of experience in leveraged finance and has held a variety of origination, execution, structuring and distribution positions. Prior to joining Annaly in 2010, Mr. Coffey served as Managing Director and Head of Debt Capital Markets in the Leverage Finance Group at Bank of Ireland. Prior to that, Mr. Coffey held positions at Scotia Capital, the holding company of Saul Steinberg’s Reliance Group Holdings, and SC Johnson International. Mr. Coffey received his B.A. in Finance from Marquette University.
Anthony C. Greenhas served as Chief Corporate Officer of Annaly since January 2019 and Chief Legal Officer and Secretary of Annaly since March 2017. Mr. Green previously served as Annaly’s Deputy General Counsel from 2009 until February 2017. Prior to joining Annaly, Mr. Green was a partner in the Corporate, Securities, Mergers & Acquisitions Group at the law firm K&L Gates LLP. Mr. Green has over 1819 years of experience in corporate and securities law. Mr. Green holds a B.A. in Economics and Political Science from the University of Pennsylvania and a J.D. and LL.M. in International and Comparative Law from Cornell Law School.
STOCK PURCHASES BY EXECUTIVE OFFICERS SINCEStock Purchases by Executive Officers Since 2011
Since 2011, the executive officers have purchased over 1.4approximately 1.5 million shares of the Company’s common stock (including open market purchases and dividend reinvestments, and option exercises)reinvestments) with an aggregate purchase price of $16.3approximately $16.5 million as set forth in the table below.
| Executive Officer | | Shares
Purchased | | Purchase
Price(1) |
| No NEO has ever
sold shares of
the Company’s
common stock
| | Shares
Purchased | | Purchase
Price(1) |
| No NEO has ever
sold shares of
the Company’s
common stock
|
| Kevin G. Keyes | | 934,779 | | $ | 10,560,000 | | 934,779 | | $ | 10,560,000 |
| Glenn A. Votek | | 93,597 | | $ | 1,017,000 | | 104,846 | | $ | 1,135,000 |
| David L. Finkelstein | | 300,000 | | $ | 3,370,000 | | 300,000 | | $ | 3,371,000 |
| Timothy P. Coffey | | 30,000 | | $ | 304,000 | | 30,000 | | $ | 304,000 |
| Anthony C. Green | | 101,000 | | $ | 1,085,000 | | 101,000 | | $ | 1,085,000 |
| TOTAL | | 1,459,376 | | $ | 16,336,000 | | 1,470,624 | | $ | 16,455,000 |
____________________
(1)1. | Rounded to the nearest thousand. |
| | Annaly Capital Management Inc. 20182019 Proxy Statement | 3733 |
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Table of Contents
Management Structure
OVERVIEWOverview
Following the management externalization transaction (the “Externalization”), which was approved by holders of approximately 83% of the Company’s stock on May 23, 2013, theThe Company becamehas been externally-managed by the Manager.Manager since 2013. Pursuant to the terms of the Management Agreement, the Company pays the Manager a management fee and the Manager pays all ofdetermines the compensation to Annaly’s management personnel (includingof its employees, including the NEOs)NEOs other than Mr. Keyes(1). The Compensation Committee annually reviews the management fee and the performance of the Manager, including the achievements discussed beginning on page7.3. The Independent Directors then consider the Compensation Committee’s recommendations when determining whether to renew or amend the terms of the Management Agreement. Based on the review and factors described in more detail below, including the management fee reduction discussed under “Recent Changes,” the Independent Directors have determinedbelieve that the Management Agreement continues to be in the best interests of the Company and its stockholders.Company. For additional information, see “Certain Relationships and Related Party Transactions,”, “Compensation Paid by the Manager to the Named Executive Officers” and “Compensation Discussion and Analysis.Analysis.”The Management Agreement
compares favorably to the
management agreements of
the Company’s externally-
managed peers |
From the inception of the Company's management externalization transaction (the “Externalization”) in 2013 through March 2019, the Company paid the Manager a flat monthly management fee for its management services equal to 1/12thof 1.05% of Stockholders’ Equity(2). In March 2019, the Manager and the Company amended the Management Agreement for the sole purpose of reducing the monthly management fee on Incremental Stockholders’ Equity(3). Pursuant to this amendment, which recognizes the efficiencies that have been gained with scale, the Company pays the Manager a monthly management fee equal to 1/12thof the sum of: (i) 1.05% of Base Stockholders’ Equity(4), and (ii) 0.75% of Incremental Stockholders’ Equity(3). In addition to the management fee, the Company continues to reimburse the Manager for certain legal, tax, accounting and other support and advisory services provided by employees of the Manager to the Company as permitted pursuant to the terms of the Management Agreement.
MANAGEMENT AGREEMENT TERMSManagement Agreement Terms
The Compensation Committee believes that the terms and conditions of the Management Agreement, including the recent reduction to the management fee, compare favorably to the terms and conditions that exist between Annaly’s externally-managed mREIT peers and their respective managers. In particular, as illustrated by the table below(5), when compared to the median for the peer comparison, (i) the tiered management fee paid to the Manager is lower as a percentage of stockholders’ equity and (ii) the term of the Management Agreement wasis of a shorter duration, and (iii) theduration.
| | Mean | | Median | | Min | | Max | | Annaly |
| Agency Residential REITs | | | | | | | | | | |
| Base management fee(6) | | 1.28% | | 1.28% | | 1.20% | | 1.36% | | 1.05% |
| Initial term in years | | 6.0 | | 6.0 | | 2.0 | | 10.0 | | 2.0 |
| Incentive fee | | None | | None | | None | | None | | None |
| Commercial REITs | | | | | | | | | | |
| Base management fee | | 1.50% | | 1.50% | | 1.50% | | 1.50% | | 1.05% |
| Initial term in years | | 2.8 | | 3.0 | | 2.0 | | 3.0 | | 2.0 |
| Incentive fee(7) | | 20%
above
8% hurdle | | 20%
above
8% hurdle | | None | | 25%
above
8% hurdle | | None |
| Non-Agency Residential/Hybrid REITs | | | | | | | | | | |
| Base management fee | | 1.49% | | 1.50% | | 1.41% | | 1.50% | | 1.05% |
| Initial term in years | | 4.3 | | 3.0 | | 1.0 | | 15.0 | | 2.0 |
| Incentive fee(8) | | N/A | | N/A | | ~15%
above
~12%
hurdle | | 35%
above
12.5%
hurdle | | None |
Note: For footnoted information, please refer to “Overview, Recent Changes & Management Agreement has no termination fee, which is expressedTerms” in the table below as a multiple of trailing average annual management fees.
| | Mean | | Median | | Min | | Max | | Annaly |
| Agency Residential REITs | | | | | | | | | | |
| Base management fee(1) | | 1.29% | | 1.29% | | 1.20% | | 1.37% | | 1.05% |
| Initial term in years | | 6.0 | | 6.0 | | 2.0 | | 10.0 | | 2.0 |
| Termination fee multiple(2) | | 4.2x | | 4.2x | | 3.0x | | 5.3x | | None |
| Incentive fee | | None | | None | | None | | None | | None |
| Commercial REITs | | | | | | | | | | |
| Base management fee | | 1.50% | | 1.50% | | 1.50% | | 1.50% | | 1.05% |
| Initial term in years | | 2.8 | | 3.0 | | 2.0 | | 3.0 | | 2.0 |
| Termination fee multiple | | 3.2x | | 3.0x | | 3.0x | | 4.0x | | None |
| Incentive fee(3) | | 20% above
8% hurdle | | 20% above
8% hurdle | | None | | 25% above
8% hurdle | | None |
| Non-Agency Residential/Hybrid REITs | | | | | | | | | | |
| Base management fee(4) | | 1.49% | | 1.50% | | 1.41% | | 1.50% | | 1.05% |
| Initial term in years | | 4.0 | | 3.0 | | 1.0 | | 15.0 | | 2.0 |
| Termination fee multiple(5) | | 2.9x | | 3.0x | | 1.0x | | 5.0x | | None |
| Incentive fee(6) | | N/A | | N/A | | ~15%
above
~12%
hurdle | | 35% above
12.5%
hurdle | | None |
Source: Public filings as of year ended December 31, 2017. All base management fees are calculated as a percentage of stockholders’ equity and all termination fees are calculated as a multiple of the average annual base management fee during the prior 24-month period, except as otherwise specified below. Agency Residential REITs represent the externally-managed agency mortgage REITs included in the BBREMTG Index as of December 31, 2017 and includes Anworth Mortgage Asset Corporation (“ANH”) and ARMOUR Residential REIT, Inc. (“ARR”). Commercial REITs represent the externally-managed commercial mortgage REITs included in the BBREMTG Index as of December 31, 2017 and includes Blackstone Mortgage Trust, Inc. (“BXMT”), Ares Commercial Real Estate Corp. (“ACRE”), Resource Capital Corp. (“RSO”), Apollo Commercial Real Estate Finance, Inc. (“ARI”), Starwood Property Trust (“STWD”) and Sutherland Asset Management (“SLD”). Non-Agency Residential / Hybrid REITs represents the externally-managed non-agencyEndnotes section.
3834 | Annaly Capital Management Inc. 20182019 Proxy Statement | |
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Table of Contents
Management Structure
residential and hybrid mortgage REITs included in the BBREMTG Index as of December 31, 2017 and includes New Residential Investment Corp. (“NRZ”), Two Harbors Investment Corp. (“TWO”), Invesco Mortgage Capital, Inc. (“IVR”), PennyMac Mortgage Investment Trust (“PMT”), MTGE Investment Corp. (“MTGE”), New York Mortgage Trust Inc. (“NYMT”), AG Mortgage Investment Trust, Inc. (“MITT”), Orchid Island Capital, Inc. (“ORC”), Western Asset Mortgage (“WMC”), Great Ajax Corp (“AJX”), Cherry Hill Mortgage Investment Corp. (“CHMI”), Ellington Residential Mortgage REIT (“EARN”), and Five Oaks Investment Corp. (“OAKS”).
(1) | For ARR, base management fee is calculated as 1.50% of gross equity raised up to $1.0 billion plus 0.75% of gross equity raised in excess of $1.0 billion.
|
(2) | ARR’s termination fee is calculated as the greater of (a) the base management fee calculated prior to the effective date of agreement termination for the remainder of the term or (b) 3x the base management fee during the preceding full 12 months.
|
(3) | Of the six Commercial REITs, five have incentive fees in addition to their base management fees. STWD and RSO have incentive fees of 20% above an 8% hurdle. BXMT has an incentive fee of 20% above a 7% hurdle. RSO has an incentive fee of 25% above an 8% hurdle. SLD has an incentive fee of 15% above an 8% hurdle. For purposes of this table, the calculation of the mean includes only the five Commercial REITs that have incentive fees.
|
(4) | NYMT only pays base management and incentive fees with respect to its distressed residential loan strategy. NYMT’s base management fee is calculated as 1.50% of invested capital in distressed residential mortgage loans.
|
(5) | NRZ’s termination fee is calculated using the prior 12-month period. Pursuant to the terms of its management agreement, PMT’s termination fee is calculated as a multiple of the base management fee and a performance incentive fee. For purposes of this table, any impact from this performance incentive fee on PMT’s termination fee multiple has been disregarded.
|
(6) | Of the 13 Non-Agency Residential/Hybrid REITs, four have incentive fees in addition to their base management fees. NRZ has an incentive fee of 25% above a 10% hurdle. PMT has an incentive fee with a sliding scale beginning above 8%. NYMT has an incentive fee of 35% above a 12.5% hurdle. AJX has an incentive fee of 20% above an 8% hurdle. For purposes of this table, the calculation of the mean includes only the four Non-Agency Residential/Hybrid REITs that have incentive fees.
|
STRUCTURE AND AMOUNT OF THE MANAGEMENT FEEStructure and Amount of the Management Fee
The Compensation Committee annually reviews both the structure of the management fee as well as the amount of such fee to determine whether they incentivize the Manager to work towards the Company’s desired goals to the benefit of long-term stockholder interests. The Compensation Committee has determined that the use of a tiered management fee formulated as a percentage of stockholders’ equity (as defined in the Management Agreement) Stockholders’ Equity(1)represents a responsible and prudent method of compensating the Manager. In particular, in the context of an mREIT that uses leverage as a key component of its business strategy, the Compensation Committee believes that providing for a contractually required payment structured as an “incentive fee” may misalign the goals of the Manager from those of the stockholders.
