DEF 14A of Granite Point Mortgage Trust Inc.
Filed Apr 22, 2024 · FY20230001104659-24-049996
Michael J. Karber Vice President, General Counsel and Secretary
| COMPENSATION COMMITTEE REPORT | 53 | | EXECUTIVE COMPENSATION | 54 | | Summary Compensation Table | 54 | | Grants of Plan-Based Awards in 2023 | 55 | | Outstanding Equity Awards at 2023 Fiscal Year-End | 58 | | Stock Vested in 2023 | 60 | | Nonqualified Deferred Compensation | 60 | | Potential Payments upon Termination or Change in Control | 60 | | Pay Versus Performance | 65 | | CEO Pay Ratio | 68 | | PROPOSAL 2: ADVISORY APPROVAL OF EXECUTIVE COMPENSATION | 69 | | PROPOSAL 3: ADVISORY APPROVAL OF FREQUENCY OF SAY ON PAY VOTES | 70 | | PROPOSAL 4: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR | 71 | | Audit and Non-Audit Fees | 71 | | Audit Services Pre-Approval Policy | 72 | | AUDIT COMMITTEE REPORT | 73 | | OTHER MATTERS | 74 | | Meeting Matters | 74 | | Stockholder Proposals and Director Nominations for 2025 Annual Meeting | 74 | | Annual Report | 74 | | FREQUENTLY ASKED QUESTIONS | 75 | | APPENDIX – DEFINITIONS AND CALCULATION OF NON-GAAP MEASURES | 81 | | RESERVATION REQUEST FORM | |
Michael J. Karber Vice President, General Counsel and Secretary
| Benefits of Internal Management Structure for Our Stockholders | | | • Reduced operating expenses and created opportunities to realize increased economies of scale • Eliminated management fee based on stockholders’ equity • Executive compensation program emphasizes performance-based cash and equity awards that incorporate financial and non-financial goals • Compensation Committee approval – and transparent disclosure – of all components of executive compensation, not just equity awards • Alignment of capital markets activities with stockholder interests | |
Audit Committee
| Chair of the Board and Independent Director Committee(s): Audit (Chair) | STEPHEN G. KASNET | | | | Age: 78 | Director Since: 2017 | | | KEY SKILLS & QUALIFICATIONS Real Estate or REIT – Through various director and management positions, including at Two Harbors Investment Corp., Silver Bay Realty Trust, Bradley Real Estate Trust and Harbor Global, Mr. Kasnet has extensive REIT and real estate sector experience Strategic Opportunities or Balance Sheet Management – In various director and management positions, including at Two Harbors Investment Corp. and Silver Bay Realty Trust, Mr. Kasnet has experience navigating and evaluating M&A, capital markets and other strategic opportunities and in balance sheet management Finance or Accounting – As a qualified financial expert on the Audit Committee, Mr. Kasnet has the experience and financial literacy to oversee financial reporting and internal controls Credit or Principal Investing – As a director of Two Harbors Investment Corp., former CEO of Pioneer First Voucher Fund and former President of Pioneer Real Estate Investors, among other positions, Mr. Kasnet has experience investing in real estate and other real estate products Operations and Management – Through various executive roles in the real estate and mortgage REIT industry, Mr. Kasnet has the right expertise to help develop and oversee our business strategy and has a broad perspective on operational matters Prior Public Board or Governance Experience – Mr. Kasnet has served as a director for multiple public companies, including Two Harbors Investment Corp (NYSE: TWO), Silver Bay Realty Trust (NYSE: SBY), Columbia Laboratories (NASDAQ: CBRX) and Rubicon (NZX: RBC) | |
Audit Committee
| President, Chief Executive Officer and Director | JOHN (“JACK”) A. TAYLOR | | | | Age: 68 | Director Since: 2017 | | | KEY SKILLS & QUALIFICATIONS Real Estate or REIT – Through various management and real estate group leadership positions at asset management firms, including PGIM Real Estate Investors, UBS and PaineWebber, and membership in the Commercial Real Estate Finance Council and President’s Council of the Real Estate Roundtable, Mr. Taylor has extensive real estate sector experience Strategic Opportunities or Balance Sheet Management – As a leader in the real estate groups at Prudential Real Estate Investors, UBS, PaineWebber and Kidder, Peabody & Co., Mr. Taylor has extensive experience managing corporate strategy in the real estate sector – including by effecting transactions and raising capital – and the right experience to manage our balance sheet and funding profile Finance or Accounting – Through various management positions at real estate finance companies, Mr. Taylor brings strong financial literacy and a deep expertise in real estate finance fundamentals Credit or Principal Investing – As partner of Five Mile Capital and Head of Global Real Estate Finance at Prudential Real Estate Investors, Mr. Taylor has developed deep knowledge of debt products and asset-based lending in the real estate space Operations and Management – As President and CEO of Granite Point and through various management positions at asset management firms, Mr. Taylor has extensive knowledge of our Company and the right experience to oversee our Company’s operations and business strategy Investor Communications and Outreach – As President and CEO of Granite Point and through various management positions at asset management firms, Mr. Taylor has extensive experience with investor communications practices | |
Audit Committee
