Exhibit 10.3

 

CAPSTEAD MORTGAGE CORPORATION

2014 FLEXIBLE INCENTIVE PLAN

2018 LONG-TERM PERFORMANCE UNIT AWARD CRITERIA

Purpose:    Capstead Mortgage Corporation (the “Company”) has established the
Amended and Restated 2014 Flexible Incentive Plan (the “2014 Plan”) to implement
a key element of the Company’s long-term incentive pay program, in an effort to:
(i) align executive equity compensation with the long-term objectives of the
Company and (ii) motivate executives to create sustained stockholder value.
Participants:    Executive officers of the Company designated by the
Compensation Committee. Payout Criteria:   

This performance-based methodology is adopted effective January 1, 2018. The
performance metrics will be assessed for a three-year period commencing January
1, 2018 and ending December 31, 2020. The award will be in the form of
performance units that are potentially convertible, following the end of the
performance period, into shares of the Company’s common stock (the “Performance
Units”). Provided some or all of the performance criteria are satisfied, the
conversion will be automatic on a date determined by the Compensation Committee
after the end of the performance period but no later than March 15, 2021. The
“target award” for each executive officer other than the Chief Financial Officer
(the “CFO”) will be a number of Performance Units that, if converted to common
stock on the date of grant on a one-for-one basis, would have a value equal to
90% (37.5% for the CFO) of such executive officer’s effective base salary at
January 1, 2018. However, the actual number of shares into which the Performance
Units convert will be a function of the payout factors described in each
performance metric below.

 

The 2018 long-term Performance Unit award criteria and the weighting of such
criteria is as follows:

    

Performance Metrics and Weighting

  

•    50% of the economic value of the total 2018 award is calculated based on
Relative Economic Return metrics (30% measured against Peer Agency mREITs, as
defined below) (20% measured against Peer mREITs, as defined below)

 

•    30% of the economic value of the total 2018 award is calculated based on an
Absolute Economic Return metric

 

•    20% of the economic value of the total 2018 award is calculated based on a
Relative Total Stockholder Return metric

Payout Factors:    The payout factor for each metric is 0% - 200% of the target
award, rounded to the nearest whole percentage, based on actual performance
against approved objectives, as more fully described below.

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Relative Economic Return, as Measured against Peer Agency mREITs:    A portion
of the payout of each participant’s total Performance Units 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 from January 1, 2018
to December 31, 2020, plus dividends declared per share of common stock during
such three-year period, divided by beginning per share book value at January 1,
2018 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 Performance Units
attributable to Relative Economic Return as measured against Peer Agency mREITs
will convert into a number of shares of common stock equal to 30% 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

  >80th 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% of the target award, and a
ranking in the 70th percentile would result in a payout factor of 150% of the
target award.

 

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Relative Economic Return, as Measured against Peer mREITs:   

A portion of the payout of each participant’s total Performance Units 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 instruments, 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 Performance Units attributable to Relative
Economic Return as measured against Peer mREITs will convert into a number of
shares of common stock equal to 20% 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

  >80th Percentile   200%

 

   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% of the target award, and a ranking in the 70th
percentile would result in a payout factor of 150% of the target award. Absolute
Economic Return:    A portion of the payout of each participant’s total
Performance Units 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 from January 1,
2018 to December 31, 2020, plus dividends declared per share of common stock
during such three-year period, divided by beginning per share book value at
January 1, 2018 and then divided by three (“Absolute Economic Return”). The
portion of each participant’s Performance Units attributable to Absolute
Economic Return will convert into a number of shares of common stock equal to
30% 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

  9.0%   100%

Maximum

  >12.0%   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 7.5% would result in a payout factor of 75% of the target
award, and an Absolute Economic Return or 10.5% would result in a payout factor
of 150% of the target award. Relative Total Stockholder Return:    A portion of
the payout of each participant’s total Performance Units will be based on
relative total stockholder return of the Company, as compared with the Peer
mREITs. The total stockholder return for the Company and each of the Peer mREITs
will be calculated based on the ratio of (x) the average closing stock price for
the last 20 business days of 2020 to (y) the average closing stock price for the
last 20 business days of 2017, assuming additional fractional shares accumulated
as dividends are re-invested on the ex-dividend date with the resulting ratio
expressed as an annual equivalent return (“Relative Total Stockholder Return”).
The Company will then be ranked against each of the Peer mREITs and assigned a
percentile of relative performance. The portion of each participant’s
Performance Units attributable to Relative Total Stockholder Return will convert
into a number of shares of common stock equal to 20% of the target award
multiplied by the applicable payout factor.    The specific payout factor for
Relative Total Stockholder Return will be calculated as follows:

 

Performance Level

 

Relative Total Stockholder

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

  >80th Percentile   200%

 

  If the Company’s Relative Total Stockholder 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% of the target award, and a ranking in the 70th
percentile would result in a payout factor of 150% of the target award.

 

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Dividends:    To the extent the Performance Units are ultimately convertible
into Common Stock, the executive officer shall be entitled to receive all
dividends and any other distributions declared during the performance period
with respect to the shares of Common Stock into which the Performance Units are
ultimately converted, as if such Common Stock had been issued on the first day
of the performance period (provided, however, that nothing contained herein
shall cause the Company to declare any such dividends or to make any such
distributions). If the Performance Units expire without converting into any
Common Stock, the executive officer is not entitled to receive any such amounts
representing accrued dividends or distributions. 2014 Plan:    Each participant
who is eligible for awards pursuant to Performance Units set forth herein shall
agree and acknowledge that awards made are governed by the terms and provisions
of the 2014 Plan.

 

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