Moreover, the Compensation Committee believes that a management fee that is based upon stockholders’ equityStockholders’ Equity (along with the stock ownership guidelines discussed on page4735) aligns the management team to the goals of the Company, and that focusing the management fee on the preservation and growth of the Company’s book value incentivizes the Manager to achieve long-term performance that protects stockholders’ equity asStockholders’ Equity because realized losses decrease such equity and, ultimately, the management fee.
Additionally, for the Manager to earn a larger management fee, the stockholders’ equity of the CompanyStockholders’ Equity would need to increase. As a result, the growth of the stockholders’ equity is an alignment betweenStockholders’ Equity aligns the interests of stockholders and the Manager. Further, this alignment is stronger in the REIT industry than in other businesses. REIT regulations require the Company to pay at least 90% of its earnings to stockholders as dividends. As a result, unlike most companies, Annaly cannot grow its business and book value by reinvesting its earnings. This places a unique market discipline on the Company.
The Compensation Committee
annually reviews the structure
and amount of the management
fee to determine whether it
appropriately incentivizes the
management team |
In March 2019, the Manager and the Company reduced the monthly management fee on Incremental Stockholders’ Equity(2). The Compensation Committee believes that the introduction of a tiered management fee structure recognizes and accounts for the efficiencies that can be gained with scale.
The Compensation Committee also believes that the structure of the management fee is more favorable to the Company’s stockholders than if the fee was based on total assets under management, which could potentially incentivize an external manager to excessively leverage assets under management in an attempt to increase short-term incentive payouts.
In addition to the management fee, in August 2018, following the unanimous approval of the Independent Directors, the Company began reimbursing the Manager for certain legal, tax, accounting and other support and advisory services provided by employees of the Manager to the Company. These reimbursements (which totaled $9.2 million for 2018) are permitted pursuant to the terms of the Management Agreement provided the related costs are no greater than those that would be payable to comparable third party providers.
Clawback for the Management Fee
Pursuant to the 2016 amendment and restatement of the Management Agreement, the Company is entitled to receive reimbursement from the Manager if the Board determines that a computation error (regardless of the reason for or amount of such error) resulted in the overpayment of a management fee to the Manager.
| Annaly Capital Management Inc. 2018 Proxy Statement | 39 |
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Table of Contents
Management Structure
CONTINUED COST SAVINGS RELATED TO THE EXTERNALIZATIONContinued 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 and related expenses the Company paid for the fiscal years ended December 31, 2013 2014, 2015, 2016 and 2017(3)through December 31, 2018 against the estimated compensation costs (including tax costs) the Company would have paid for the same period if those costs remained what they were in 2012, management estimates that the Externalization has resulted in total compensation savings, including tax savings, (calculated in accordance with GAAP) of approximately $276$300 million.
The Company estimates that the
Externalization has resulted in total
compensation savings, including
tax savings, of approximately
$300 million |
As illustrated byNote: For footnoted information, please refer to “Structure and Amount of the table below,Management Fee &
Continued Cost Savings Related to the management fee for each of 2013(1), 2014, 2015, 2016 and 2017 is significantly lower than the Company’s 2012 compensation expenses (which is represented by the dark gray line):Externalization” in Endnotes section.
| Annaly Capital Management Fee/Compensation Expense(2),(3) |
($ in thousands)
(1)Inc. 2019 Proxy Statement | Although the Manager commenced management of Annaly on July 1, 2013, the Company’s stockholders received the benefit of the compensation savings created by the Externalization for the entire 2013 calendar year pursuant to a pro forma adjustment to the 2013 management fee. The Manager calculated a pro forma management fee, which was the management fee as if the Company was managed by the Manager from January 1, 2013 until July 1, 2013, and the actual amount of cash compensation paid to all of Annaly’s employees from January 1, 2013 until July 1, 2013 reduced the amount of the management fee owed to the Manager.
35 |
(2) | Assumes compensation costs for each of 2013, 2014, 2015, 2016 and 2017 would have remained what they were in 2012 (the last full year prior to the Externalization).
|
(3) | Gray shaded area represents compensations savings (exclusive of tax savings).
|
Table of Contents
Management Structure
ANNUAL REVIEW OF MANAGER PERFORMANCE AND MANAGEMENT FEE CONSIDERATIONSAnnual Review of Manager Performance and Management Fee Considerations
The Compensation Committee annually reviews the Manager’s performance and management fee against both historical results and the Company’s mREIT peers based on a number of metrics, including those discussed above in the “Proxy Summary.” and the expense ratios discussed below.
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 | |
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Table of Contents
Management Structure
Peer Comparison of Operating Expenses as a Percentage of Average Assets and Average Stockholders’ Equity
The Compensation Committee also reviews the Company’s total operating expenses (including the management fee)fee and related expenses), as a percentage of both average assets and average stockholders’ equity, among other metrics.equity. The Compensation Committee believes these ratios, which allow comparison of the Manager’s performance against the Company’s internally- and externally-managed mREIT peers, measure the extent to which the Manager operates in an economically efficient manner.
| Operating Expense as a Percentage of Average Assets(1) |
|
| 2012 | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | Average | 2012 | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | Average |
| 0.19% | | 0.22% | | 0.24% | | 0.25% | | 0.25% | | 0.25% | | 0.23% | 0.19% | | 0.22% | | 0.24% | | 0.25% | | 0.25% | | 0.25% | | 0.26% | | 0.24% |
Internally-Managed
Peers | 0.54% | | 1.05% | | 0.87% | | 0.72% | | 0.37% | | 0.44% | | 0.67% | 0.54% | | 1.05% | | 0.87% | | 0.72% | | 0.37% | | 0.44% | | 0.46% | | 0.64% |
Externally-Managed
Peers | 0.67% | | 0.63% | | 0.75% | | 0.81% | | 0.74% | | 0.74% | | 0.72% | 0.67% | | 0.63% | | 0.75% | | 0.81% | | 0.74% | | 0.74% | | 0.88% | | 0.75% |
| mREIT Index | 0.62% | | 0.74% | | 0.77% | | 0.80% | | 0.60% | | 0.62% | | 0.69% | 0.62% | | 0.74% | | 0.77% | | 0.80% | | 0.60% | | 0.62% | | 0.63% | | 0.68% |
| Operating Expense as a Percentage of Average Equity(1) |
|
| 2012 | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | Average |
| 1.45% | | 1.66% | | 1.61% | | 1.58% | | 1.65% | | 1.68% | | 1.61% |
Internally-Managed
Peers | 2.71% | | 3.95% | | 3.92% | | 3.68% | | 2.14% | | 2.10% | | 3.08% |
Externally-Managed
Peers | 2.38% | | 3.06% | | 3.55% | | 3.82% | | 4.36% | | 4.00% | | 3.53% |
| mREIT Index | 2.33% | | 3.30% | | 3.62% | | 3.80% | | 3.53% | | 3.25% | | 3.30% |
Source: Company Filings, SNL and Bloomberg. Averages are market weighted based on market capitalization as of Dec. 31st of each respective year. Note: Internally-Managed Peers and Externally-Managed Peers represent the respective internally- and externally-managed members of the BBREMTG Index as of December 31st of each respective year. The average for each excludes Annaly and companies during years in which they became public or first listed. Operating Expense is defined as: (i) for Internally-Managed Peers, the sum of compensation & benefits, general & administrative expenses and other operating expenses, and (ii) for Externally-Managed Peers and Annaly, the sum of net management fees, compensation & benefits (if any), general & administrative expenses and other operating expenses. Annaly’s 2016 operating expenses exclude costs of $49 million related to the Company’s acquisition of Hatteras Financial Corp.
| 2012 | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | Average |
 | 1.45% | | 1.66% | | 1.61% | | 1.58% | | 1.65% | | 1.68% | | 1.85% | | 1.64% |
Internally-Managed
Peers | 2.71% | | 3.95% | | 3.92% | | 3.68% | | 2.14% | | 2.10% | | 2.36% | | 2.98% |
Externally-Managed
Peers | 2.38% | | 3.06% | | 3.55% | | 3.82% | | 4.36% | | 4.00% | | 4.54% | | 3.67% |
| mREIT Index | 2.33% | | 3.30% | | 3.62% | | 3.80% | | 3.53% | | 3.25% | | 3.29% | | 3.25% |
In its review of these operating expense ratios, the Compensation Committee noted that the Company has outperformed both its internally- and externally-managed mREIT peers over the last sixseven fiscal years. In this regard, the Compensation Committee has viewed the Company’s performance as an indicator that, among other things, the Manager has managed the Company in ana comparatively efficient manner with appropriately scaled operating costs (including the management fee).
Note: For footnoted information, please refer to “Annual Review of Manager Performance and
Management Fee Considerations” in Endnotes section.
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Compensation Paid by the Manager to the Named Executive Officers
NAMED EXECUTIVE OFFICERSNamed Executive Officers
The NEOs for 20172018 are:
| Name | | Title |
| Kevin G. Keyes | | Chairman, Chief Executive Officer (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 Corporate Officer, Chief Legal Officer (CLO) and Secretary |
INTRODUCTIONIntroduction
As discussed throughout this Proxy Statement,above in “Management Structure,” the Company is externally managed by the Manager and pays the Manager a management fee, the purpose of which is not to provide compensation to the NEOs, but rather to compensate the Manager for the services it provides for the day-to-day management of Annaly.the Company. The proceeds of the management fee are used by the Manager in part to pay compensation to the Manager’s personnel, including the NEOs other than Mr. Keyes (who does not receive any compensation for serving as the Company’s Chairman, CEO and President, but has an interest in the management fee as an indirect equityholder of the Manager); however,. As an externally-managed issuer, the Company does not determine the compensation payable by the Manager to the NEOs, the Company does not allocateal-locate any specific portion of the management fee it pays to the compensation of the NEOs, norand does the Companynot reimburse the Manager for the cost of such compensation. TheAside from a severance agreement directly between the Company and Mr. Keyes and the ability of the Compensation Committee to grant plan-based equity awards to the NEOs (which it has not exercised since the Externalization), the Manager makes all decisions relating to compensation it pays to the NEOs based on the factors, including individual and Company performance, it determines to be appropriate and subject to any employment agreements entered into between the Manager and individual NEOs.
DISCLOSURE ENHANCEMENTSThe Manager’s Executive Compensation Program
Given that Annaly does not provide any compensationIn order to enable the NEOs, historically,Company’s stockholders to make an informed Say-on-Pay vote, the Company disclosedManager has provided the following information about the management feescompensation it paid to the Manager, but did not disclose information about the Manager’s executive compensation program. However, at the request of the Independent Directors, the Company has engaged in extensive outreach over the last two years in order to understand the information stockholders need to fully evaluate the Manager’s executive compensation programNEOs for purposes of the Say-on-Pay vote.
2017 Changes
In response to conversations with stockholders following the 2016 Say-on-Pay vote and conversations with the Manager, the Manager consented to disclosure of certain qualitative information about the Manager’s executive compensation program in the Company’s 2017 Proxy Statement. The Independent Directors also requested that the Manager provide the following information for disclosure in the Company’s 2018 Proxy Statement:2018:
| ■ | The portion of the management fee that is allocated to NEO compensation paid by the Manager; |
| ■ | Of this compensation, the breakdown of fixed vs. variable/incentive pay; and |
| ■ | The metrics the Manager uses to measure performance to determine the NEOs’ variable/incentive pay. |
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.
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Compensation Paid by the Manager to the Named Executive Officers
Summary of 20172018 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)(1), each of the other NEOs received a base salary and a performance-based cash incentive bonus for 2017.2018. |
| ■ | During 2017,With respect to 2018(2), the NEOs as a group received aggregate salaries of $2.8$3.0 million and aggregate performance-based cash incentive bonuses of $23.9$28.7 million from the Manager. These amounts collectively represent 16.2%16.8% of the aggregate management fees and reimbursements the Company paid to the Manager during 2017.for 2018. On an aggregated basis, the NEOs received 10.3%9.5% of their total compensation in the form of base salaries and the remaining 89.7%90.5% in the form of performance-based cash incentive bonuses. |
| ■ | In determining the cash bonuses it paid to the NEOs for 2017,2018, the Manager considered achievement of both rigorous Company performance metrics(3), including core return on equity, core return on assets and operating expenses as a percentage of average equity and as a percentage of average assets, along with group and individual performance objectives. |
| ■ | The Manager considered a list of specified peer companies (set forth below under “Company Market Data”), together with advice from the Manager’s compensation consultants and counsel, to develop appropriate compensation packages for the NEOs. |
Note: For footnoted information, please refer to “Summary of 2018 NEO Compensation” in Endnotes section.