| Independent Director Committee(s): Nominating & Corporate Governance (Chair), Compensation | TANUJA M. DEHNE | | | | Age: 52 | Director Since: 2017 | | | KEY SKILLS & QUALIFICATIONS Real Estate or REIT – As a director at Silver Bay Realty Trust, Ms. Dehne developed knowledge of REITs and the real estate sector Strategic Opportunities or Balance Sheet Management – In various director and management positions, including at Silver Bay Realty Trust, Advanced Disposal Services and NRG Energy, as well as in private legal practice, Ms. Dehne has experience navigating and evaluating M&A, capital market and other strategic opportunities Finance or Accounting – Through her experience as a corporate and securities attorney, service on the Audit Committee of Silver Bay Realty Trust and her experience overseeing the investment management of an endowment, Ms. Dehne has the financial literacy to oversee financial reporting and internal controls Operations and Management – Through various roles and spans of control at NRG Energy and the Geraldine R. Dodge Foundation, Ms. Dehne has operational and management experience that enhances our Board’s ability to develop and oversee our operations and business strategy; through various roles at NRG Energy, including Chief Administrator and Senior Vice President of Human Resources, Ms. Dehne has operational experience in managing human capital ESG – As an executive and director at the Geraldine R. Dodge Foundation and Climate Real Impact Solutions II Acquisition Corp., respectively, Ms. Dehne has provided experience elevating and providing perspective regarding environmental, sustainability and social justice issues and best practices Prior Public Board or Governance Experience – With over two decades teaching, advising and serving on corporate boards, and as Chair of the Advisory Board of the Gupta Governance Institute at Drexel University, Ms. Dehne provides corporate governance expertise to our Board | |
Audit Committee
| Independent Director Committee(s): Audit, Nominating & Corporate Governance | SHEILA K. McGRATH | | | | Age: 59 | Director Since: 2023 | | | KEY SKILLS & QUALIFICATIONS Real Estate or REIT – Given her background as a senior REIT research analyst and involvement with several industry organizations such as the Real Estate Investment Advisory Council (REIAC) and National Association of Real Estate Investment Trusts (NAREIT), Ms. McGrath has a strong understanding of REITs and the real estate sector Strategic Opportunities or Balance Sheet Management – As a senior equity research analyst for over 25 years, with the past 10 years at Evercore, Ms. McGrath has broad expertise in analyzing and evaluating the financial and public market considerations of M&A, capital markets and other strategic opportunities and brings valuable insight into our balance sheet management policies Finance or Accounting – Through her 25+ years of experience as a REIT research analyst, Ms. McGrath has deep expertise in REIT fundamentals and valuation, and she is a qualified financial expert on the Audit Committee Credit or Principal Investing – As a commercial real estate appraiser with the Member of Appraisal Institute (MAI) designation while at CB Commercial, Ms. McGrath brings deep knowledge of commercial real estate valuation and feasibility analysis conducted for financial institutions and institutional investors for both equity investment and debt financing purposes Investor Communications and Outreach – Given her sell-side research expertise, Ms. McGrath has both an acute understanding of the investor perspective and deep institutional relationships, which enhance our investor communications and outreach ESG – Through her roles with NAREIT’s Dividends Through Diversity and Inclusion Initiative and the Gaining and Retaining Outstanding Women program at Rutgers Business School’s Center for Women in Business, Ms. McGrath has experience leading on diversity, equity and inclusion in our industry | |
Audit Committee
| Independent Director Committee(s): Audit, Compensation, Nominating & Corporate Governance | W. REID SANDERS | | | | Age: 74 | Director Since: 2017 | | | KEY SKILLS & QUALIFICATIONS Real Estate or REIT – In various director and management positions, including at Two Harbors Investment Corp., Silver Bay Realty Trust, Mid-America Apartment Communities and Sanders Properties, Mr. Sanders has extensive REIT and real estate sector experience Strategic Opportunities or Balance Sheet Management – In various director and management positions, including at Two Harbors Investment Corp., Mid-America Apartment Communities, Silver Bay Realty Trust and Sanders Properties, Mr. Sanders has experience navigating and evaluating M&A, capital markets and other strategic opportunities and in balance sheet management Finance or Accounting – Through Mr. Sanders’ extensive background in the financial services industry, he possesses strong financial literacy and experience to oversee financial reporting and internal controls Credit or Principal Investing – As a director of Two Harbors Investment Corp. and former executive at Southeastern Asset Management, Longleaf Partners Mutual Funds and First Tennessee Investment Management, among others, Mr. Sanders has extensive investing experience Operations and Management – In various director and management positions at Two Harbors Investment Corp., Mid-America Apartment Communities and Sanders Properties, among others, Mr. Sanders has experience managing operations in the real estate industry Prior Public Board or Governance Experience – Mr. Sanders has served as a director for multiple public companies, including Two Harbors Investment Corp (NYSE: TWO), Mid-America Apartment Communities (NYSE: MAA) and Silver Bay Realty Trust (NYSE: SBY) | |
