Exhibit 10.1

CAPSTEAD MORTGAGE CORPORATION

2019 ANNUAL INCENTIVE COMPENSATION PROGRAM

 

Purpose:

Capstead Mortgage Corporation (the “Company”) has established the 2019 Annual
Incentive Compensation Program (the “2019 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, 2019. The “target” payment under
the 2019 Short Term Program for each executive officer other than the Chief
Financial Officer (the “CFO” ) will be 125% (100% for the CFO) of his base
salary at January 1, 2019, with the award, if any, payable in cash.

 

  The criteria for payment to participants under the 2019 Short Term Program and
the weighting of such criteria is as follows:

 

                                                               Performance
Metrics and Weighting                                        
                      

 

  •  

35% of the payout is calculated based on Relative Economic Return metrics

(25% measured against Peer Agency mREITs, as defined below)

(10% measured against Peer mREITs, as defined below)

 

  •  

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

 

  •  

40% of the payout is calculated based on an Absolute Economic Return metric

 

  •  

15% of payout is calculated based on performance against Individual Objectives

 

Payout Factors:

The payout factor for each of the Relative Economic Return and the Absolute
Economic Return metrics 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 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 Individual Objectives metric is 0% – 150%, based on
actual individual performance as measured against approved individual
objectives.

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Relative Economic Return, as Measured against Peer Agency mREITs:

A portion of the payout of each participant’s total award pursuant to the 2019
Short Term Program will be based on the relative economic performance of the
Company, as compared with the Company’s peers which invest primarily in
residential mortgage pass-through securities issued and guaranteed by
government-sponsored entities, either Fannie Mae or Freddie Mac, or an agency of
the federal government, Ginnie Mae, as selected by the Compensation Committee
(“Peer Agency mREITs”). The economic performance for the Company and each of the
Peer Agency mREITs will be calculated as the respective change in book value per
share of common stock plus dividends declared per share of common stock during
2019, divided by beginning per share book value for each such entity (“Relative
Economic Return”). The Company will then be ranked against each of the Peer
Agency mREITs and assigned a percentile of relative performance. The portion of
each participant’s total payout attributable to Relative Economic Return as
measured against Peer Agency mREITs will equal 25% of the target award
multiplied by the applicable payout factor.

 

  The specific payout factor for Relative Economic Return, as measured against
Peer Agency mREITs, will be calculated as follows:

 

Performance Level

  

Relative Economic Return

Percentile, as Measured

Against Peer Agency mREITs

  

Payout Factor, as a

Percentage of Target

Below Threshold

  

<40th Percentile

   0%

Threshold

  

40th Percentile

   50%

Target

  

60th Percentile

   100%

Maximum

  

³80th Percentile

   200%

 

  If the Company’s Relative Economic Return, as measured against Peer Agency
mREITs, equals or exceeds the 40th percentile when ranked against the Peer
Agency 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, depending upon the actual percentile ranking of the Company relative to the
Peer Agency mREIT peer group. By way of example, a ranking in the 50th
percentile would result in a payout factor of 75%, and a ranking in the 70th
percentile would result in a payout factor of 150%.

 

Relative Economic Return, as Measured against Peer mREITs:

A portion of the payout of each participant’s total award pursuant to the 2019
Short Term Program will be based on the relative economic performance of the
Company, as compared with each of the Company’s peers which invest in a variety
of mortgage securities, not limited to Peer Agency mREITs, as selected by the
Compensation Committee (the “Peer mREITs”). The relative economic performance of
the Company and each of the Peer mREITs will be calculated consistent with the
calculation for Relative Economic Return as measured against Peer Agency mREITs
described above. The portion of each participant’s total payout attributable to
Relative Economic Return as measured against Peer mREITs will equal 10% of the
target award multiplied by the applicable payout factor.

 

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

 

Performance Level

  

Relative Economic Return

Percentile, as Measured

Against Peer mREITs

  

Payout Factor, as a

Percentage of Target

Below Threshold

  

<40th Percentile

   0%

Threshold

  

40th Percentile

   50%

Target

  

60th Percentile

   100%

Maximum

  

³80th Percentile

   200%

 

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  If the Company’s Relative Economic Return, as measured against Peer mREITs,
equals or exceeds the 40th 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, depending upon the actual percentile ranking of the Company relative to the
Peer mREIT group. By way of example, a ranking in the 50th percentile would
result in a payout factor of 75%, and a ranking in the 70th percentile would
result in a payout factor of 150%.

 

Relative Operating Efficiency, as measured against Peer mREITs:

A portion of the payout of each participant’s total award pursuant to the 2019
Short Term Program will be based on relative operating efficiency of the
Company, as compared with each of 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 2019 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 Agency mREITs

  

Payout Factor, as a

Percentage of Target

Below Threshold

  

<85th Percentile

   0%

Threshold

  

85th Percentile

   50%

Target

  

90th Percentile

   100%

Maximum

  

³95th 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 2019
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 2019, 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 40% of the target
award multiplied by the applicable payout factor.

 

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  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

  

<6.0%

   0%

Threshold

  

6.0%

   50%

Target

  

8.0%

   100%

Maximum

  

³10.0%

   200%

 

  If the Company’s Absolute Economic Return equals or exceeds 6.0%, 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 7.0% would result in a payout factor of 75% of the
target award, and an Absolute Economic Return or 9.0% would result in a payout
factor of 150% of the target award.

 

Individual Objectives:

A portion of the payout of each participant’s total award pursuant to the 2019
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 15% 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 2019 Short Term Program will correspond with the Company’s 2019 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.

 

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Repayment Provision:

The Participant in the 2019 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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