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EXHIBIT 10.1

CAPSTEAD MORTGAGE CORPORATION
2013 ANNUAL INCENTIVE COMPENSATION PLAN
 
Purpose:
Capstead Mortgage Corporation (the “Company”) has established the 2013 Annual
Incentive Plan (the “2013 Plan”) 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.
 
Payout Criteria:
The formula and performance-based methodology for determining annual incentive
compensation is adopted effective July 1, 2013.  The “target” payment under the
2013 Plan for each executive officer will be 125% of his or her base salary,
with the award, if any, payable in cash.
The criteria for payment to participants under the 2013 Plan and the weighting
of such criteria is as follows:
 
 
Performance Metrics and Weighting
 
 
·    60% of the payout is based on Relative Economic Return
     (40% is measured against Peer Agency mREITs)
     (20% is measured against Peer mREITs)
·    20% of the payout is based on Relative Operating Efficiency, as measured
against Peer mREITs
·    20% of payout is based on performance against Individual Objectives
 
Payout Scales:
The payout factor for the Relative 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 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 Objective metric is 0% - 100%, based on
actual individual performance as measured against approved individual
objectives.
 
Relative Economic Return, as Measured against Peer Agency mREITs:
Forty percent (40%) of the total payout for each participant pursuant to the
2013 Plan 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
during 2013, plus dividends declared per share of common stock for 2013, divided
by beginning per share book value for 2013 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.

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

 
Threshold
Relative Economic Return
Percentile, as Measured
Against Peer Agency mREITs
Payout Factor, as a
Percentage of Target
 
<40th Percentile
0%
Minimum
40th Percentile
50%
Target
60th Percentile
100%
Maximum
≥80th Percentile
200%

 
 
If the Company’s Relative Economic Return, as measured against Peer Agency
mREITs, is between the 40th and 80th percentiles 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 designated thresholds
described above, based on 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:
Twenty percent (20%) of the total payout for each participant pursuant to the
2013 Plan 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 specific payout factor for Relative Economic Return, as measured against
Peer mREITs, will be as follows:

 
Threshold
Relative Economic Return
Percentile, as Measured
Against Peer mREITs
Payout Factor, as a
Percentage of Target
 
<40th Percentile
0%
Minimum
40th Percentile
50%
Target
60th Percentile
100%
Maximum
≥80th Percentile
200%

 

 
If the Company’s Relative Economic Return, as measured against Peer mREITs, is
between the 40th and 80th percentiles 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 designated thresholds
described above, based on 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%.

 
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Relative Operating Efficiency, as measured against Peer mREITs:
Twenty percent (20%) of the total payout for each participant pursuant to the
2013 Plan 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, net of related
investments in statutory trusts), calculated for the 2013 calendar year.
 
The specific payout factor for Relative Operating Efficiency, as measured
against Peer mREITs is as follows:

 
Threshold
Relative Operating Efficiency
Percentile, as Measured
Against Peer Agency mREITs
Payout Factor, as a
Percentage of Target
 
<85th Percentile
0%
Minimum
85th Percentile
50%
Target
90th Percentile
100%
Maximum
≥95th Percentile
150%

 

 
If the Company’s Relative Operating Efficiency, as measured against Peer mREITs,
is between the 85th and 95th percentiles 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 designated thresholds
described above, 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%.
 
Individual Objectives:
Twenty percent (20%) of the total payout for each participant pursuant to the
2013 Plan will be based on attaining individual objectives.  The individual
performance metric will be measured against the attainment of certain specified
individual objectives.
 
The specific payout factor for the Individual Objective metric will range from
0% to 100%, based on the individual’s performance rating measured against
specific individual objectives.
 
Plan Year:
The 2013 Plan will correspond with the Company’s 2013 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.

 
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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 this 2013 Plan agrees and acknowledges that this 2013 Plan 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 this 2013 Plan, including “clawback”
policies.
 
Pro Rata Payment for 2013:
Because the 2013 Plan was adopted effective July 1, 2013, incentive compensation
payable pursuant to the 2013 Plan will be pro–rated for the six month period of
the Plan Year during which the 2013 Plan is effective.

 
 
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