Audit Committee
| Independent Director Committee(s): Compensation (Chair), Audit | HOPE B. WOODHOUSE | | | | Age: 67 | Director Since: 2017 | | | KEY SKILLS & QUALIFICATIONS Real Estate or REIT – As a director of Two Harbors Investment Corp., Ms. Woodhouse has developed knowledge of REITs and the real estate sector Strategic Opportunities or Balance Sheet Management – Through various director and management positions, including at Two Harbors Investment Corp., Piper Jaffray and Seoul Securities, Ms. Woodhouse has experience navigating and evaluating M&A, capital markets and other strategic opportunities and in balance sheet management Finance or Accounting – As a qualified financial expert on the Audit Committee, Ms. Woodhouse has the experience and financial literacy to oversee financial reporting and internal controls Credit or Principal Investing – As a former executive at Bridgewater Associates, Soros Fund Management, Tiger Management and Salomon Brothers, Ms. Woodhouse brings extensive investing experience Operations and Management – As a former executive at Bridgewater Associates, Soros Fund Management, Tiger Management and Salomon Brothers, Ms. Woodhouse brings extensive management and operations experience, including the oversight of human resources Prior Public Board or Governance Experience – Ms. Woodhouse has served as a director for multiple public companies, including Two Harbors Investment Corp (NYSE: TWO), Piper Jaffray (NYSE: PJC), Acadia Realty Trust (NYSE: AKR) and Monro (NASDAQ: MNRO) | |
Audit Committee
| | Cash ($) | Restricted Stock Unit Awards ($) | | Board | | | | Chair | 160,000 | 160,000 | | Other Directors | 100,000 | 100,000 | | Audit Committee | | | | Chair | 10,000 | 10,000 | | Other Members | 5,000 | 5,000 | | Compensation Committee | | | | Chair | 6,250 | 6,250 | | Other Members | 3,750 | 3,750 | | Nominating and Corporate Governance Committee | | | | Chair | 6,250 | 6,250 | | Other Members | 3,750 | 3,750 |
Audit Committee
| Name | Fees Earned or Paid in Cash ($) | Stock Awards(1)(2) ($) | Total ($) | | Tanuja M. Dehne | 110,000 | 110,000 | 220,000 | | Stephen G. Kasnet | 170,000 | 324,997 | 494,997 | | Sheila K. McGrath | 104,331 | 108,749 | 213,080 | | W. Reid Sanders | 112,500 | 112,496 | 224,996 | | Hope B. Woodhouse | 112,826 | 111,246 | 224,072 |
Audit Committee
| Name | Restricted Stock Units | | Ms. Dehne | 22,869 | | Mr. Kasnet | 67,567 | | Ms. McGrath | 22,609 | | Mr. Sanders | 23,388 | | Ms. Woodhouse | 23,128 |
Audit Committee
| Named Executive Officer | 2023 Base Salary | Target AIP Award for 2023 Performance | RSU Award Granted in 2023 | Target PSU Award Granted in 2023 | Target Total Direct Compensation | | John (“Jack”) A. Taylor | $1,000,000 | $1,000,000 | $1,125,000 | $1,125,000 | $4,250,000 | | Marcin Urbaszek | $600,000 | $450,000 | $485,000 | $485,000 | $2,020,000 | | Stephen Alpart | $600,000 | $450,000 | $600,000 | $600,000 | $2,250,000 | | Peter Morral | $600,000 | $450,000 | $600,000 | $600,000 | $2,250,000 | | Steven Plust | $600,000 | $450,000 | $600,000 | $600,000 | $2,250,000 |
Role of the Compensation Consultant
Role of the Compensation Consultant Our Compensation Committee engaged Semler Brossy Consulting Group LLC, or Semler Brossy, as its independent compensation consultant in 2019. Semler Brossy advises our Compensation Committee on market practices, peer group composition, executive compensation program design and executive pay levels. Semler Brossy also provides advice on setting compensation for independent directors. Semler Brossy does not provide any other services to our Company. Following a review of the relationship between our Company and Semler Brossy during 2023, our Compensation Committee concluded that Semler Brossy’s work did not raise any conflicts of interest.
2023 AIP Award Values
2023 AIP Award Values Each NEO’s target AIP award value was set in his respective employment agreement as a percentage of his base salary as follows, with an opportunity to earn 0% to 200% of the target value:
2023 AIP Award Values
| Named Executive Officer | 2023 Base Salary | Target Award Percentage | Minimum AIP Payout for 2023 Performance | Target AIP Payout for 2023 Performance | Maximum AIP Payout for 2023 Performance | | John (“Jack”) A. Taylor | $1,000,000 | 100% | $0 | $1,000,000 | $2,000,000 | | Marcin Urbaszek | $600,000 | 75% | $0 | $450,000 | $900,000 | | Stephen Alpart | $600,000 | 75% | $0 | $450,000 | $900,000 | | Peter Morral | $600,000 | 75% | $0 | $450,000 | $900,000 | | Steven Plust | $600,000 | 75% | $0 | $450,000 | $900,000 |
2023 AIP Award Values
Our Compensation Committee believes these award values appropriately reflect internal pay equity considerations, will motivate achievement of the performance goals described below and are competitive within the marketplace for talent, while the cap of 200% of target helps protect our Company against imprudent risk taking.
2023 AIP Award Structure – Measuring Corporate Performance
2023 AIP Award Structure – Measuring Corporate Performance The percentage of each NEO’s target award value earned was dependent on achievement of a mix of strategic objectives and financial metrics portrayed below: Our Compensation Committee assigned even weighting to the Strategic Component and Financial Component to recognize the value of both qualitative and quantitative measures of corporate performance and to incentivize a range of achievements relevant to our growing company’s long-term success. Detailed information about these performance goals and 2023 results follows.
