Dear Fellow
Stockholders,
We are writing to ask for your support on all of
the proposals submitted for your vote at the upcoming 2022 Annual
Meeting of Stockholders of Annaly Capital Management, Inc. (the
“Company” or “Annaly”) in accordance with the recommendations of
your Board of Directors (the “Board”). In particular, we are
requesting your support on Proposal 2 – the annual advisory vote on
executive compensation (the “Say-on-Pay” vote).
We would like to thank those stockholders who met
with us to discuss the significant enhancements the Company has
made to our executive compensation practices and disclosures since
our recent transition from an externally-managed issuer with an
all-cash executive
compensation program to an internally-managed company with a
balanced mix of cash and equity incentives, and we are particularly
gratified by our stockholders’ recognition that the transformation
of our executive compensation program is a multi-year evolution.
From our discussions with stockholders, including sustained
dialogue with our largest investors, we found that the significant
changes made to the Company’s executive compensation program in
connection with our 2020 internalization transaction and the
additional compensation enhancements adopted by the Management
Development and Compensation Committee of the Board (the “MDC
Committee”) for 2021 were well received and supported by our
stockholders. The purpose of this letter is to provide additional
context on the Company’s 2021 executive compensation program and to
advise our stockholders on additional enhancements the MDC
Committee is adopting for 2022.
Executives are Eligible for Severance Only
in the Event of Involuntary Termination Without
Cause
As disclosed in our 2022 Proxy Statement, the
Executive Severance Plan only provides benefits upon a
participant’s involuntary termination of employment by the Company
without “cause” (as defined in the plan), and our former Chief
Credit Officer received only those severance payments required by
the terms of such plan following his departure earlier this year.
The Executive Severance Plan does not provide for severance
benefits in the event of an executive’s voluntary resignation or
retirement and the Company does not pay out severance in such
circumstances.
2022 Corporate Scorecard Requires Minimum
Performance Threshold be Attained for Payout
For 2021, the Company introduced pre-established target amounts for all
executive incentive opportunities with payouts capped at 120% of
target based on superior performance. In response to stockholder
feedback, the MDC Committee has added a minimum performance
threshold to the 2022 Corporate Scorecard. If this performance
threshold is not met, no incentive payments ($0) will be made under
the Corporate Scorecard, which we believe enhances the at-risk nature of the program. For
2021, performance measured against the Corporate Scorecard resulted
in corporate/organizational achievement of 105% of target.
2022 Relative Performance Metrics Have
Been Increased to Target Above-Median Performance
The 2021 Corporate Scorecard utilized two financial
metrics: (1) Relative Economic Return with an Absolute Total
Stockholder Return (“TSR”) Governor; and (2) Absolute
Operating Efficiency. Similarly, performance-based stock units
(“PSUs”) granted to executives for 2021 performance utilized two
financial metrics: (1) Relative Economic Return with an
Absolute TSR Governor; and (2) Average Earnings Available for
Distribution (“EAD”) Return on Equity. In order to achieve target
or greater payout under the Relative Economic Return metrics
utilized by the 2021 Corporate Scorecard and the PSUs granted for
2021 performance, the Company needed to perform at or above the
median of our peer group (50%+). In response to stockholder
feedback, for 2022 performance, the