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Compensation Paid by the Manager to the Named Executive Officers
NEO Compensation Philosophy and Process
The key principle of the Manager’s compensation philosophy for all employees, including the NEOs, is to pay for performance. The Manager maintains a rigorous and thorough talent and compensation review process to ensure that its employees are in appropriate roles that maximize their full potential. This process also ensures that there is strong leadership guiding employees and that there is a succession and development plan for each role. The Manager’s goal is to make employee and leadership development an integral part of its culture, supporting each employee and the continued success of the Company.
| The key principle of the Manager’s Compensation philosophy to pay for performance |
| The Manager’s NEO compensation planning process incorporates key areas of evaluation including: |
| ■ | external market data |
| ■ | internal benchmarking |
| ■ | quantitative and qualitative assessments of Company, group and individual performance |
Individuals are evaluated assesses based on mid-year and year-end manager reviews and the utilization of a 9-box talent review model, which assesses individual performance and potential. In establishing and reviewing individual NEO compensation packages, the Manager also considers the nature and scope of each NEO’s role and responsibilities, retention considerations and feedback from stakeholders. The Company utilizes a third party compensation consultant to advise on external benchmarking and other compensation practices (as further described below under “Role of the Manager’s Compensation Consultant” and “Company Market Data”). |
NEO Compensation Practices
The Manager’s pay-for-performance philosophy is reflected in the Manager’s compensation practices:
| ■ | Majority of compensation is “at risk” – variable performance-based compensation comprises 90.5% of the NEOs’ total compensation |
| ■ | Multiple performance metrics – diversified mix of rigorous Company performance metrics, including core return on equity, core return on assets and operating expenses as a percentage of average equity and as a percentage of average assets, along with group and individual performance objectives |
| ■ | Annual assessment of NEO compensation practices against peer companies and best practices |
| ■ | External legal review |
| ■ | Third-party compensation consultant |
| ■ | Regular stockholder feedback through robust outreach program |
| What the Manager Does Not Do |
| ■ | No guaranteed salary increases |
| ■ | No targeting of specific percentiles versus peers in setting compensation levels |
| ■ | No incentive or additional performance awards for growing assets under management or for exceeding returnbenchmarks |
| ■ | No excessive perquisites |
| ■ | No tax gross-ups |
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Compensation Paid by the Manager to the Named Executive Officers
Components of the NEOs’ Compensation
The Manager’s executive compensation program includes both a base salary and a performance-based cash incentive bonus. Although the Compensation Committee has discretion to grant equity awards of Company common stock to the NEOs (which it has not exercised since the Externalization), the management fee the Company pays to the Manager is paid entirely in cash and therefore the Manager has no independent ability to provide awards of Company stock as part of the NEOs’ compensation. To address this limitation in the Manager’s executive compensation program, the Manager has structured the NEOs’ performance-based cash incentive bonuses with a mix of both rigorous Company performance metrics and group and individual performance objectives. objectives, which aligns the interests of the NEOs with the interests of the Company’s stockholders. This alignment is strengthened by the Company’s stock ownership guidelines, pursuant to which the NEOs purchase shares of the Company’s common stock in the open market (as further described under “Stock Ownership Guidelines/Commitments”).
The table below describes the objectives supported by each of the Manager’s primary compensation elements, along with an overview of the key design features of each element.
| Compensation Element | | What It Does | | Key Measures |
Base Salary | | ■Provides a level of fixed pay appropriate to an executive’s role and responsibilities ■Evaluated on an annual basis,basis; may be adjusted up or down | | ■Experience, duties and scope of responsibility ■Internal and external market factors |
Performance - BasedPerformance-Based
Cash Incentive Bonus
| | ■Provides a competitive annual cash incentive opportunity ■Links executives’ interests with stockholders’ interests ■Incentivizes and rewards superior group individual and Company performance | | ■Based on achievement of both rigorous Company performance metrics (including core return on equity, core return on assets and operating expenses as percentage of average equity)equity and as a percentage of average assets), together with group and 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 and as a percentage of average assets, along with group and individual performance objectives. During 2017,2018, Messrs. Votek, Finkelstein, Coffey, and Green received aggregate performance-based cash incentive bonuses of $23.9$28.7 million from the Manager.
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Compensation Paid by the Manager to the Named Executive Officers
The base salaries for the NEOs (which represent the fixed portion of their compensation packages) are reviewed annually and may be increased or decreased as the Manager deems appropriate. During 2017,2018, Messrs. Votek, Finkelstein, Votek, Coffey, and Green received aggregate salaries of $2.8$3.0 million from the Manager. On an aggregated basis, Messrs. Votek, Finkelstein, Coffey and Green received 10.3%9.5% of their total compensation in the form of base salaries and the remaining 89.7%90.5% in the form of performance-based cash incentive bonuses.
20172018 NEO Fixed vs. Variable Pay Mix |
 |
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Compensation Paid by the Manager to the Named Executive Officers
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 ConsultantsConsultant
During 2017,2018, the Manager retained Meridian Compensation Partners, LLC, FPL Associates, L.P. and Richter Associates, Inc.a third-party compensation consultant for advice and perspectives regarding market trends that may impact decisions about the Manager’s executive compensation program and practices.
Company Market Data
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 industryindustry- 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
both industryindustry- and company-
specific dynamics to identify
the peers with which the
Company competes for assets,
stockholders and talent |
COMPENSATION PEER GROUPCompensation Peer Group
| Affiliated Managers Group, Inc. | Fortress Investment Group LLCEaton Vance Corp. | Northern Trust Corporation |
| AGNC Investment Corp. | Franklin Resources, Inc. | Raymond James Financial, Inc. |
Ameriprise Financial, Inc.Apollo Global Management, LLC | Invesco Ltd. | Starwood Property Trust, Inc. |
| Ameriprise Financial, Inc. | Jefferies Financial Group Inc. | T. Rowe Price Group, Inc. |
| Ares Capital Corporation | KKR & Co. L.P. | T. Rowe PriceThe Blackstone Group Inc.L.P. |
Ares Management L.P.Corp. | Lazard Ltd | TD Ameritrade Holding CorporationThe Carlyle Group L.P. |
| ARMOUR Residential REIT, Inc. | Legg Mason, Inc. | The Blackstone Group L.P.Waddell & Reed Financial, Inc. |
| E*TRADE Financial Corporation | Leucadia National Corporation | The Carlyle Group L.P. |
Eaton Vance Corp. | New Residential Investment Corp. | Waddell & Reed Financial, Inc. |
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Executive Compensation
02 | | Advisory Approval of Executive Compensation The Board is committed to corporate governance best practices and recognizes the significant interest of stockholders in executive compensation matters. The Company is providing this non-binding advisory vote pursuant to Section 14A of the Exchange Act. As described in detail under the headings “Management Structure” and “Compensation Paid by the Manager to the Named Executive Officers” above and “Compensation Discussion and Analysis” below, the Company is externally-managed by the Manager pursuant to the Management Agreement between the Manager and the Company. The Manager is responsible for paying all compensation expense associated with managingamounts to the Company and its subsidiaries.NEOs. The Company pays the Manager a management fee, and the Manager uses a portion of the proceeds from the management fee to pay compensation to the Manager’s personnel, including the NEOs other than Mr. Keyes (who does not receive any compensation for serving as the Company’s Chairman, CEO and President, but has an interest in the management fee as an indirect equityholder of the Manager); however,. However, the Company does not determine the compensation payable bythat the Manager pays to the NEOs, the Company does not allocate any specific portion of the management fee itthat the Company pays to the compensation of the NEOs, norand the Company does itnot reimburse the Manager for the cost of such compensation. The Manager makes all decisions relating to the compensation of the NEOs based on the factors the Manager determines to be appropriate, including both individual and Company performance, and subject to the terms of any employment agreement entered into between the Manager and an individual NEO. The Company is not party to any employment agreements entered into between the Manager and individual NEOs. However, the Company is party to a Severance and Noncompetition Agreement (the “CEO Severance Agreement”) with Mr. Keyes, which provides for cash severance to be paid by the Company to Mr. Keyes in certain termination events. For more information, see “CEO Severance Agreement” and “Potential Payments upon Termination or Change in Control” below. The NEOs are eligible to receive equity awards pursuant to the Company’s equity incentive plan, which is administered by the Compensation Committee. No equity awards were made to any of the NEOs in 2017.2018. In 2017,2018, the Company did not pay any compensation to the NEOs. The Board unanimously recommends that the stockholders vote in favor of the following resolution: “RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and related narrative discussion, is hereby APPROVED.” While this vote is advisory and non-binding, the Board and Compensation Committee value the views of the Company’s stockholders and will consider the voting results when making compensation decisions regarding the CEO Severance Agreement and the Company’s equity incentive plans. |
| The Board unanimously recommends a voteFORthe Approval of this Resolution. |
COMPENSATION DISCUSSION AND ANALYSIS
As discussed above, the Manager pays all of the compensation, including benefits, to its employees (including the NEOs other than Mr. Keyes). Although certain personnel (but none of the NEOs) are employed by the Company’s subsidiaries for regulatory or corporate efficiency reasons, all compensation and benefits paid to such personnel by the Company’s subsidiaries reduce, on a dollar-for-dollar basis, the management fee the Company pays to the Manager. The proceeds of the management fee are used in part to pay compensation to the Manager’s personnel, including the NEOs other than Mr. Keyes (who does not receive any compensation for serving as the Company’s CEO, but has an interest in the management fee as an indirect equityholder of the Manager); however, the Company does not determine the compensation payable by the Manager to the NEOs, the Company does not allocate any specific portion of the management fee it pays to the compensation of the NEOs, nor does it reimburse the Manager for the cost of such compensation.
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Executive Compensation
Accordingly,Compensation Discussion and Analysis
As discussed above, the Company did not pay any cashManager pays all of the compensation, including benefits, to the NEOs, nor did the Company grant them any plan-based awards, for 2017. The Company does not provide the NEOs with pension benefits, perquisites or other personal benefits. The Company is not party to any employment agreements entered into between the Manager and individual NEOs, and it does not have any arrangements to pay such individuals any cash severance upon their termination or a change in control of the Company.NEOs. As a result, no compensation is includable in the Summary Compensation Table for the NEOs.
Pursuant to the terms of the Management Agreement, the Company pays the Manager a monthly management fee equal to 1/12th of 1.05% of the Company’s stockholders’ equity, as defined in the Management Agreement, for its management services, which was approximately $164.3 million during the year ended December 31, 2017.
The Manager, which is a private company that is not subject to the disclosure requirements of the SEC, the Manager has sole discretion to determine the compensation it pays to its employees, including the NEOs. The Manager makes all compensation determinations for its employeesthe NEOs without any direction by the Board and without reference to any specific policies or programs under the oversight of the Board.Board or the Compensation Committee. The Manager compensates its employees (including the NEOs)NEOs for a variety of services performed for the benefit of the Manager. Thus, the compensation paid by the Manager to its employees who are serving as the Company’s NEOs is not considered to be part of the Company’s executive compensation program.
Pursuant to the terms of the Management Agreement, the Company pays the Manager a monthly management fee for its management services equal to 1/12thof the sum of: (i) 1.05% of Base Stockholders’ Equity(1), and (ii) 0.75% of Incremental Stockholders’ Equity(2). In addition to the management fee, the Company reimburses the Manager for the cost of certain legal, tax, accounting and other support and advisory services provided by employees of the Manager to the Company. During the year ended December 31, 2018, the Company incurred $179.8 million in management fees and $9.2 million in permitted reimbursement payments under the Management Agreement. None of the reimbursement payments were attributable to compensation of the Company’s NEOs. The proceeds of the management fee are used in part to pay compensation to the NEOs other than Mr. Keyes (who does not receive any compensation for serving as the Company’s Chairman, CEO and President, but has an interest in the management fee as an indirect equityholder of the Manager). The Company does not determine the compensation that the Manager pays to the NEOs, the Company does not allocate any specific portion of the management fee that the Company pays to the compensation of the NEOs, and the Company does not reimburse the Manager for the cost of such compensation.
Accordingly, the Company did not pay any cash compensation to the NEOs, nor did the Company grant them any plan-based awards, for 2018. The Company does not provide the NEOs with pension benefits, perquisites or other personal benefits. As a result, no compensation is includable in the Summary Compensation Table.
The Company is not party to any employment agreements entered into between the Manager and individual NEOs. However, the Company is party to the CEO Severance Agreement with Mr. Keyes, which provides for cash severance to be paid by the Company to Mr. Keyes in certain termination events. For more information, see “CEO Severance Agreement” and “Potential Payments upon Termination or Change in Control” below. No “single-trigger” severance amounts are payable to Mr. Keyes solely upon a change in control of the Company.