Strategic Component of 2023 AIP Awards – Goals and Results
Strategic Component of 2023 AIP Awards – Goals and Results Our Compensation Committee established specific assessment factors for each of the strategic objectives in the AIP awards for 2023, as follows:
Strategic Component of 2023 AIP Awards – Goals and Results
| Objective | Percentage of Strategic Component | Summary of Assessment Factors | | Balance sheet management | 30% | • Create a diversified and stable funding profile • Maintain appropriate balance sheet leverage • Actively manage corporate liquidity and comply with financial covenants • Grow equity capital to achieve economies of scale, larger market presence and increasing liquidity for stockholders | | Risk management | 30% | • Use a comprehensive risk management framework to mitigate various risks, including credit risk, financing and liquidity risk, internal control and operational risk, and IT infrastructure and cybersecurity risk • Assess business counterparties | | Stockholder/investor focus | 20% | • Generate detailed, transparent and accurate public company disclosures • Engage equity and debt investors through a robust investor relations program • Attend various equity and fixed income industry conferences and execute marketing efforts | | Enhancing franchise value | 20% | • Enhance the Company’s brand and presence in the CRE market to further growth opportunities • Maintain a first-class team with highly skilled and experienced professionals with broad CRE lending relationships • Expand the Company’s reputation in the market as a fair and reliable business counterparty |
Strategic Component of 2023 AIP Awards – Goals and Results
The NEOs are evaluated collectively with respect to their performance against these objectives. To the extent that achievement of any of these qualitative metrics exceeded the target level of performance, our Compensation Committee had the discretion under the AIP to apply an aggregate multiplier of between one and two based on the actual achievement of the qualitative metric above target. To the extent that achievement of any of these qualitative metrics fell below the target level of performance, our Compensation Committee had the discretion under the AIP to apply an aggregate multiplier of between zero and one based on the actual achievement of the qualitative metric below target. At the conclusion of the one-year performance period, our Compensation Committee conducted a thorough assessment of our executive team’s performance against the factors set forth above. The committee considered the challenging macroeconomic and capital markets environment that adversely affected our Company and the CRE industry as a whole during 2023. The committee also weighed whether the objectives that will position our Company for long-term success had been achieved. The committee’s performance assessment for the 2023 AIP’s Strategic Component is summarized below:
Strategic Component of 2023 AIP Awards – Goals and Results
| 2023 PERFORMANCE ASSESSMENT OF STRATEGIC FACTORS | | | Balance Sheet Management (30% of Strategic Component) | • Proactively managed the balance sheet, realizing over $700 million of loan repayments, paydowns and resolutions • Prioritized maximizing liquidity – particularly in light of the convertible notes maturing in October 2023, the second such maturity in a year, and the capital markets volatility • Strategically refinanced our second de-levered CRE CLO (commercial real estate collateralized loan obligation) funding vehicle, releasing over $80 million of capital, during extremely challenging market conditions caused by the regional banking crisis • Extended the maturities of several of our bank financing facilities and amended certain terms, including two financial covenants, as our lenders continue to support our platform and seek to do more business with us • Increased the borrowings on one of our bank facilities, realizing $100 million of additional proceeds to give us additional resources to actively manage our balance sheet | | Risk Management (30% of Strategic Component) | • Proactively managed liquidity and funding sources while maintaining an active dialogue with lending counterparties regarding portfolio performance • Successfully resolved three non-accrual loans and actively asset-managed the investment portfolio while collaboratively working with borrowers to help them navigate any disruptions at their properties due to market dislocations • Actively oversaw a fully dedicated team of professionals at our sub-servicer, who are focused exclusively on servicing and assisting in asset managing our loan portfolio • Further enhanced internal controls and operations processes to ensure accurate financial reporting that meets all regulatory requirements and maintained compliance with all reporting, listing, and REIT regulatory requirements • Maintained a sophisticated and secure IT infrastructure environment through our master service provider, and maintained cybersecurity insurance coverage | | | (continued) |
Strategic Component of 2023 AIP Awards – Goals and Results
| 2023 PERFORMANCE ASSESSMENT OF STRATEGIC FACTORS, cont’d | | | Stockholder/ Investor Focus (20% of Strategic Component) | • Engaged with many equity and fixed income investors through targeted outreach, holding one-on-one meetings, and attending six real estate lending industry and equity/fixed income investor conferences • Maintained a dialogue with our largest institutional investors focused on corporate governance topics and continued an active dialogue with our equity research analysts to help further expand their knowledge and understanding of our Company and business strategy • Continued to evolve our proxy disclosure, aimed at improving communication related to executive compensation and other governance topics • Further improved and expanded the financial disclosures in our quarterly SEC filings with the goal of providing a more informed view of the business • Continued to improve our corporate website with the goal of expanding the discussion of the business and highlighting ESG efforts and initiatives • Repurchased over 2 million shares of common stock at a meaningful discount to book value | | Enhancing Franchise Value (20% of Strategic Component) | • Maintained our presence and franchise in the CRE lending markets through an active dialogue with industry participants, attending largest industry conferences and by sustaining positive borrower relationships by collaboratively working with them during a challenging market environment • Maintained and enhanced corporate culture focused on inclusion, teamwork, compliance and risk management, as evidenced by employee survey results • Maintained an active dialogue with our capital providers in the equity and fixed income markets with the goal of developing new and preserving existing relationships and channels to access capital to support future growth of the business • Maintained our highly capable team with no turnover, while employee survey results reflect high levels of satisfaction |
Strategic Component of 2023 AIP Awards – Goals and Results
Following this review, our Compensation Committee determined that the NEOs had achieved the objectives of the Strategic Component of the 2023 AIP awards at target levels of performance, or 100%.
