Exhibit 10.1

CAPSTEAD MORTGAGE CORPORATION
2020 ANNUAL INCENTIVE COMPENSATION PROGRAM

Purpose:

Capstead Mortgage Corporation (the “Company”) has established the 2020 Annual
Incentive Compensation Program (the “2020 Short Term Program”) to implement the
Company’s short-term incentive pay program in an effort to:  (i) align executive
variable cash compensation with the annual objectives of the Company, (ii)
motivate executives to create sustained stockholder value, and (iii) ensure
retention of key executives by ensuring that cash compensation remains
competitive.

Participants:

Executive officers of the Company designated by the Compensation Committee.

Payout Criteria:

The formula and performance-based methodology for determining annual incentive
compensation is adopted effective January 1, 2020.  The “target” payment under
the 2020 Short Term Program for each executive officer will be 125% of his base
salary at January 1, 2020, with the award, if any, payable in cash.

The criteria for payment to participants under the 2020 Short Term Program and
the weighting of such criteria is as follows:  

 

Performance Metrics and Weighting

 

•     10% of the payout is calculated based on a Relative Operating Efficiency
metric, as measured against Peer mREITs (as defined below)

•     70% of the payout is calculated based on an Absolute Economic Return
metric

•     20% of payout is calculated based on performance against Individual
Objectives

Payout Factors:

The payout factor for the Relative Operating Efficiency metric is 0% - 150%,
rounded to the nearest whole percentage, based on actual performance against
approved objectives, as more fully described below.

The payout factor for the Absolute Economic Return metric is 0% - 200%, rounded
to the nearest whole percentage, based on actual performance against approved
objectives, as more fully described below.

The payout factor for the Individual Objectives metric is 0% - 150%, based on
actual individual performance as measured against approved individual
objectives.

 

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Relative Operating Efficiency, as measured against Peer mREITs:

A portion of the payout of each participant’s total award pursuant to the 2020
Short Term Program will be based on relative operating efficiency of the
Company, as compared with each of the Company’s peers which invest in a variety
of mortgage instruments, as selected by the Compensation Committee (the “Peer
mREITs”).  The operating efficiency will be calculated based on the ratio of
total general and administrative costs, including management fees, to long-term
investment capital (defined as average stockholders’ equity plus average
long-term unsecured borrowings), calculated for the 2020 calendar year.  The
portion of each participant’s total payout attributable to Relative Operating
Efficiency as measured against Peer mREITs will equal 10% of the target award
multiplied by the applicable payout factor.

The specific payout factor for Relative Operating Efficiency, as measured
against Peer mREITs will be calculated as follows:

 

Performance Level

Relative Operating Efficiency
Percentile, as Measured
Against Peer mREITs

Payout Factor, as a
Percentage of Target

Below Threshold

<85th Percentile

0%

Threshold

85th Percentile

50%

Target

90th Percentile

100%

Maximum

≥95th Percentile

150%

 

 

If the Company’s Relative Operating Efficiency, as measured against Peer mREITs,
equals or exceeds the 85th percentile when ranked against each of the Peer
mREITs, the payout factor as a percentage of the target payout will be
determined using a straight-line interpolation between the threshold and target
performance levels or the target and maximum performance levels, as the case may
be, based on the actual percentile ranking of the Company relative to the Peer
mREIT group.  By way of example, a ranking in the 87th percentile would result
in a payout factor of 70%, and a ranking in the 92th percentile would result in
a payout factor of 120%.

Absolute
Economic
Return:

A portion of the payout of each participant’s total award pursuant to the 2020
Short Term Program will be based on absolute economic return of the
Company.  The absolute economic return for the Company will be calculated as the
respective change in book value per share of common stock of the Company plus
dividends declared per share of common stock during 2020, divided by beginning
per share book value (“Absolute Economic Return”).  The portion of each
participant’s total payout attributable to Absolute Economic Return will equal
70% of the target award multiplied by the applicable payout factor.

 

The specific payout factor for Absolute Economic Return will be calculated as
follows:

 

Performance Level

Absolute Economic Return

Payout Factor, as a
Percentage of Target

Below Threshold

≤  2.0%

0%

Target

  6.0%

100%

Maximum

≥10.0%

200%

 

 

If the Company’s Absolute Economic Return exceeds 2.0%, the payout factor as a
percentage of the target payout will be determined using a straight-line
interpolation between the threshold and target performance levels or the target
and maximum performance levels, as the case may be, depending upon the actual
Absolute Economic Return of the Company.  By way of example, an Absolute
Economic Return of 4.0% would result in a payout factor of 50% of the target
award, and an Absolute Economic Return or 8.0% would result in a payout factor
of 150% of the target award.

 

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Individual Objectives:

A portion of the payout of each participant’s total award pursuant to the 2020
Short Term Program will be based on attaining individual objectives set by the
Compensation Committee.  The individual performance metric will be measured
against the attainment of certain specified individual objectives. The portion
of each participant’s total payout attributable to Individual Objectives will
equal 20% of the target award multiplied by the applicable payout factor.

The specific payout factor for the Individual Objective metric will range from
0% to 150%, based on the individual’s performance rating measured against
specific individual objectives as determined by the Compensation Committee.

Plan Year:

The 2020 Short Term Program will correspond with the Company’s 2020 fiscal year.

Eligibility:

Eligibility is limited to the executive officers of the Company. Participants
must be actively employed by the Company on the last working day of the Plan
Year to receive an incentive award, except as otherwise provided below or by
regulatory provisions. If a participant dies, becomes disabled, or retires prior
to the payment of awards, or if a participant’s job is eliminated and such job
elimination makes the participant eligible to receive benefits under a Company
severance plan or policy, the participant may receive a payout, at the time
other incentive awards are paid, based on actual time in the position and actual
results of the Company. Eligibility and individual target amounts may be
prorated. A participant’s year-end base salary will be used to calculate the
incentive award in the case of those individuals actively employed by the
Company on the last working day of the Plan Year. A participant’s base salary at
the time of death, disability, retirement, or job elimination will be used to
calculate the pro-rated incentive award in those specific circumstances. All
proration of incentive awards will be calculated based on whole month
participation.

Definitions:

“Disability” is defined as permanent and total disability (within the meaning of
Section 22(e)(3) of the Internal Revenue Service Code (“Code”).

“Retirement” is defined as (i) age fifty-five (55), so long as the participant
has completed at least ten (10) years of continuous service immediately prior to
retirement, or (ii) age sixty-five (65).

“Actively Employed” is defined as the participant must not have been terminated
prior to the identified date.

Repayment Provision:

The Participant in the 2020 Short Term Program agrees and acknowledges that this
program is subject to any policies that the Compensation Committee of the Board
of Directors may adopt from time to time with respect to the repayment to the
Company of any benefit received pursuant to the program, including “clawback”
policies.

 

 

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