The Company believes that providing appropriate severance benefits to Mr. Keyes upon certain termination events helps the Company retain Mr. Keyes’ services as its CEO. The CEO Severance Agreement also allows the Company to protect its interests through noncompetition provisions that continue to apply following Mr. Keyes’ termination as CEO of the Company. In connection with its review and recommendation of the CEO Severance Agreement, a special committee of the Board comprised of four independent Directors considered the executive compensation arrangements of its compensation peer group.
Consideration of “Say-on-Pay” Voting Results
At the Company’s 20172018 Annual Meeting, 69%over 94% of the votes cast supported the Company’s Say-on-Pay vote. WhileUpon consideration of the Say-on-Pay vote received majority support, the Compensation Committee was disappointed with thehigh percentage of votes cast againstin support of the proposal andSay-on-Pay vote, along with additional feedback from engagement with stockholders, the Company redoubled its engagement efforts in orderCompensation Committee determined it was appropriate to understand thecontinue providing detailed quantitative information stockholders need to evaluate the alignment between NEO pay and Company performance. These efforts included:
■ | 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 ofabout the Manager’s executive compensation program. In orderto address these concerns,program in the Manager has provided the Company with detailed quantitative information about its executive compensation program for inclusion in this Proxy Statement.Company’s proxy materials. For additional details, please see “Compensation“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.”
46Over 94% of votes cast supported
the Company’s most recent
Say-on-Pay vote |
Note: For footnoted information, please refer to “Compensation Discussion and Analysis” in Endnotes section.
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Executive Compensation
EXECUTIVE COMPENSATION POLICIESExecutive Compensation Policies
Stock Ownership Guidelines/Commitments
| Position | | Number of
Individuals | | Annaly Stock Ownership
Guideline/Commitment | | Timeframe to Meet
Guideline/Commitment |
| Chief Executive Officer(1) | | 1 | | $15,000,000 | | July 2020 |
| Other Operating Committee Members(2) | | 9 | | 30% of Annual Total Compensation | | 5 years |
| Managing Directors | | 23 | | 20% of Annual Total Compensation | | 5 years |
| Director-Level Employees | | 28 | | 10% of Annual Total Compensation | | 5 years |
| Total | | 61 | | | | |
(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.
|
| Position | | Number of
Individuals | | Annaly Stock Ownership
Guideline/Commitment | | Timeframe to Meet
Guideline/Commitment |
| Chief Executive Officer(1) | | 1 | | $15,000,000 | | July 2020 |
| Other Operating Committee Members(2) | | 11 | | 30% of Annual Total Compensation | | 5 years |
| Managing Directors | | 26 | | 20% of Annual Total Compensation | | 5 years |
| Director-Level Employees | | 32 | | 10% of Annual Total Compensation | | 5 years |
| Total | | 70 | | | | |
TheseThe stock ownership guidelines outlined above apply to more than 40% of the Manager’s employees. As of MarchDecember 31, 2017, all such individuals either met or, within2018, over 50% of the applicable period, are expectedManager’s employees had purchased stock in the open market, which includes senior employees subject to meet the Company’s stock ownership guidelines.
guidelines as well as junior team members.Stock Holding Period
Under a policy adopted by the Compensation Committee in 2016, theManager’sThe Manager’s employees (including the executive officers)NEOs) are required to hold for a period of four years the net after-tax shares of Company stock they receive through stock option exercises or vesting of equity incentive awards.
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)NEOs), employees of the Company and its subsidiaries, and members of the Board from engaging in any hedging transactions with respect to Company securities held by them, which includesthem. Such prohibited transactions include the purchase of any financial instrument (including forward contracts and zero cost collars) designed to hedge or offset any decrease in the market value of Company securities.
Prohibition on Pledging Company Securities
The Company has a policy prohibiting the Manager’s employees (including the executive officers)NEOs), employees of the Company and its subsidiaries, and members of the Board from holding Company securities in a margin account or pledging Company securities as collateral for a loan.
Risks Related to Compensation Policies and Practices
As discussed above in “Management Structure,” the Compensation Committee is not entitled to approve compensation decisions made by the Manager and the Manager does not consult with the Compensation Committee prior to making any such decisions. Therefore, the Compensation Committee has no compensation policies or practices applicable to, or decision-making role regarding, the manner in which the Manager uses the management fee to cover its operating expenses, including employee compensation.compensate the NEOs. However, in connection with the Compensation Committee’s administration of the Company’s equity incentive plan and oversight of the CEO Severance Agreement, the Compensation Committee conducts an annual risk assessment of the Company’s applicable compensation policies and practices applicable to such plan.practices. In 2017,2018, the Compensation Committee determined that these compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company.
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Executive Compensation
COMPENSATION COMMITTEE REPORTReport of the Compensation Committee
The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
| Donnell A. Segalas (Chair) | | Jonathan D. Green | | E. Wayne Nordberg | | John H. Schaefer | | Vicki Williams |
Note: For footnoted information, please refer to “Stock Ownership Guidelines/Commitments” in Endnotes section.EXECUTIVE COMPENSATION TABLES
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Table of Contents
Executive Compensation
Executive Compensation Tables and Related Narrative
Summary Compensation Table
The Company did not pay any compensation to the NEOs, and did not reimburse the Manager for any compensation paid to the NEOs, with respect to the years ended December 31, 2017,2018, December 31, 20162017 or December 31, 2015.2016.
Grants of Plan-Based AwardsThe Company did not grant the NEOs any plan based awards in 2017.2018.
Outstanding Equity Awards at Fiscal Year-End
None of the NEOs had outstanding equity awards at December 31, 2017.2018.
Options Exercised and Stock Vested
No options were exercised by and no stock vested for the NEOs during 2017.2018.
The Company did not pay any
cash or equity compensation to
the NEOs for 2017.2018. 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.
CEO Severance Agreement
On August 1, 2018, the Company and Mr. Keyes entered into the CEO Severance Agreement. The term of the CEO Severance Agreement continues through July 31, 2020, and will automatically renew for successive one-year terms unless either party gives written notice (a “Notice of Non-Renewal”) to the other of its intention not to renew at least 180 days prior to the expiration of the then-current term.
Upon (i) the removal of Mr. Keyes as the Company’s Chief Executive Officer without “cause” (as defined in the CEO Severance Agreement), (ii) the resignation of Mr. Keyes with “good reason” (as defined in the CEO Severance Agreement) or (iii) the expiration of the then-current term following a Notice of Non-Renewal provided by the Company (each, a “Severance Event”), the Company shall pay Mr. Keyes a cash payment equal to $30 million (the “Severance Payment”). The Severance Payment shall be payable in 12 equal monthly installments after Mr. Keyes’ separation from service upon or following a Severance Event (the “Severance Period”); provided that if such separation from service occurs within two years immediately following a “change of control” (as defined in the CEO Severance Agreement), the Severance Payment shall be made in a single lump sum. The payment of the Severance Payment shall be subject to the execution of a waiver and release of claims against the Company and its subsidiaries and affiliates and on Mr. Keyes’ continued compliance with applicable noncompetition provisions. For additional information about the CEO Severance Agreement, see “Compensation Discussion and Analysis.”
Potential Payments upon Termination or Change in Control
The following table sets forth quantitative information with respect to potential payments to Mr. Keyes or his beneficiaries upon various termination events described above, assuming termination on December 31, 2018. Other than Mr. Keyes, the Company is not responsible forhas no responsibility to provide any amounts payablepayments or benefits to any additional vesting of outstanding equity awards for anyNEO in connection with a termination of service by any of the NEOs. No amounts would have been payable by the Company to any of the NEOs upon aor change in control ascontrol.
| | Type of Termination(1) |
| Executive | | By Company
without Cause | | By Executive
with Good Reason | | Company
Non-Renewal of
Severance Agreement |
| Kevin G. Keyes | | $30,000,000 | | $30,000,000 | | $30,000,000 |
____________________
| 1. | Payments are subject to the execution of a waiver and release of claims and compliance with applicable noncompetition provisions. |
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Table of December 31, 2017.Contents
Executive Compensation
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATIONCompensation Committee Interlocks and Insider Participation
The Compensation Committee is comprised solely of the following Independent Directors: Messrs. Segalas (Chair), Green, Nordberg and Schaefer and Ms. Williams. None of them is serving or has served as an officer or employee of the Company or any affiliate or has any other business relationship or affiliation with the Company, except his service as a Director, and there are noDirector. During 2018, none of the Company’s executive officers served on the compensation committee (or other committee serving an equivalent function) or another entity whose executive officers served on the Compensation Committee interlocks that are required to be reported under the rules and regulations of the Exchange Act.or Board.
CEO PAY RATIOCeo Pay Ratio
Effective July 1, 2013, allThe Manager is responsible for managing the Company’s affairs pursuant to the Management Agreement and, as of December 31, 2018, directly employed 95% of the Company’sindividuals who provide services to the Company. The remaining employees were terminatedare employed by the Company and were hired by the Manager. However, a limited number of employees remain as employeessubsidiaries of the Company’s subsidiariesCompany for regulatory or corporate efficiency reasons. All compensation and benefits paid to such personnel by the Company’s subsidiaries reduce, on a dollar-for-dollar basis, the management fee the Company pays to the Manager. At December 31, 2017,2018, the Company’s measurement date for identifying the median employee, the Company’s subsidiaries had sixeight full-time employees (and no part-time employees). The Company chose total compensation in accordance with the requirements of the Summary Compensation Table as its consistently applied compensation measure to identify the median employee. The Company’s median employee compensation as calculated using the Summary Compensation Table requirements was $229,408$265,000 in 2017.2018. The Company does not provide any compensation to the CEO. As a result, the CEO to median employee pay ratio required to be disclosed under Item 402(u) of Regulation S-K is not applicable.
This information is being provided for compliance purposes. Neither the Compensation Committee nor management of the CompanyManager used the pay ratio measure in making any compensation decisions.
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Executive Compensation
03 | | Approval of an Amendment to the Company’s Charter to Increase the Number of Authorized Shares of Capital Stock to 3,000,000,000 Shares As of March 25, 2019, we had 1,442,971,679 shares of common stock, 7,000,000 shares of 7.625% Series C Cumulative Redeemable Preferred Stock, 18,400,000 shares of 7.50% Series D Cumulative Redeemable Preferred Stock, 28,800,000 shares of 6.95% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, 17,000,000 shares of 6.50% Series G Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, and 2,200,000 shares of 8.125% Series H Cumulative Redeemable Preferred Stock, issued and outstanding. Our charter currently allows us to issue up to a combined total of 2,000,000,000 shares of capital stock, par value $0.01 per share. The proposed amendment of our charter raises the total number of authorized shares of capital stock we are permitted to issue from 2,000,000,000 shares to 3,000,000,000 shares. Although our charter permits our Board to classify and reclassify any unissued shares of capital stock by setting or changing in any one or more respects the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption of such shares of stock, we commit to allocating all 1,000,000,000 shares as common stock, and will not reallocate any such shares as preferred stock. The proposed amendment to our charter deletes the current ARTICLE VI(A) of our charter and replaces it with the following: “ARTICLE VI A.The total number of shares of stock of all classes which the Corporation has authority to issue is three billion (3,000,000,000) shares of capital stock, par value one cent ($0.01) per share, amounting in the aggregate par value to thirty million dollars ($30,000,000). Of these shares of capital stock, 2,924,050,000 shares are classified as “Common Stock,” 7,000,000 shares are classified as “7.625% Series C Cumulative Redeemable Preferred Stock,” 18,400,000 shares are classified as “7.50% Series D Cumulative Redeemable Preferred Stock,” 28,800,000 shares are classified as “6.95% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock,” 19,550,000 shares are classified as “6.50% Series G Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock,” and 2,200,000 shares are classified as “8.125% Series H Cumulative Redeemable Preferred Stock.” Our Board may classify and reclassify any unissued shares of capital stock by setting or changing in any one or more respects the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption of such shares of stock.” |
| The Board declared advisable, and unanimously recommends a voteFORthe approval of an amendment to our charter to increase the number of authorized shares to 3,000,000,000 shares. |
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Executive Compensation
Purpose and Background
To retain the ability to issue additional shares of capital stock, we seek to increase the number of shares we are currently authorized to issue for general corporate purposes from 2,000,000,000 shares to 3,000,000,000 shares. As of March 25, 2019, the Company had 1,516,371,679 shares of capital stock issued and outstanding, leaving 483,628,321 shares of capital stock available for future issuances, of which approximately 389,022,880 shares are reserved for future issuance, including shares reserved for future issuance under our Dividend Reinvestment and Share Purchase Plan and upon a conversion of our preferred stock pursuant to the terms thereof. The Board believes that the availability of additional shares is essential for the Company to successfully pursue its business objectives. Approval of an amendment to the Company’s charter increasing the authorized number of shares will provide the Company with valuable flexibility to take advantage of opportunities to raise additional capital for general corporate purposes, investment activity, mergers and acquisitions, and/or stock dividends or splits. Although the Company’s charter permits the Board to classify and reclassify any unissued shares of capital stock by setting or changing in any one or more respects the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption of such shares of stock, the Company commits to allocating all 1,000,000,000 shares as common stock, and will not reallocate any such shares as preferred stock. The Company currently does not have any acquisitions or other major transactions planned that would require an increase to the Company’s authorized share capital, and the Board is not proposing the increase with the intent of using the newly-authorized shares as an anti-takeover device.