Financial Component of 2023 AIP Awards – Goals and Results
Financial Component of 2023 AIP Awards – Goals and Results The Financial Component of the 2023 AIP awards was split evenly between the performance metrics “Run-rate” ROAE and Change in Book Value per Share. We believe that those two metrics are the most significant drivers of market valuation in our industry, thus aligning the NEOs’ compensation to our stockholders’ interests. “Run-rate” ROAE is calculated as the ratio of (i) our Company’s Distributable Earnings generated during the performance period, excluding realized losses or realized gains related to credit events, asset sales and similar developments within our Company’s portfolio or borrowings, to (ii) our Company’s average common stockholders’ equity during the performance period, as measured on each of the first and last day of the period. For these purposes, Distributable Earnings are as reported in our Company’s publicly filed financial reports, excluding the effects of certain non-cash items and one-time charges that we believe are not indicative of our Company’s overall operating performance. Our AIP awards for 2021 and 2022 used “Core” ROAE, which is the ratio of Distributable Earnings to stockholders’ equity. We used Distributable Earnings in this calculation instead of GAAP earnings because Distributable Earnings is a better measure of a commercial mortgage REIT’s operating performance and is intended to over time serve as a general, though imperfect, proxy for our taxable income. As such, Distributable Earnings is considered a key indicator of our ability to generate sufficient income to pay our dividends, which is the primary focus of income-oriented investors who comprise a meaningful segment of our stockholder base. Starting with the 2023 AIP awards, our Compensation Committee adjusted the ratio used in prior AIP awards by excluding realized losses and gains from Distributable Earnings. The resulting metric is “Run-rate” ROAE. Our Compensation Committee made this change from “Core” ROAE to “Run-rate” ROAE to reduce the effects of market volatility on the metric and portray results that the committee believes offer a stronger indication of management’s operating performance. For additional information, see the Appendix – Definitions and Calculation of Non-GAAP Measures. Our Compensation Committee selected “Run-rate” ROAE as one of the two financial metrics to be used in the 2023 AIP awards because it is an important valuation metric for commercial mortgage REITs like our Company that reflects efficient use of investors’ capital and management’s sound investment decisions. “Run-rate” ROAE emphasizes the efficient generation of earnings from our Company’s equity capital that can be distributed to our Company’s stockholders as dividends, substantially reflects performance over time and encompasses all aspects of investment activities, including interest income received on loans net of borrowing costs, as well as realized gains and losses on investments, if any. Change in Book Value per Share is calculated as the difference between (i) our Company’s total common stockholders’ equity divided by the number of common shares outstanding as measured on the first day of the performance period and (ii) our Company’s total common stockholders’ equity divided by the number of common shares outstanding as measured on the last day of the performance period. For additional information, see the Appendix – Definitions and Calculation of Non-GAAP Measures. Our Compensation Committee added Change in Book Value per Share as a second metric to the AIP award structure in 2023 in part to diversify the program (which had used absolute and relative “Core” ROAE for the financial component of previous awards). Our Compensation Committee believed that such diversification of financial metrics would result in more balanced compensation incentives and reduce risk. Change in Book Value per Share was selected as the second metric because book value is linked to investor returns, it reflects the stability of our Company’s investment portfolio and effective balance sheet management, and it accounts for credit losses in a way that is less volatile than in an earnings-based metric. Our Compensation Committee established the following payout matrix to determine achievement under the Financial Component of the 2023 AIP awards. The percentage earned is to be linearly interpolated when the level of performance is between threshold and target levels or between target and maximum levels.
Financial Component of 2023 AIP Awards – Goals and Results
| | | | | | | Level of Performance | “Run-rate” ROAE | Percentage Earned | | | Below Threshold | <3.0% | 0% of Target | | | Threshold | 3.0% | 25% of Target | | | Target | 6.0% | 100% of Target | | | Maximum | ≥9.0% | 200% of Target | | | Actual | 5.2% | 80.2% of Target |
Financial Component of 2023 AIP Awards – Goals and Results
| | | | | | | Level of Performance | Change in Book Value per Share | Percentage Earned | | | Below Threshold | <(15.0)% | 0% of Target | | | Threshold | (15.0)% | 25% of Target | | | Target | 0.0% | 100% of Target | | | Maximum | ≥15.0% | 200% of Target | | | Actual | (13.1)% | 34.5% of Target |
Financial Component of 2023 AIP Awards – Goals and Results
As indicated above, our Company’s actual “Run-rate” ROAE for 2023 was 5.2%; applying interpolation to the payout matrix yields a result of 80.2% of the target earned for that metric. Our 2023 “Run-rate” ROAE performance was challenged by a decline in our portfolio balance, an increased balance of nonaccrual loans and higher cost of funding. Our Company’s Change in Book Value per Share from 2022 to 2023 was (13.1%); applying interpolation to the payout matrix yields a result of 34.5% of the target earned for that metric. Increased provision for credit losses recorded during 2023, which were driven by the challenging real estate and capital markets conditions, put downward pressure on our book value per share. The total Financial Component of the 2023 AIP awards was achieved at 57.4% of target, as shown below:
Financial Component of 2023 AIP Awards – Goals and Results
| Total Financial Component Results | | | | | | “Run-Rate” ROAE Percentage Earned (50% weighting) | Change in Book Value per Share Percentage Earned (50% weighting) | Total Percentage Earned | | | 80.2% of Target | 34.5% of Target | 57.4% of Target |
2023 AIP Award Payouts
2023 AIP Award Payouts The 100% of target earned from the Strategic Component combined with the 57.4% of target earned from the Financial Component resulted in 2023 AIP payouts equal to approximately 78.7% of each NEO’s respective target award, as shown below:
2023 AIP Award Payouts
| 2023 AIP Award Payouts | | | | | | Strategic Component Percentage Earned (50% weighting) | Financial Component Percentage Earned (50% weighting) | Total Award Percentage Earned | | | 100% of Target | 57.4% of Target | 78.7% of Target |
2023 AIP Award Payouts
The dollar amounts paid to the NEOs for the 2023 AIP awards are reported in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. The payouts were made in the first quarter of 2024. LTIP AWARDS GRANTED IN 2023 In early 2023, our Compensation Committee granted the NEOs long-term incentive awards under our 2022 Omnibus Incentive Plan to reward key drivers of stockholder value and foster a sense of ownership and commitment to our Company’s long-term success. The award values are as follows:
2023 AIP Award Payouts
| Named Executive Officer | RSU Award Grant Date Value | PSU Award Grant Date Value | Total 2023 LTIP Award Grant Date Value | | John (“Jack”) A. Taylor | $1,125,000 | $1,125,000 | $2,250,000 | | Marcin Urbaszek | $485,000 | $485,000 | $970,000 | | Stephen Alpart | $600,000 | $600,000 | $1,200,000 | | Peter Morral | $600,000 | $600,000 | $1,200,000 | | Steven Plust | $600,000 | $600,000 | $1,200,000 |
2023 AIP Award Payouts
Factors influencing the size of each executive’s LTIP award include job responsibilities and performance, retention considerations, internal pay equity within the executive group, and market competitiveness. The grant date value of the NEOs’ 2023 LTIP awards remained unchanged from the grant date value of the 2022 grants. The even split of the NEOs’ LTIP target value between performance-based and time-based awards is designed to motivate achievement of financial objectives while encouraging retention and stock ownership. The ultimate value of both the PSUs and the RSUs is dependent on our long-term success as reflected in the price of our Company’s common stock. The treatment of the awards upon the NEO’s termination of employment in connection with death, disability, retirement or a change of control of our Company is described in detail in “Executive Compensation – Potential Payments Upon Termination or Change of Control” later in this proxy statement. The award agreements provide for “double trigger” vesting, meaning that vesting is not accelerated upon a change of control unless the change of control is accompanied by a qualifying termination of employment.
