Document:

Exhibit 10.1

 

CAPSTEAD MORTGAGE CORPORATION

2015 ANNUAL INCENTIVE COMPENSATION PROGRAM

	Purpose:	Capstead Mortgage Corporation (the “Company”) has established the 2015 Annual Incentive Compensation Program (the “2015 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, 2015.  The “target” payment under the 2015 Short-Term Program for each executive officer will be 125% of his or her base salary at January 1, 2015, with the award, if any, payable in cash.

 

The criteria for payment to participants under the 2015 Short-Term Program and the weighting of such criteria is as follows:

Performance Metrics and Weighting

		·	55% of the payout is calculated based on Relative Economic Return metrics

(40% measured against Peer Agency mREITs, as defined below)

(15% measured against Peer mREITs, as defined below)

 

		·	15% of the payout is calculated based on a Relative Operating Efficiency metric, as measured against Peer mREITs

 

		·	15% 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% - 100%, based on actual individual performance as measured against approved individual objectives.

 

	
Relative Economic Return, as 

Measured against Peer Agency mREITs:

	A portion of the payout of each participant’s total award pursuant to the 2015 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 2015, 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 40% 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:

	
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, 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 minimum and target thresholds or the target and maximum thresholds, 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 2015 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 15% 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:

	
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, 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 minimum and target thresholds or the target and maximum thresholds, 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%.

 

2

	
Relative 

Operating 

Efficiency, as measured against Peer mREITs:

	A portion of the payout of each participant’s total award pursuant to the 2015 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 2015 calendar year.  The portion of each participant’s total payout attributable to Relative Operating Efficiency as measured against Peer mREITs will equal 15% 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:

	
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 minimum and target thresholds or the target and maximum thresholds, 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 2015 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 2015, 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 15% of the target award multiplied by the applicable payout factor.

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

	
Threshold

	
Absolute Economic Return

	
Payout Factor, as a 

Percentage of Target

	 	
<10.0%

	
0%

	
Minimum

	
  10.0%

	
50%

	
Target

	
  12.5%

	
100%

	
Maximum

	
≥15.0%

	
200%

If the Company’s Absolute Economic Return equals or exceeds 10.0%, the payout factor as a percentage of the target payout will be determined using a straight-line interpolation between the minimum and target thresholds or the target and maximum thresholds, as the case may be, depending upon the actual Absolute Economic Return of the Company.  By way of example, an Absolute Economic Return of 11.25% would result in a payout factor of 75% of the target award, and an Absolute Economic Return or 13.75% would result in a payout factor of 150% of the target award.

 

3

	
Individual 

Objectives:

	A portion of the payout of each participant’s total award pursuant to the 2015 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 100%, based on the individual’s performance rating measured against specific individual objectives as determined by the Compensation Committee.

	Plan Year:	The 2015 Short-Term Program will correspond with the Company’s 2015 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 this 2015 Short-Term Program agrees and acknowledges that this 2015 Short-Term 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 this 2015 Short-Term Program, including “clawback” policies.

 

4Exhibit 10.2

 

CAPSTEAD MORTGAGE CORPORATION

2014 FLEXIBLE INCENTIVE PLAN

LONG-TERM AWARD CRITERIA FOR 2015

	Purpose:	Capstead Mortgage Corporation (the “Company”) has established the Amended and Restated 2014 Flexible Incentive Plan (the “2014 Plan”) to implement 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 for determining long-term equity incentive compensation is adopted effective January 1, 2015.  The performance metrics will be assessed for a three-year period commencing January 1, 2015 and ending December 31, 2017.  The award will be in the form of performance units that will be convertible, following the end of the performance period, into Shares of the Company’s Common Stock.  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, 2018.  The “target award” under the 2014 Plan for each executive officer 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 150% of such executive officer’s base salary at January 1, 2015.  However, the actual number of shares into which the performance units convert will be a function of the payout factor described in each performance metric below.

 

The 2015 long-term award criteria, under the 2014 Plan, and the weighting of such criteria is as follows:

 

Performance Metrics and Weighting

		·	50% of the economic value of the total 2015 award is calculated based on the Relative Economic Return metric

(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 2015 award is calculated based on the Absolute Economic Return metric

 

		·	20% of the economic value of the total 2015 award is calculated based on the 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.

 

	
Relative Economic Return, as 

Measured against Peer Agency mREITs:

	A portion of the payout of each participant’s total 2015 award 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, 2015 to December 31, 2017, plus dividends declared per share of common stock during such three-year period, divided by beginning per share book value at January 1, 2015 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:

	
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 minimum and target thresholds or the target and maximum thresholds, 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.

	
Relative Economic Return, as 

Measured against Peer mREITs:

	A portion of the payout of each participant’s total 2015 award 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:

	
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%

 

2

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 minimum and target thresholds or the target and maximum thresholds, 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 2015 award 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, 2015 to December 31, 2017, plus dividends declared per share of common stock during such three-year period, divided by beginning per share book value at January 1, 2015 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.

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

	
Threshold

	
Absolute Economic Return

	
Payout Factor, as a 

Percentage of Target

	 	
<10.0%

	
0%

	
Minimum

	
  10.0%

	
50%

	
Target

	
  12.5%

	
100%

	
Maximum

	
≥15.0%

	
200%

If the Company’s Absolute Economic Return, is between 10.0% and 15.0%, the payout factor as a percentage of the target payout will be determined using a straight line interpolation between the minimum and target thresholds or the target and maximum thresholds, as the case may be, depending upon the actual Absolute Economic Return of the Company.  By way of example, an Absolute Economic Return of 11.25% would result in a payout factor of 75% of the target award, and an Absolute Economic Return or 13.75% 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 2015 award 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 stock price for the last 20 business days of 2017 to (y) the average stock price for the last 20 business days of 2014, 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:

	
Threshold

	
Relative Total Stockholder 

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%

 

3

If the Company’s Relative Total Stockholder  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 minimum and target thresholds or the target and maximum thresholds, 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.

	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 the Long-Term Award Criteria set forth herein shall agree and acknowledge that awards made pursuant to this criteria are governed by the terms and provisions of the 2014 Plan.

 

 

4

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