Potential Effect
Future issuances of common stock or securities convertible into common stock could have a dilutive effect on the earnings per share, book value per share, voting power and percentage interest of holdings of current stockholders. In addition, the availability of additional shares of common stock for issuance could, under certain circumstances, discourage or make more difficult efforts to obtain control of the Company, although that is not the intention of this proposal.
Vote Required
The approval of the proposed amendment to the Company’s charter requires the affirmative vote of the holders of a majority of the total number of issued and outstanding shares of our common stock entitled to vote. Abstentions will have the same effect as votes against this proposal. This proposal is considered a “routine” matter that brokers may vote on without instruction from beneficial owners. As a result, a broker non-vote cannot occur with respect to this proposal. For more information on the voting requirements, see the “Questions and Answers about the Annual Meeting” section in this Proxy Statement.
Conclusion
The Board considers this amendment to the Company’s charter advisable to provide flexibility for future capital needs, including general corporate purposes, investment activity, mergers and acquisitions, and/or stock dividends or splits. Approval of this amendment by the stockholders at the Annual Meeting may avoid the expensive procedure of calling and holding a special meeting of stockholders for such a purpose at a later date.
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Audit Committee Matters
0304
| | Ratification of Appointment of Independent Registered Public Accounting Firm The Audit Committee is responsible for the appointment, compensation, retention, and oversight of the Company’s independent registered public accounting firm. The Audit Committee has appointed Ernst & Young LLP (“Ernst & Young” or “E&Y”“EY”) to serve as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2018,2019, and stockholders are being asked to ratify the selectionthis appointment at the Annual Meeting as a matter of good corporate governance. Ernst & Young has served as Annaly’s independent registered public accounting firm since 2012. In appointing Ernst & Young, the Audit Committee considered a number of factors, including Ernst & Young’s independence, objectivity, level of service, industry knowledge, technical expertise, and tenure as the independent auditor. The Company expects that representatives of Ernst & Young will be present at the Annual Meeting, will have the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions. If the appointment of Ernst & Young is not ratified, the Audit Committee will reconsider the appointment. Even if the appointment is ratified, the Audit Committee may, in its discretion, appoint a different independent auditor at any time during the year if the Audit Committee determines that such a change would be in the stockholders best interest. |
| The Board unanimously recommends a voteFORthe ratification of the appointment of Ernst & Young LLP as the Company’s Independent Registered Public Accounting Firm for the year 2018.ending December 31, 2019. |
REPORT OF THE AUDIT COMMITTEEReport of the Audit Committee
The Audit Committee operates pursuant to a charter which it reviews annually, and a brief description of the Audit Committee’s primary responsibilities is included under the heading “Board 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 Annaly’s audited financial statements with management and with Ernst & Young, the Company’s independent auditor for 2017.2018.
The Audit Committee has discussed with Ernst & Young the matters required to be discussed by applicable standards adopted by the Public Company Accounting Oversight Board, including matters concerning Ernst & Young’s independence. Ernst & Young has also provided to the Audit Committee the written disclosures and letter required by the applicable requirements of the Public Company Accounting Oversight Board regarding Ernst & Young’s communications with the Audit Committee concerning independence. The Audit Committee also discussed with Ernst & Young their independence from the Company and management, and considered whether non-audit services provided by Ernst & Young to the Company are compatible with maintaining Ernst & Young’s independence.
In reliance on these reviews and discussions, and the report of the independent registered public accounting firm, the Audit Committee has recommended to the Board, and the Board has approved, that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20172018 filed with the SEC.
The foregoing report has been furnished by the Audit Committee:
| Kevin P. Brady (Chair) | | Michael Haylon | | E. Wayne Nordberg | | John H. Schaefer | | Vicki Williams |
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Audit Committee Matters
RELATIONSHIP WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMRelationship with Independent Registered Public Accounting Firm
The aggregate fees billed for 2018 and 2017 and 2016 by E&YEY for each of the following categories of services are set forth below:
| Service Category | | 2017 | | 2016 | | | 2018 | | | 2017 |
| Audit(1) | | $ | 2,498,876 | | $ | 2,416,392 | | $ | 2,708,050 | | $ | 2,569,311 |
| Audit-Related(2) | | | 61,000 | | | 30,000 | | | 62,000 | | | 61,000 |
| Tax(3) | | | 232,000 | | | 239,900 | | | 509,800 | | | 316,700 |
| All Other(4) | | | – | | | – | | | 134,000 | | | – |
| Total | | $ | 2,791,876 | | $ | 2,686,292 | | $ | 3,413,850 | | $ | 2,947,011 |
____________________
(1)1. | Audit fees primarily relate to integrated audits of the Company’s annual consolidated financial statements and internal control over financial reporting under Sarbanes-Oxley Section 404, reviews of the Company’s quarterly consolidated financial statements, audits of the Company’s subsidiaries’ financial statements and comfort letters and consents related to SEC registration statements. |
(2)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)3. | Tax fees are primarily for preparation of tax returns and compliance services and tax consultations. |
(4)4. | All Other fees are for those services not described in one of the other categories. |
The Audit Committee has also adopted policies and procedures for pre-approving all non-audit work performed by the independent registered public accounting firm. The Audit Committee retained E&YEY to provide certain non-audit services in 2017,2018, all of which were pre-approved by the Audit Committee. Specifically, the Audit Committee pre-approved the use of E&YEY for the following categories of non-audit services:
| ■ | accounting consultations on matters addressed during the audit or interim reviews |
| ■ | agreed upon procedures in connection with financing arrangements of certain Company subsidiaries |
| ■ | tax compliance and consultations |
The Audit Committee determined that the provision by E&YEY of these non-audit services is compatible with E&YEY maintaining its independence.
In addition to the non-audit services described above, the Audit Committee also pre-approved certain audit services, including comfort letters and consents related to SEC registration statements and review of SEC comment letters.
The Audit Committee requires
the lead audit partner to be
rotated every five years and is
involved in selecting each new
lead audit partner
|
The Company understands the need for E&YEY to maintain objectivity and independence as the auditor of its financial statements and internal control over financial reporting. In accordance with SEC rules, the Audit Committee requires the lead E&YEY partner assigned to Annaly’s audit to be rotated at least every five years, and the Audit Committee and its chair is involved in selecting each new lead audit partner. The Audit Committee approved the hiring of E&YEY to provide all of the services detailed above prior to such independent registered public accounting firm’s engagement. None of the services related to theAudit-Related Feesdescribed above was approved by the Audit Committee pursuant to a waiver of pre-approval provisions set forth in applicable rules of the SEC.
50The Audit Committee requires the lead audit partner to be rotated every five years and is involved in selecting each new lead audit partner |
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Stock Ownership Information
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTSecurity Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of March 26, 201825, 2019 relating to the beneficial ownership, as defined in SEC rules, of the Company’s common stock by (i) each NEO, (ii) each Director and nominee for Director, (iii) all executive officers and Directors as a group, and (iv) all persons that the Company knows beneficially own more than 5% of its outstanding common stock. Under SEC rules, a person is deemed to be a “beneficial owner” or a security if that person has or shares voting power or investment power, which includes the power to dispose of or to direct the disposition of such security.
Knowledge of the beneficial ownership of the Company’s common stock as shown below is drawn from statements filed with the SEC pursuant to Section 13(d) or 13(g) of the Exchange Act.
| Beneficial Owner(1) | | Amount and
Nature of
Beneficial
Ownership(2) | | Percent of
Class(3) | | Amount and
Nature of
Beneficial
Ownership(2) |
| Percent of
Class(3) |
| Kevin G. Keyes | | 984,779 | | * | | 984,779 | | * |
| Glenn A. Votek | | 93,597 | | * | | 104,846 | | * |
| David L. Finkelstein | | 300,000 | | * | | 300,000 | | * |
| Timothy P. Coffey | | 38,000 | | * | | 38,000 | | * |
| Anthony C. Green | | 101,000 | | * | | 101,000 | | * |
| Francine J. Bovich | | | 98,240 | | * |
| Kevin P. Brady(4) | | 260,836 | | * | | 252,502 | | * |
| Francine J. Bovich | | 76,574 | | * | |
| Wellington J. Denahan | | 2,198,414 | | * | | 1,811,272 | | * |
Katie Beirne Fallon(5) | | – | | * | | 12,858 | | * |
| Jonathan D. Green | | 214,778 | | * | | 198,379 | | * |
| Thomas Hamilton(5),(6) | | | 250,000 | | * |
| Kathy Hopinkah Hannan(6) | | | - | | * |
| Michael Haylon | | 154,028 | | * | | 152,629 | | * |
| E. Wayne Nordberg(6) | | 231,278 | | * | |
| E. Wayne Nordberg(7) | | | 214,879 | | * |
| John H. Schaefer | | 108,679 | | * | | 126,474 | | * |
| Donnell A. Segalas(7) | | 259,386 | | * | |
| Vicki Williams(5) | | – | | * | |
| All executive officers and Directors as a group (15 people) | | 5,021,349 | | * | |
| BlackRock, Inc.(8) | | 98,137,061 | | 8.5% | |
| The Vanguard Group, Inc.(9) | | 97,590,302 | | 8.4% | |
| Donnell A. Segalas(8) | | | 241,052 | | * |
| Vicki Williams | | | 12,858 | | * |
| All executive officers and Directors as a group (17 people) | | | 4,899,768 | | * |
| BlackRock, Inc.(9) | | | 120,128,838 | | 9.1% |
| The Vanguard Group, Inc.(10) | | | 119,048,402 | | 9.1% |
____________________
| * | Represents beneficial ownership of less than one percent of the common stock. |
(1)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 the Company’s knowledge, each stockholder listed has sole voting and investment power with respect to the shares beneficially owned by the stockholder. |
(2)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. The Company has also included shares of common stock underlying vested options. The shares of common stock underlying vested options included in the above table are as follows: Kevin P. Brady 42,500 shares; Wellington J. Denahan 400,00012,500 shares; Jonathan D. Green 90,00050,000 shares; Michael Haylon 75,00050,000 shares; E. Wayne Nordberg 90,00050,000 shares; and Donnell A. Segalas 77,50037,500 shares. The DSUs included in the above table are as follows: Francine J. Bovich 84,740 DSUs; Kevin P. Brady 72,43694,102 DSUs; FrancineWellington J. Bovich 63,074Denahan 12,858 DSUs; Katie Beirne Fallon 12,858 DSUs; Jonathan D. Green 79,028102,629 DSUs; Michael Haylon 79,028102,629 DSUs; E. Wayne Nordberg 79,028102,629 DSUs; John H. Schaefer 42,63648,980 DSUs; and Donnell A. Segalas 72,43694,102 DSUs; and Vicki Williams 12,858 DSUs. |
(3)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)4. | Includes: (i) 48,750 shares owned by the Kevin P. Brady Family Trust, (ii) 42,500 shares owned by Mr. Brady’s wife, and (iii) 1,500 shares owned by Mr. Brady’s daughters, and (iv) 9,000 shares owned by Mr. Brady’s mother.daughters. Mr. Brady disclaims beneficial ownership of these 101,75092,750 shares. |
(5)5. | AppointedIncludes: (i) 100,000 shares owned by Cure FA Foundation, Inc., and (ii) 50,000 shares owned by the 2012 Hamilton Family Trust.