2023 RSU Awards
2023 RSU Awards The RSUs granted to the NEOs in early 2023 vest ratably over a three-year period – 33% on each of March 15, 2024, and March 15, 2025, and 34% on March 15, 2026 – subject to the NEO’s continued employment and other terms and conditions contained in the respective award agreement. The RSU awards are accompanied by dividend equivalent rights that, upon the payment of any dividend (other than non-cash extraordinary dividends) by our Company to its common stockholders, pay out with respect to all outstanding RSUs.
2023 PSU Awards (2023-2025 Performance Period)
2023 PSU Awards (2023-2025 Performance Period) The PSU awards granted to the NEOs in early 2023 have a three-year performance period of January 1, 2023, through December 31, 2025. All the PSUs that have been earned through satisfaction of the applicable performance metrics will vest at the conclusion of the performance period on a one-for-one basis of one share of common stock per PSU, subject to the NEO’s continued employment and other terms and conditions contained in the respective award agreement. The percentage of the target number of PSUs granted in 2023 that will be earned is dependent on our Company’s absolute and relative performance with respect to “Run-Rate” ROAE and Change in Book Value per Share during the three-year performance period, with each measure weighted at 25%. Actual units earned will be between 0% and 200% of target levels. The significance and calculation of both “Run-Rate” ROAE and Change in Book Value per Share are described above under “2023 AIP Awards.” We believe that they are critical metrics for our Company and its stockholders, and our Compensation Committee used them to measure corporate performance on both an annual and long-term basis to align pay and performance. For the PSU awards, the Committee included relative measures that are weighted evenly with the absolute measures to account for independent economic and real estate market forces over the three-year performance period while aligning the NEOs’ focus on execution of our Company’s long-term plan. To measure relative “Run-Rate” ROAE and relative Change in Book Value per Share performance, our Company’s absolute result for each metric is compared to the respective results of a comparator group of companies that share the following characteristics: • All are mortgage REITs; • All have investment portfolios focused on commercial mortgages; • They constitute our Company’s primary public commercial mortgage REIT competitors for investment; • They have long-term capital and return profiles similar to our Company’s profiles; and • External market conditions generally affect them in ways similar to how our Company is affected. The comparator group that will be used to measure relative results for the PSU awards granted in 2023 consists of the following companies: • ACRES Commercial Realty Corp. • Apollo Commercial Real Estate Finance, Inc. • Ares Commercial Real Estate Corp • Blackstone Mortgage Trust, Inc. • BrightSpire Capital, Inc. • KKR Real Estate Finance Trust Inc. • Ladder Capital Corp • TPG RE Finance Trust, Inc. The performance goals for the PSUs granted in early 2023 are set forth below. The specific threshold, target and maximum values for absolute “Run-Rate” ROAE and absolute Change in Book Value per Share will not be publicly disclosed until the three-year performance period is completed due to the proprietary nature and competitive sensitivity of that information. The target values for these metrics are intended to be challenging but achievable. There is a 0% earnout for performance below threshold levels, and earnouts for performance in excess of the maximum levels are capped at 200%; earnouts for performance between threshold and target levels or target and maximum levels will be calculated through linear interpolation.
2023 PSU Awards (2023-2025 Performance Period)
| Absolute “Run-Rate” ROAE (25%) | | Relative “Run-Rate” ROAE (25%) | | | Performance | Percentage Earned | Performance | Percentage Earned | | Target value -2% | 25% of target (threshold) | 25th percentile | 25% of target (threshold) | | Target value | 100% of target | 50th percentile | 100% of target | | Target value +2% | 200% of target (maximum) | 75th percentile | 200% of target (maximum) |
2023 PSU Awards (2023-2025 Performance Period)
| Absolute Change in Book Value per Share (25%) | | Relative Change in Book Value per Share (25%) | | | Performance | Percentage Earned | Performance | Percentage Earned | | Target value -10.0% | 25% of target (threshold) | 25th percentile | 25% of target (threshold) | | Target value | 100% of target | 50th percentile | 100% of target | | Target value +10.0% | 200% of target (maximum) | 75th percentile | 200% of target (maximum) |
2023 PSU Awards (2023-2025 Performance Period)
The PSU awards are accompanied by dividend equivalent rights that accrue during the performance period but are paid out upon vesting only with respect to shares that have been earned through satisfaction of the performance metrics. Upon the payment of any dividend (other than non-cash extraordinary dividends) by our Company to its common stockholders, dividend equivalent rights accrue with respect to all outstanding PSUs. No dividend equivalent rights are paid out with respect to shares not earned or PSUs that have terminated before vesting. 2021 PSU AWARD RESULTS (2021-2023 PERFORMANCE PERIOD) The results for the PSUs granted in 2021 are shown below. They were calculated by comparing actual average corporate performance for each metric for the performance period of January 1, 2021, through December 31, 2023, against the performance goals established by our Compensation Committee near the beginning of the performance period. The PSUs granted in 2021 differ from the ones granted in 2023, described above, in that the performance metrics were absolute and relative “Core” ROAE, weighted equally. “Core” ROAE is calculated as the ratio of (i) our Company’s Distributable Earnings generated during the performance period to (ii) our Company’s average common stockholders’ equity during the performance period, as measured on each of the first and last day of the period. For these purposes, Distributable Earnings are as reported in our Company’s publicly filed financial reports, excluding the effects of certain non-cash items and one-time charges that we believe are not indicative of our Company’s overall operating performance. For additional information, see the Appendix – Definitions and Calculation of Non-GAAP Measures. The comparator companies used to measure relative “Core” ROAE results are the same as those listed above with respect to the PSUs granted in 2023.
2023 PSU Awards (2023-2025 Performance Period)
| | | | | | | Level of Performance | Absolute “Core” ROAE | Percentage Earned | | | Below Threshold | <5.0% | 0% of Target | | | Threshold | 5.0% | 25% of Target | | | Target | 6.5% | 100% of Target | | | Maximum | ≥8.0% | 200% of Target | | | Actual | 1.8% | 0% of Target |
2023 PSU Awards (2023-2025 Performance Period)
| | | | | | | Level of Performance | Relative “Core” ROAE | Percentage Earned | | | Below Threshold | <25th percentile | 0% of Target | | | Threshold | 25th percentile | 25% of Target | | | Target | 50th percentile | 100% of Target | | | Maximum | ≥75th percentile | 200% of Target | | | Actual | 13th percentile | 0% of Target |
2023 PSU Awards (2023-2025 Performance Period)
| PSU Awards Vested (2021-2023 Performance Period) | | | | | | Absolute “Core” ROAE (50% weighting) | Relative “Core” ROAE (50% weighting) | Total Award Percentage Earned | | | 0% of Target | 0% of Target | 0% of Target |
2023 PSU Awards (2023-2025 Performance Period)
As indicated above, the Company’s actual average “Core” ROAE for the three-year performance period that ended on December 31, 2023, was 1.8% (below the threshold level for the absolute measure), which was in the 13th percentile of the comparator companies’ results (below the threshold level for the relative measure). Consequently, 0% of the target number of PSUs granted in 2021 were earned, no shares were issued to the NEOs upon the awards’ settlement in early 2024, and no dividend equivalent rights were paid. BENEFITS Our NEOs receive the same benefits package available to our other employees, which consists primarily of health and wellness offerings, a 401(k) savings plan with a Company contribution and paid time off. Executive Compensation Policies and Practices STOCK OWNERSHIP GUIDELINES Our Compensation Committee believes that ownership of our Company’s common stock by our executive officers directly aligns their interests with those of our other stockholders and helps balance the incentives for risk taking inherent in equity-based awards. Accordingly, our Compensation Committee has adopted the following stock ownership guidelines:
2023 PSU Awards (2023-2025 Performance Period)
| Executive Officer | Minimum Ownership Level | | Chief Executive Officer | Market value of stock held ≥5x base salary | | Other executive officers | Market value of stock held ≥3x base salary |
2023 PSU Awards (2023-2025 Performance Period)
All outstanding shares and unvested RSUs are included in determining whether an executive officer satisfies the applicable minimum ownership level. Shares underlying unvested PSUs are not included. An executive officer is expected to attain the minimum ownership level within five years of appointment. If the minimum amount is not attained by such date – or is not maintained after such date – the officer is expected to retain at least 75% of the shares issued upon settlement of equity awards (net of shares withheld to satisfy tax obligations) until attaining the ownership level. Our Compensation Committee reviews executive stock ownership annually to confirm compliance with these ownership and retention requirements. PROHIBITION AGAINST HEDGING AND PLEDGING Our Board has adopted, as part of our Insider Trading Policy, prohibitions against our officers, directors and employees engaging in transactions designed to profit from fluctuations in the price of our securities, such as short sales or purchasing our securities on margin. In addition, such persons are prohibited from purchasing or selling puts or calls or other derivative securities on our securities, pledging our securities as collateral for a loan, or entering into hedging or monetization transactions or similar arrangements with respect to our securities. CLAWBACK POLICY In compliance with the NYSE listing standards issued in connection with the SEC rules promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act, our Compensation Committee adopted a Clawback Policy in October 2023 that supersedes the clawback provisions contained in our 2017 Equity Incentive Plan and 2022 Omnibus Incentive Plan. The Clawback Policy provides that upon a required accounting restatement, any incentive-based compensation received by current or former executive officers during the three years preceding the restatement that exceeded amounts owed based on the restated financials will be recovered by the Company. COMPENSATION RISK ASSESSMENT Our Compensation Committee reviewed our Company’s compensation programs and plans for both executive officers and other employees in early 2024 to assess whether those programs and plans create incentives for risk-taking behavior that could damage our Company and its stockholders. Following this assessment, our Compensation Committee concluded that the risks arising from our Company’s compensation programs and plans for executive officers and other employees are not reasonably likely to have a material adverse effect on our Company. When making this determination, our Compensation Committee specifically considered the following features of our executive compensation program:
2023 PSU Awards (2023-2025 Performance Period)