|
| 6. | Dr. Hannan and Mr. Hamilton were appointed to the Board effective January 1, 2018.February 13, 2019 and March 6, 2019, respectively. |
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(6) |
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Stock Ownership Information
| 7. | Includes: (i) 10,000 shares owned by the Olivia Nordberg Trust and (ii) 9,000 shares owned by Mr. Nordberg’s spouse. |
(7)8. | Includes: (i) 3,000 shares owned by the Hercules Segalas Irrevocable Trust, (ii) 900 shares owned by Mr. Segalas’sSegalas’ 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. |
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Stock Ownership Information
(8)9. | BlackRock, Inc., 55 East 52nd Street, New York, NY 10055, as a parent holding company or control person of certain named funds (“BlackRock”), filed a Schedule 13G/A on January 29, 2018February 4, 2019 reporting, as of December 31, 2017,2018, beneficially owning 98,137,061120,128,838 shares of common stock with the sole power to vote or to direct the vote of 88,472,142110,212,604 shares of common stock and the sole power to dispose or to direct the disposition of 98,137,061120,128,838 shares of common stock. This information is based solely on information contained in the Schedule 13G/A filed by Blackrock. |
(9)10. | 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, 201811, 2019 reporting, as of December 31, 2017,2018, beneficially owning 97,590,302119,048,402 shares of common stock with the sole power to vote or to direct the vote of 934,888893,469 shares of common stock, the shared power to vote or to direct the vote of 470,621665,240 shares of common stock, the sole power to dispose or to direct the disposition of 96,290,492117,558,870 shares of common stock and the shared power to dispose or to direct the disposition of 1,299,8101,489,532 shares of common stock. This information is based solely on information contained in the Schedule 13G/A filed by Vanguard. |
SECTIONSection 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCEBeneficial Ownership Reporting Compliance
The Company believes that based solely on its review of the reports filed during the fiscal year ended December 31, 20172018, and on the written representations of those filing reports, all Section 16(a) forms required to be filed by Annaly’s executive officers, Directorsdirectors and beneficial owners of more than ten percent of its common stock were filed on a timely basis and in compliance with Section 16(a) of the Exchange Act.Act, with the exception of one transaction reported on a Form 5 filed on January 19, 2019, on behalf of David Finkelstein, which was filed late due to an administrative error.
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Other Information
ACCESS TO FORM 10-KWhere You Can Find More Information
The Company files annual, quarterly and current reports, proxy statements and other information with the SEC. SEC filings are available to the public from commercial document retrieval services and at the Internet worldwide web site maintained by the SEC at www.sec.gov.
Annaly’s website is www.annaly.com. The Company makes available on this website under “Investors - SEC Filings,” free of charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as well as proxy statement and other information filed with or furnished to the SEC as soon as reasonably practicable after such materials are electronically submitted to the SEC.
OnAdditionally, on written request, the Company will provide without charge to each record or beneficial holder of the Company’s common stock as of the close of business on March 26, 201825, 2019 (the “Record Date”) a copy of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017,2018, as filed with the SEC. You should address your request to Investor Relations, Annaly Capital Management, Inc., 1211 Avenue of the Americas, New York, NY 10036 or email your request to investor@annaly.com.
You may also access such report on Annaly’s website,www.annaly.com, under “Investors - SEC Filings.”
STOCKHOLDER PROPOSALSStockholder Proposals
Any stockholder intending to propose a matter for consideration at the Company’s 20192020 Annual Meeting and have the proposal included in the proxy statement and form of proxy for such meeting must, in addition to complying with the applicable laws and regulations governing submissions of such proposals (Rule 14a-8 of the Exchange Act), submit the proposal in writing no later than December 11, 2018.2019, in order to be timely.
Pursuant to the Company’s current Amended and Restated Bylaws (“Bylaws”), any stockholder intending to nominate a Director or present a proposal at an annual meeting of stockholders that is not intended to be included in the Proxy Statement for such annual meeting must provide written notification not later than 5:00 p.m. Eastern Time on the date that is 120 days prior to the first anniversary of the date of the proxy statement for the preceding year’s annual meeting nor earlier than 150 days prior to the first anniversary of the date of the Proxy Statement for the preceding year’s annual meeting. Accordingly, any stockholder who intends to submit such a nomination or such a proposal at the 20192020 Annual Meeting must provide written notification of such proposal by December 11, 2018,2019, but in no event earlier than November 11, 2018.2019.
Any such nomination or proposal should be sent to Anthony C. Green, the Chief Corporate Officer, Chief Legal Officer and Secretary, Annaly Capital Management, Inc., 1211 Avenue of the Americas, New York, NY 10036 and, to the extent applicable, must include the information required by the Company’s Bylaws.
OTHER MATTERSOther Matters
As of the date of this Proxy Statement, the Board does not know of any matter that will be presented for consideration at the Annual Meeting other than as described in this Proxy Statement.
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETINGQuestions and Answers About the Annual Meeting
| Q | When and where is the Annual Meeting? |
| |
| A | The Annual Meeting will be held on May 23, 2018,22, 2019, at 9:00 a.m. (Eastern Time) online at www.virtualshareholdermeeting.com/NLY2018.NLY2019. If you plan to attend the Annual Meeting online, 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. |
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Other Information
| Q | Why did I receive a Notice in the mail regarding the Internet availability of proxy materials instead of a paper copy of proxy materials? |
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| 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. |
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| Q | Can I vote my shares by filling out and returning the Notice? |
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| A | No. The Notice identifies the items to be considered and voted on at the Annual Meeting, but you cannot vote by marking the Notice and returning it. The Notice provides instructions on how to authorize your proxy via the Internet or by telephone or how to vote at the Annual Meeting or to request a paper proxy card, which will contain instructions for authorizing a proxy by the Internet, by telephone or by returning a signed paper proxy card. |
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| Q | Who is entitled to vote at the Annual Meeting? |
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| A | Only common stockholders of record as of the close of business on the Record Date (March 26, 2018)25, 2019) are entitled to vote at the Annual Meeting. |
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| Q | How can I vote my shares? |
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| A | You may vote online during the Annual Meeting prior to the closing of the polls at www.virtualshareholdermeeting.com/NLY2018,NLY2019, 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 authorize a proxy to 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, 2018,21, 2019, the day before the meeting date. |
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| Q | What quorum is required for the Annual Meeting? |
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| A | A quorum will be present at the Annual Meeting if a majority of the votes entitled to be cast on any matter are present, in person or by proxy. OnAt the close of business, on the Record Date there were 1,159,657,3501,442,971,679 outstanding shares of the Company’s common stock, each entitled to one vote per share. Abstentions and broker “non-votes”“broker non-votes” will be treated as shares that are present and entitled to vote for purposes of determining the presence of a quorum. If a quorum is not present at the Annual Meeting, the Company expects that the Annual Meeting will be adjourned to solicit additional proxies. |
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| Q | What are the voting requirements that apply to the proposals discussed in this Proxy Statement? |
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| (4) Ratification of the appointment of Ernst & Young | | Majority | | Yes | | FOR |
| “Majority” means (a) with regard to an uncontested election of Directors, the affirmative vote of a majority of total votes cast for and against the election of each Director; 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 on the matter at the Annual Meeting.Meeting; and (c) with regard to the proposed amendment to our charter, the affirmative vote of the holders of a majority of the total number of issued and outstanding shares of our common stock entitled to vote on the proposal. |
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| “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.“broker non-vote.” |
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| For each of the proposals above, you can vote or authorize a proxy to vote “FOR,” “AGAINST” or “ABSTAIN.” |
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| Q | What is the effect of abstentions and broker “non-votes”“broker non-votes” on the proposals submitted at the Annual Meeting? |
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| A | Abstentions will have no effect on any ofProposal 1, Proposal 2, or Proposal 4. Abstentions will have the proposals submitted at the Annual Meeting. |
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| same effect as a vote against Proposal 3. “Broker “non-votes”,non-votes,” if any, will have no effect on Proposal 1 or Proposal 2,2. As they are routine matters and discretionary voting is allowed, “broker non-votes” are not applicable to Proposal 3.3 or Proposal 4. |
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| Q | How will my shares be voted if I do not specify how they should be voted? |
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| A | Properly executed proxies that do not contain voting instructions will be voted as follows: |
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(1) | (1) | Proposal No. 1:1: FOR the election of each Director nominee listed herein; |
| (2) | |
| (2) | Proposal No. 2:2: FOR the approval, on a non-binding and advisory basis, of the Company’s executive compensation; andcompensation as described in this Proxy Statement; |
| (3) | |
| (3) | Proposal No. 3:3: FOR the approval of the amendment to our charter; and |
| (4) | Proposal No. 4: FOR the ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for 2018.the year ending December 31, 2019. |
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| The Company officers you authorize as proxies may exercise their proxy and vote your shares for one or more postponements or adjournments of the Annual Meeting, including postponements or adjournments to permit further solicitations of proxies. |
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| Q | What do I do if I want to change my vote? |
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| A | You may revoke a proxy at any time before it is exercised by filing a duly executed revocation of proxy, by submitting a duly executed proxy with a later date, using the phone or online voting procedures, or by participating in the Annual Meeting via live webcast and voting online during the Annual Meeting prior to the closing of the polls. You may revoke a proxy by any of these methods, regardless of the method used to deliver your previous proxy. Virtual attendance at the Annual Meeting without voting online will not itself revoke a proxy. |
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| Q | How will voting on any other business be conducted? |
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| A | Other than the threefour proposals described in this Proxy Statement, the Company knows of no other business to be considered at the Annual Meeting. If any other matters are properly presented at the meeting, your signed proxy card authorizes Kevin G. Keyes, Chairman, Chief Executive Officer and President, and Anthony C. Green, Chief Corporate Officer, Chief Legal Officer and Secretary, or either of them acting alone, with full power of substitution in each, to vote on those matters in their discretion. |
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| Q | Who will count the vote? |
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| A | Representatives of American Election Services, LLC, the independent inspector of elections, will count the votes. |
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| Q | How can I participate in the Annual Meeting? |
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| A | All stockholders of record as of the Record Date can attend the Annual Meeting online at www.virtualshareholdermeeting.com/NLY2018.NLY2019. You will be able to ask questions during the meeting. An audio broadcast of the Annual Meeting will also be available to stockholders by telephone toll-free at 1-877-328-2502. 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. 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. Online check-in will begin at 8:30 a.m. (Eastern Time), and you should allow ample time for online check-in procedures. If you wish to watchview the webcast at a location provided by the Company, the Company’s Maryland counsel, Venable LLP, will air the webcast at its offices located at 750 E. Pratt Street, Suite 900, Baltimore, MD 21202. Please note that no members of management or the Board will be in attendance at this location. If you 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. 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. |
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| Q | What is the pre-meeting forum and how can I access it? |
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| A | One of the benefits of the online Annual Meeting format is that it allows the Company to communicate more effectively with its stockholders via a pre-meeting forum that you can access by visiting www.proxyvote.com. Through use of the pre-meeting forum, stockholders can submit questions in advance of the Annual Meeting and view copies of the Company’s proxy materials. The Company will respond to as many inquiries at the Annual Meeting as time allows. |
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| Q | Why is the Company holding the Annual Meeting online? |
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| A | After years of declining attendance by stockholders at Annaly’s in-person annual meetings and marked growth of our international stockholder base over the same time period, the Company is movingmoved to an online format for this year’sthe 2018 Annual Meeting, to enablewhich enabled increased attendance and participation from locations around the world, and reducereduced costs for both the Company and stockholders. This approach also aligns withits stockholders and reflected the Company’s broader sustainability goals.commitment to environmentally-friendly practices. The Company is excited to one again embrace the virtual meeting format for the 2019 Annual Meeting. |