| Risk-Mitigating Features of Executive Compensation Program | | | • Earnout of performance-based equity (PSU) and annual cash (AIP) awards is capped at 200% of target • Performance-based awards have a sliding scale earnout structure, not an all-or-nothing structure • A significant percentage of the executives’ total direct compensation is paid as equity with three-year vesting • PSUs have a three-year performance period • All officers and employees are prohibited from hedging Company securities through our Insider Trading Policy • Executive stock ownership levels and retention requirements are governed by stock ownership guidelines • Diversification of performance metrics that determine results under incentive-based awards reduces potential risk of focus on one financial measure • Our clawback policy requires recoupment of excess cash or equity paid pursuant to incentive-based awards upon a financial restatement | |
2023 PSU Awards (2023-2025 Performance Period)
Compensation Committee Report Compensation Committee Report Our Compensation Committee has reviewed and discussed the “Compensation Discussion and Analysis” required by Item 402(b) of Regulation S-K with management. Based on such review and discussions, our Compensation Committee recommended to our Board that the “Compensation Discussion and Analysis” be included in this proxy statement. Submitted by the Compensation Committee of the Company’s Board: Hope B. Woodhouse (Chair) Tanuja M. Dehne W. Reid Sanders Summary Compensation Table The following table shows the cash and equity compensation awarded to or earned by our NEOs for services rendered to us during the fiscal years presented:
2023 PSU Awards (2023-2025 Performance Period)
| Name and Principal Position | Year | Salary ($) | Stock Awards(1) ($) | Non-Equity Incentive Plan Compensation(2) ($) | All Other Compensation(3) ($) | Total ($) | | John (“Jack”) A. Taylor President and Chief Executive Officer | 2023 | 1,000,000 | 2,249,997 | 786,923 | 12,900 | 4,049,820 | | | 2022 | 1,000,000 | 2,249,979 | 500,000 | 12,150 | 3,762,129 | | | 2021 | 1,000,000 | 2,718,454 | 1,000,000 | 11,700 | 4,730,154 | | Marcin Urbaszek Vice President, Chief Financial Officer and Treasurer | 2023 | 600,000 | 969,998 | 354,115 | 12,900 | 1,937,013 | | | 2022 | 560,000 | 969,980 | 210,000 | 12,150 | 1,752,130 | | | 2021 | 560,000 | 809,487 | 420,000 | 11,700 | 1,801,187 | | Stephen Alpart Vice President and Chief Investment Officer | 2023 | 600,000 | 1,199,994 | 354,115 | 12,900 | 2,167,009 | | | 2022 | 600,000 | 1,199,984 | 225,000 | 12,150 | 2,037,134 | | | 2021 | 600,000 | 1,449,848 | 450,000 | 11,700 | 2,511,548 | | Peter Morral Vice President and Chief Development Officer | 2023 | 600,000 | 1,199,994 | 354,115 | 9,900 | 2,164,009 | | | 2022 | 600,000 | 1,199,984 | 225,000 | 9,150 | 2,034,134 | | | 2021 | 600,000 | 1,449,848 | 450,000 | 8,700 | 2,508,548 | | Steven Plust Vice President and Chief Operating Officer | 2023 | 600,000 | 1,199,994 | 354,115 | 12,900 | 2,167,009 | | | 2022 | 600,000 | 1,199,984 | 225,000 | 12,150 | 2,037,134 | | | 2021 | 600,000 | 1,449,848 | 450,000 | 11,700 | 2,511,548 |
Pay Versus Performance
Pay Versus Performance As required by the Dodd-Frank Act, we are providing the following information about the relationship between “compensation actually paid” to our executive officers and certain corporate performance metrics, in accordance with SEC regulations, during the years ended December 31, 2020, 2021, 2022, and 2023. Please note that the compensation information presented in the Pay Versus Performance Table below is different from the compensation information presented in the Summary Compensation Table largely due to the different methodologies applied to calculate equity award information.
PAY VERSUS PERFORMANCE TABLE
PAY VERSUS PERFORMANCE TABLE
PAY VERSUS PERFORMANCE TABLE
| Year | Summary Compensation Table Total for PEO(1) ($) | Compensation Actually Paid to PEO(2) ($) | Average Summary Compensation Table Total for Non-PEO NEOs(3) ($) | Average Compensation Actually Paid to Non-PEO NEOs(4) ($) | Value of Initial Fixed $100 Investment Based On: | | Net Income (Loss) (in thousands)(7) ($) | “Run- rate” ROAE(8) | | | | | | | Total Shareholder Return(5) ($) | Peer Group Total Shareholder Return(6) ($) | | | | 2023 | 4,049,820 | 4,599,551 | 2,108,760 | 2,403,221 | 49 | 79 | (63,198) | 5.2% | | 2022 | 3,762,129 | 219,887 | 1,965,133 | 170,832 | 38 | 69 | (40,825) | 5.0% | | 2021 | 4,730,154 | 5,205,864 | 2,333,208 | 2,602,997 | 74 | 91 | 68,353 | 7.0% | | 2020 | 3,199,995 | 1,921,617 | 1,682,491 | 1,116,462 | 58 | 78 | (40,439) | 8.4% |
PAY VERSUS PERFORMANCE TABLE
(1) Summary Compensation Table Total for Principal Executive Officer, or PEO – The amounts in this column are the amounts of compensation reported in the “Total” column of the Summary Compensation Table for Mr. Taylor, our President and Chief Executive Officer, for the covered years. Any cash compensation paid to Mr. Taylor by our Former Manager during 2020 is not included in the reported amount. (2) Compensation Actually Paid to PEO – The amounts in the following table represent deductions from and additions to the equity award values for Mr. Taylor for the purposes of computing compensation actually paid appearing in this column of the Pay Versus Performance Table for 2023:
PAY VERSUS PERFORMANCE TABLE
| Summary Compensation Table Total for PEO ($) | - | Grant Date Fair Value of Value of Equity Awards Granted During the Year(a) ($) | + | Year-End Fair Value of Outstanding Equity Awards Granted During the Year(a) ($) | +/- | Change in Fair Value as of Year-End of Any Prior Year Equity Awards that Remain Unvested as of Year-End(a)(b) ($) | +/- | Change in Fair Value as of the Vesting Date of Equity Awards Granted in Prior Years that Vested During the Year(a) ($) | + | Value of Dividends and Dividend Equivalent Rights Paid on Unvested Equity Awards During the Year(c) ($) | = | Compensation Actually Paid to PEO ($) | | 4,049,820 | | (2,249,997) | | 2,651,782 | | (211,535) | | 46,594 | | 312,887 | | 4,599,551 |