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| Q | What if I have difficulties accessing the pre-meeting forum or locating my 16-digit control number prior to the day of the Annual Meeting on May 23, 2018?22, 2019? |
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| A | Prior to the day of the Annual Meeting on May 23, 2018,22, 2019, 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. |
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| 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? |
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| 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. |
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| Q | How will the Company solicit proxies for the Annual Meeting? |
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| A | The expense of soliciting proxies will be borne by the Company. Proxies will be solicited principally through the use of mail, but Directors, executive officers and employees, who will not be specially compensated, may solicit proxies from stockholders by telephone, facsimile or other electronic means or in person. Also, the Company will reimburse banks, brokerage houses and other custodians, nominees and fiduciaries for any reasonable expenses in forwarding proxy materials to beneficial owners. |
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| The Company has retained Georgeson Inc., a proxy solicitation firm, to assist it in the solicitation of proxies in connection with the Annual Meeting. The Company will pay Georgeson a fee of $15,000 for its services. In addition, the Company may pay Georgeson additional fees depending on the extent of additional services requested by the Company and will reimburse Georgeson for expenses Georgeson incurs in connection with its engagement by the Company. In addition to the fees paid to Georgeson, the Company will pay all other costs of soliciting proxies. |
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| 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. |
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| Q | What is “Householding” and does Annaly do this? |
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| A | “Householding” is a procedure approved by the SEC under which stockholders who have the same address and last name and do not participate in electronic delivery of proxy materials receive only one copy of a company’s Proxy Statement and Annual Report unless one or more of these stockholders notifies the company or their respective bank, broker or other intermediary that they wish to continue to receive individual copies. The Company engages in this practice as it reduces printing and postage costs. However, if a stockholder of record residing at such an address wishes to receive a separate Annual Report or Proxy Statement, he, she or it may request it by writing to Annaly Capital Management, Inc., 1211 Avenue of the Americas, New York, NY 10036, Attention: Investor Relations, by emailing investor@annaly.com, or by calling 212-696-0100, and the Company will promptly deliver the requested Annual Report or Proxy Statement. If a stockholder of record residing at such an address wishes to receive a separate Annual Report or Proxy Statement in the future, he, she or it may contact the Company in the same manner. If you are an eligible stockholder of record receiving multiple copies of the Company’s Annual Report and Proxy Statement, you can request householding by contacting the Company in the same manner. If you own your shares through a bank, broker or other nominee, you can request householding by contacting the bank, broker or other nominee. |
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| Q | Could the Annual Meeting be postponed or adjourned? |
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| A | If a quorum is not present or represented, the Company’s Bylaws permit the chairman of the meeting to postpone or adjourn the Annual Meeting, without notice other than an announcement at the Annual Meeting. Additionally, the Board is permitted to postpone the meeting to a date not more than 120 days after the record date for the Annual Meeting without setting a new record date, provided, that the Company must announce the date, time and place to which the meeting is postponed not less than ten days prior to the date of such postponed meeting. |
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| Q | Who can help answer my questions? |
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| A | If you have any questions or need assistance voting your shares or if you need copies of this Proxy Statement or the proxy card, you should contact: |
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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 |
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The Company’s principal executive offices are located at the address above. |
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Message from our Chairman, CEO and President (page i)
| 1. | Represents originated or purchased whole loans, commercial mortgage-backed securities and equity assets across the credit investment groups from December 31, 2013 to December 31, 2018. |
| 2. | $6.5bn of capital includes: (1) $816mm raised through a common equity offering in July 2017; (2) $720mm raised through a preferred equity offering in July 2017; (3) $857mm raised through a common equity offering in October 2017; (4) $425mm raised through a preferred equity offering in January 2018; (5) $877mm raised through a common equity offering in September 2018; (6) $840mm raised through a common equity offering in January 2019; (7) $251mm raised through the Company’s at-the-market sales program for its common stock, which was entered into in January 2018, net of sales agent commissions and other offering expenses; (8) $975mm of equity issued as partial merger consideration and $288mm of preferred equity assumed in connection with the Hatteras Financial acquisition in April 2016; and (9) $456mm of equity issued as partial merger consideration and $55mm of preferred equity assumed in connection with the MTGE Investment Corp. acquisition in September 2018. These amounts exclude any applicable underwriting discounts and other estimated offering expenses, unless otherwise noted. The July 2017, September 2018 and January 2019 common equity offerings include the underwriters’ full exercise of their overallotment option to purchase additional shares of stock. The July 2017 preferred offering and October 2017 common offering include the underwriters’ partial exercise of their overallotment option to purchase additional shares of preferred and common stock, respectively. |
| 3. | $2.4bn of additional borrowing capacity includes $1.5bn in residential whole loan securitizations ($1.1bn closed in 2018 and $394mm closed subsequent to year end in January 2019) and $900mm in additional credit financing capacity ($700mm closed in 2018 and $200mm closed subsequent to year end in January 2019). |
| 4. | Represents total shareholder return for the period beginning December 31, 2013 to January 31, 2019. |
| 5. | Represents LTM pre-tax margin calculated as pre-tax income divided by total revenue or total gross interest income for each company. Companies with negative pre-tax margins are excluded from the calculation. |
| 6. | “Continuing Directors” represent the eleven members of the Board following the 2019 Annual Meeting (assuming all nominees are elected). |
| 7. | Employee composition statistics as of December 31, 2018. Annaly is externally managed by Annaly Management Company, LLC (the “Manager”). As of December 31, 2018, the Manager had 162 employees and Annaly’s subsidiaries collectively had 8 employees. For ease of reference, throughout this Proxy Statement, the employees of the Manager, together with employees of Annaly’s subsidiaries, are referred to as Annaly’s employees. |
| 8. | Survey results based on annual internal surveys conducted by Perceptyx from 2015 through 2018. |
| 9. | Represents Financial Activities industry sector, which consists of Finance and Insurance and Real Estate and Rental and Leasing sectors as of December 31, 2018. |
WHERE YOU CAN FIND MORE INFORMATIONAnnaly at a Glance & Recent Operating Achievements (page 3)
| 1. | Represents market capitalization as of January 31, 2019. |
| 2. | Represents: (1) $720mm raised through a preferred equity offering in July 2017; (2) $425mm raised through a preferred equity offering in January 2018; (3) $251mm raised through the Company’s at-the-market sales program for its common stock, which was entered into in January 2018, net of sales agent commissions and other offering expenses; (4) $975mm of equity issued as partial merger consideration and $288mm of preferred equity assumed in connection with the Hatteras Financial acquisition in April 2016; and (5) $456mm of equity issued as partial merger consideration and $55mm of preferred equity assumed in connection with the MTGE Investment Corp. acquisition in September 2018. These amounts exclude any applicable underwriting discounts and other estimated offering expenses, unless otherwise noted. The July 2017 preferred offering includes the underwriters’ partial exercise of their overallotment option to purchase additional shares of preferred and common stock, respectively. |
| 3. | Includes unfunded commitments of $161mm. |
| 4. | Represents the percentage difference of Annaly’s operating expense as a percentage of average equity vs. the BBREMTG for 2018. Operating expense is defined as: (i) for internally-managed BBREMTG members, the sum of compensation & benefits, general & administrative expenses and other operating expenses less any one-time or transaction related expenses, and (ii) for externally-managed BBREMTG members, the sum of net management fees, compensation & benefits (if any), general & administrative expenses and other operating expenses less any one-time or transaction related expenses. |
| 5. | Includes $200mm credit facility closed in January 2019. |
The Company files annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information that the Company files with the 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 www.sec.gov. Reports, proxy statements and other information concerning the Company may also be inspected at the offices of the NYSE, which is located at 20 Broad Street, New York, NY 10005.
Annaly’s website is www.annaly.com. The Company makes available on this website under “Investors - SEC Filings,” free of charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after such materials are electronically filed or furnished to the SEC.Diversified Shared Capital Model (page 4)
| Note: Market data as of January 31, 2019. Financial data as of December 31, 2018. |
|
| 1. | Agency assets include to be announced (“TBA”) purchase contracts (market value) and mortgage servicing rights (“MSRs”). Residential Credit and Commercial Real Estate assets exclude securitized debt of consolidated variable interest entities (“VIEs”). |
| 2. | Represents the capital allocation for each of the four investment groups and is calculated as the difference between assets and related financing. Includes TBA purchase contracts, excludes non-portfolio related activity and varies from total stockholders’ equity. |
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Annaly’s Diversified Shared Capital Model(cont’d)(page 4)
| 3. | Sector rank compares Annaly dedicated capital in each of its four investment groups as of December 31, 2018 (adjusted for P/B as of January 31, 2019) to the market capitalization of the companies in each respective comparative sector as of January 31, 2019. Comparative sectors used for Agency, Commercial Real Estate and Residential Credit ranking are their respective sector within the BBREMTG Index as of January 31, 2019. Comparative sector used for Middle Market Lending ranking is the S&P BDC Index as of January 31, 2019. |
| 4. | Levered return assumptions are for illustrative purposes only and attempt to represent current market asset returns and financing terms for prospective investments of the same, or of a substantially similar, nature in each respective group. |
Growth and Income (page 5)
| 1. | Total return is shown for period of December 31, 2015 through January 31, 2019. |
| 2. | The third quarter 2018 common stock dividend is represented as the aggregate $0.30 common stock dividend comprised of (i) the $0.22174 short period dividend paid on September 6, 2018 in connection with the MTGE acquisition and (ii) the $0.07826 remaining dividend paid on September 28, 2018. |
| 3. | Line represents the lower bound of the target Federal Funds range. |
Delivering Significant Value for Stockholders (page 6)
| 1. | Economic return is shown for period of December 31, 2013 to December 31, 2018 and represents change in book value plus dividends declared over prior period book value. |
| 2. | Includes reinvestment of dividends. |
| 3. | Source: Bloomberg. mREITs represent BBREMTG Index. Equity REITs represent the RMZ Index. S&P represents the S&P 500 index. Utilities represent the Russell 3000 Utilities Index. Select Financials represents an average of companies in the S5FINL Index with dividend yields greater than 50 basis points higher than the S&P 500 dividend yield as of January 31, 2019. Consumer Staples represents the S5CONS Index. MLPs represent the Alerian MLP Index. Note: Total shareholder return shown for period of December 31, 2013 to January 31, 2019. |
Stockholder Engagement (page 8)
| 1. | “Continuing Directors” represent the eleven members of the Board following the 2019 Annual Meeting (assuming all nominees are elected). |
Corporate Responsibility & The Manager and the Management Agreement (page 9)
| 1. | The Corporate Responsibility Committee was initially created as the Public Responsibility Committee in late 2017. |
| 2. | “Incremental Stockholders’ Equity” represents the Company’s stockholders’ equity (as defined in the Management Agreement, “Stockholders’ Equity”) in excess of $17.28bn (which reflects total Stockholders' Equity calculated in accordance with the Management Agreement as of February 28, 2019). |
| 3. | The “industry average” reflects the average management fee of all externally-managed companies (excluding Annaly) included in the BBREMTG Index as of December 31, 2018. For additional information, including assumptions, about this calculation, please see “Management Agreement Terms” on page34. |
| 4. | For additional information, including assumptions, about this calculation, please see “Continued Cost Savings Related to the Externalization” on page35. |
| 5. | “Base Stockholders’ Equity” represents Stockholders’ Equity of $17.28bn (which reflects total Stockholders' Equity calculated in accordance with the Management Agreement as of February 28, 2019). |
Overview of the Manager’s 2018 Executive Compensation Program (page 10)
| 1. | Aggregated bonus amounts for 2018 reflect payments made to NEOs in January 2019 based on 2018 performance. |
| 2. | The core performance metrics referred to herein exclude the premium amortization adjustment, which represents the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to the Company’s Agency mortgage-backed securities. |
Board Composition, Structure and Refreshment (page 11)
| 1. | “Continuing Directors” represent the eleven members of the Board following the 2019 Annual Meeting (assuming all nominees are elected). |
| 2. | Directors have self-identified as bringing diversity to the Board by way of gender, race, ethnicity, national origin or other characteristics. |
Corporate Governance at Annaly (page 13)
| 1. | The Corporate Responsibility Committee was initially created as the Public Responsibility Committee in late 2017. |
| 2. | “Incremental Stockholders’ Equity” represents Stockholders’ Equity in excess of $17.28bn (which reflects total Stockholders' Equity calculated in accordance with the Management Agreement as of February 28, 2019). |
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The Board’s Role and Responsibilities (page 20)
| 1. | “Continuing Directors” represent the eleven members of the Board following the 2019 Annual Meeting (assuming all nominees are elected). |
| 2. | The Corporate Responsibility Committee was initially created as the Public Responsibility Committee in late 2017. |
Board Effectiveness, Self-Evaluations and Refreshment (page 22)
| 1. | “Continuing Directors” represent the eleven members of the Board following the 2019 Annual Meeting (assuming all nominees are elected). |
Management Agreement (page 25)
| 1. | As defined in the Management Agreement. |
| 2. | “Incremental Stockholders’ Equity” represents Stockholders’ Equity in excess of $17.28bn (which reflects total Stockholders' Equity calculated in accordance with the Management Agreement as of February 28, 2019). |
| 3. | “Base Stockholders’ Equity” represents Stockholders’ Equity of $17.28bn (which reflects total Stockholders' Equity calculated in accordance with the Management Agreement as of February 28, 2019). |
Board Committees (page 28)
| 1. | The Corporate Responsibility Committee was initially created as the Public Responsibility Committee in late 2017. |
| 2. | Messrs. Brady and Nordberg have not been renominated as Directors and will step down from the Board following the Annual Meeting in line with the Board refreshment policy adopted in October 2018. |
| 3. | Mr. Hamilton was elected to the Board, and appointed to the Audit Committee and the Risk Committee effective March 6, 2019. |
| 4. | Dr. Hannan was elected to the Board, and appointed to the Audit Committee and the NCG Committee effective February 13, 2019. |
Audit Committee & Compensation Committee (page 29)
| 1. | Messrs. Brady and Nordberg have not been renominated as Directors and will step down from the Board following the Annual Meeting in line with the Board refreshment policy adopted in October 2018. |
| 2. | Mr. Hamilton was elected as a Director and appointed as a member of the Audit Committee and the Risk Committee effective March 6, 2019. |
| 3. | Dr. Hannan was elected as a Director and appointed as a member of the Audit Committee and NCG Committee effective February 13, 2019. |
NCG Committee, Corporate Responsibility Committee & Risk Committee (page 30)
| 1. | Messrs. Brady and Nordberg have not been renominated as Directors and will step down from the Board following the Annual Meeting in line with the Board refreshment policy adopted in October 2018. |
| 2. | Dr. Hannan was elected as a Director and appointed as a member of the Audit Committee and NCG Committee effective February 13, 2019. |
| 3. | The Corporate Responsibility Committee was initially created as the Public Responsibility Committee in late 2017. |
| 4. | Mr. Hamilton was elected as a Director and appointed as a member of the Audit Committee and the Risk Committee effective March 6, 2019. |
Overview, Recent Changes & Management Agreement Terms (page 34)
| 1. | Mr. Keyes does not receive any compensation for serving as the Company’s Chairman, CEO and President, but has an interest in the management fee as an indirect equityholder of the Manager. |
| 2. | As defined in the Management Agreement. |
| 3. | “Incremental Stockholders’ Equity” represents Stockholders’ Equity in excess of $17.28bn (which reflects total Stockholders' Equity calculated in accordance with the Management Agreement as of February 28, 2019). |
| 4. | “Base Stockholders’ Equity” represents Stockholders’ Equity of $17.28bn (which reflects total Stockholders' Equity calculated in accordance with the Management Agreement as of February 28, 2019). |
| 5. | Source: Public filings as of year ended December 31, 2018. All base management fees are calculated as a percentage of stockholders’ equity, except as otherwise specified below. Agency Residential REITs represent the externally-managed agency mortgage REITs included in the BBREMTG Index as of December 31, 2018 and includes Anworth Mortgage Asset Corporation (“ANH”) and ARMOUR Residential REIT, Inc. (“ARR”). Commercial REITs represent the externally-managed commercial mortgage REITs included in the BBREMTG Index as of December 31, 2018 and includes Blackstone Mortgage Trust, Inc. (“BXMT”), Ares Commercial Real Estate Corp. (“ACRE”), Exantas Capital Corp. (“XAN”), Apollo Commercial Real Estate Finance, Inc. (“ARI”), Starwood Property Trust (“STWD”) and Ready Capital Corp. (“RC”). Non-Agency Residential / Hybrid REITs represents the externally- managed non-agency residential and hybrid mortgage REITs included in the BBREMTG Index as of December 31, 2018 and includes New Residential Investment Corp. (“NRZ”), Two Harbors Investment Corp. (“TWO”), Invesco Mortgage Capital, Inc. (“IVR”), PennyMac Mortgage Investment Trust (“PMT”), AG Mortgage Investment Trust, Inc. (“MITT”), Orchid Island Capital, Inc. (“ORC”), Western Asset Mortgage (“WMC”), Great Ajax Corp (“AJX”), Cherry Hill Mortgage Investment Corp. (“CHMI”), Ellington Residential Mortgage REIT (“EARN”), and Hunt Companies Finance Trust (“HCFT”). |
| 6. | For ARR, base management fee is calculated as 1.50% of gross equity raised up to $1.0bn plus 0.75% of gross equity raised in excess of $1.0bn. |
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Overview, Recent Changes & Management Agreement Terms(cont’d)(page 34)
| 7. | Of the six Commercial REITs, five have incentive fees in addition to their base management fees. STWD and XAN have incentive fees of 20% above an 8% hurdle. BXMT has an incentive fee of 20% above a 7% hurdle. XAN has an incentive fee of 25% above an 8% hurdle. RC has an incentive fee of 15% above an 8% hurdle. For purposes of this table, the calculation of the mean includes only the five Commercial REITs that have incentive fees. |
| 8. | Of the 11 Non-Agency Residential/Hybrid REITs, three have incentive fees in addition to their base management fees. NRZ has an incentive fee of 25% above a 10% hurdle. PMT has an incentive fee with a sliding scale beginning above 8%. AJX has an incentive fee of 20% above an 8% hurdle. For purposes of this table, the calculation of the mean includes only the three Non-Agency Residential/Hybrid REITs that have incentive fees. |
Structure and Amount of the Management Fee & Continued Cost Savings Related to the Externalization (page 35)
| 1. | As defined in the Management Agreement. |
| 2. | “Incremental Stockholders’ Equity” represents Stockholders’ Equity in excess of $17.28bn (which reflects total Stockholders' Equity calculated in accordance with the Management Agreement as of February 28, 2019). |
| 3. | Although the Manager commenced management of Annaly on July 1, 2013, the Company’s stockholders received the benefit of the compensation savings created by the Externalization for the entire 2013 calendar year pursuant to a pro forma adjustment to the 2013 management fee. The Manager calculated a pro forma management fee, which was the management fee as if the Company was managed by the Manager from January 1, 2013 until July 1, 2013, and the actual amount of cash compensation paid to all of Annaly’s employees from January 1, 2013 until July 1, 2013 reduced the amount of the management fee owed to the Manager. |
Annual Review of Manager Performance and Management Fee Considerations (page 36)
| 1. | Source: Company Filings, SNL and Bloomberg. Averages are market weighted based on market capitalization as of Dec. 31st of each respective year. Note: Internally-Managed Peers and Externally-Managed Peers represent the respective internally- and externally-managed members of the BBREMTG Index as of December 31st of each respective year. The average for each excludes Annaly and companies during years in which they became public or first listed. Operating Expense is defined as: (i) for Internally-Managed Peers, the sum of compensation & benefits, general & administrative expenses and other operating expenses less any one-time or transaction related expenses, and (ii) for Externally-Managed Peers and Annaly, the sum of net management fees, compensation & benefits (if any), general & administrative expenses and other operating expenses less any one-time or transaction related expenses. Annaly’s 2016 operating expenses exclude costs of $49mm related to the Company’s acquisition of Hatteras Financial Corp and Annaly’s 2018 operating expenses exclude costs of $60mm related to the Company’s acquisition of MTGE Investment Corp. |
Summary of 2018 NEO Compensation (page 37)
| 1. | Mr. Keyes does not receive any compensation for serving as the Company’s Chairman, CEO and President, but has an interest in the management fee as an indirect equityholder of the Manager. |
| 2. | Aggregated bonus amounts for 2018 reflect payments made to NEOs in January 2019 based on 2018 performance. |
| 3. | The core performance metrics referred to herein exclude the premium amortization adjustment, which represents the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to the Company’s Agency mortgage-backed securities. |
Compensation Discussion and Analysis (page 42)
| 1. | “Base Stockholders’ Equity” represents Stockholders’ Equity of $17.28bn (which reflects total Stockholders' Equity calculated in accordance with the Management Agreement as of February 28, 2019). |
| 2. | “Incremental Stockholders’ Equity” represents Stockholders’ Equity in excess of $17.28bn (which reflects total Stockholders' Equity calculated in accordance with the Management Agreement as of February 28, 2019). |
Stock Ownership Guidelines/Commitments (page 43)
| 1. | In July 2017, Mr. Keyes voluntarily committed to increase his stock ownership position beyond his Board-approved ownership guideline of $10mm. Mr. Keyes has pledged to meet his enhanced $15mm commitment solely through additional open market purchases of the Company’s common stock. |
| 2. | In July 2017, other members of senior management (including each of the other NEOs) voluntarily committed to increase their stock ownership beyond the guideline of 30% of annual total compensation adopted by the Board. Like Mr. Keyes, these officers have agreed to achieve their increased stock ownership commitments by July 2020 solely through open market purchases of the Company’s common stock. |
| 60 | Annaly Capital Management Inc. 2019 Proxy Statement | |
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Table of Contents
2019 ANNUAL MEETING OF STOCKHOLDERS
RESERVATION REQUEST FORM
If you wish to view Annaly Capital Management, Inc.’s 20182019 Annual Meeting of Stockholders webcast at the offices of Venable LLP (located at 750 E. Pratt Street, Suite 900, Baltimore, MD 21202), please complete the following information and return to Anthony C. Green, Chief Corporate Officer, Chief Legal Officer and Secretary, Annaly Capital Management, Inc., 1211 Avenue of the Americas, New York, NY 10036. Please note that no members of management or of the Board of Directors will be present at Venable LLP’s offices. In addition, you must bring a valid, government-issued photo identification, such as a driver’s license or a passport to Venable LLP’s offices.
| Your name and address: | | |
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Number of Shares of NLY
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| Common Stock You Hold: | | |
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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. |
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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) |
Table of Contents
Table of Contents
ANNALY CAPITAL MANAGEMENT, INC.
1211 AVENUE OF THE AMERICAS
NEW YORK, NY 10036
ATTN: GLENN A. VOTEK
VOTE BY INTERNET
Before The Meeting - Go towww.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
During The Meeting - Go towww.virtualshareholdermeeting.com/NLY2018NLY2019
You may attend the meeting via the Internet and vote during the meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
| TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: |
| E38745-P03314E68909-P18327 | 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:
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| 1. | Election of DirectorsDirectors.
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| Nominees:
| | For | | Against | | Abstain |
| 1a. | Wellington J. DenahanKevin G. Keyes
| | ☐ | | ☐ | | ☐ |
| 1b. | Michael HaylonThomas Hamilton
| | ☐ | | ☐ | | ☐ |
| 1c. | Donnell A. SegalasKathy Hopinkah Hannan
| | ☐ | | ☐ | | ☐ |
| 1d. | Katie Beirne Fallon
| | ☐ | | ☐ | | ☐ |
| 1e. | Vicki Williams
| | ☐ | | ☐ | | ☐ |
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For address changes and/or comments, please check this box and write them on the back where indicated.
| | ☐ |
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. |
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The Board of Directors recommends you vote FOR proposal 2:
| | For | | Against | | Abstain |
| 2. | Advisory approval of the company's executive compensation.
| | ☐ | | ☐ | | ☐ |
The Board of Directors recommends you vote FOR proposal 3:
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| 3. | Approval of an amendment of our charter to increase the number of authorized shares of capital stock to 3,000,000,000 shares.
| | ☐ | | ☐ | | ☐ |
The Board of Directors recommends you vote FOR proposal 4:
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| 4. | Ratification of the appointment of Ernst & Young LLP as the company'sour independent registered public accounting firm for the fiscal year ending December 31, 2018.2019. | | ☐ | | ☐ | | ☐ |
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| NOTE:Voting items may include such other business as may properly come before the meeting or any adjournment thereof. | | | | | | |
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.
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| Signature [PLEASE SIGN WITHIN BOX] | Date | | Signature (Joint Owners) | Date | |
Annaly Capital Management, Inc.
1211 Avenue of the Americas
New York, NY 10036
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The 20172018 ANNUAL REPORT TO STOCKHOLDERS and 20182019 NOTICE & PROXY STATEMENT are available at www.proxyvote.com.
E38746-P03314E68910-P18327 |
Annaly Capital Management, Inc.
Annual Meeting of Stockholders
May 23, 201822, 2019
This proxy is solicited by the Board of Directors
Revoking all prior proxies, the undersigned hereby appoints Kevin G. Keyes and Anthony C. Green, and each of them, as proxies for the undersigned, with full power of substitution, to appear on behalf of the undersigned and to vote all shares of Common Stock, par value $.01 per share, of Annaly Capital Management, Inc. (the "Company") that the undersigned is entitled to vote at the Annual Meeting of Stockholders of the Company, which will be a completely virtual meeting conducted via live webcast to be held at 9:00 a.m., Eastern Time, on Wednesday, May 23, 201822, 2019 at www.virtualshareholdermeeting.com/NLY2018,NLY2019, and at any postponement or 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. |
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| Address Changes/Comments: | | |
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(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
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