Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Overview
On November 9, 2020, Annaly Capital Management, Inc. (the “Company”) entered into amended and restated employment agreements (each an “A&R Employment Agreement”) with the following four named executive officers (each, an “Executive”): David L. Finkelstein, Chief Executive Officer and Chief Investment Officer; Serena Wolfe, Chief Financial Officer; Timothy P. Coffey, Chief Credit Officer; and Anthony C. Green, Chief Corporate Officer, Chief Legal Officer and Secretary.
As described in more detail below, the Company and the Executives entered into the A&R Employment Agreements primarily to remove certain minimum, guaranteed bonuses that had been negotiated by the Executives in February and March of 2020 before the closing of the Company’s internalization transaction on June 30, 2020. The Management Development and Compensation Committee of the Company’s Board of Directors (the “MDC Committee”) believes that these changes better align the Company’s executive compensation program with stockholder interests and governance best practices for an internally managed, publicly traded real estate investment trust.
Original Employment Agreements
Each of the Executives entered into an employment agreement with the Company that became effective upon the closing of the Company’s internalization transaction on June 30, 2020 (each an “Original Employment Agreement”). Mr. Finkelstein’s Original Employment Agreement was entered into on March 13, 2020 in connection with his appointment as the Company’s Chief Executive Officer, and the other Executives entered their Original Employment Agreements on February 12, 2020. For each of the Executives other than Ms. Wolfe, the Original Employment Agreement applied for a term that ends on the date that bonuses earned for 2020 are paid (no later than March 15, 2021). Ms. Wolfe’s Original Employment Agreement applied for a term that ends on December 31, 2021.
Each of the Original Employment Agreements provided that the Executive’s bonus earned for 2020 would not be less than a specified minimum bonus amount. Ms. Wolfe’s Original Employment Agreement also provided that her 2021 bonus would not be less than a specified minimum bonus amount for that year. For Messrs. Finkelstein, Coffey, and Green, the Original Employment Agreement provided that the minimum 2020 bonus would be provided in a combination of cash and an award of restricted stock units (“RSUs”) to be granted under the Company’s 2020 Equity Incentive Plan (or any successor equity compensation plan, the “Equity Plan”).
Ms. Wolfe’s Original Employment Agreement also included special payment provisions for these minimum guaranteed bonus amounts (and salary) if her employment is terminated before the end of her Original Employment Agreement’s term due to her death or “Disability,” by action of the Company without “Cause,” or by Ms. Wolfe for “Good Reason” (as those terms are defined in her Original Employment Agreement). While Ms. Wolfe is covered by those special termination payments, the Original Employment Agreement provided that she would not participate in the Annaly Capital Management Inc. Executive Severance Plan (the “Executive Severance Plan”).
Changes Made by A&R Employment Agreements
The A&R Employment Agreements remove the minimum bonus amounts described above. Instead, the A&R Employment Agreements provide that the 2020 and (for Ms. Wolfe) 2021 bonuses will be earned in such amount as determined by the MDC Committee based upon performance and other factors in accordance with the Company’s compensation policies and procedures, without any minimum, guaranteed amount. In addition, the MDC Committee may determine to have the bonus, to the extent earned, paid in cash, an award of RSUs, an award of performance stock units (“PSUs”) under the Equity Plan, or any combination of cash, RSUs, and PSUs.
For Messrs. Finkelstein and Green, the A&R Employment Agreement does not specify a target amount for the 2020 bonus. For Ms. Wolfe’s A&R Employment Agreement, (a) her target bonus amount for 2020 is $3,000,000, with $2,600,000 targeted as a cash bonus and $400,000 targeted as an award of RSUs and/or PSUs, and (b) her target bonus amount for 2021 is $3,600,000, with $3,000,000 targeted as a cash bonus and $600,000 targeted as an award of RSUs and/or PSUs. For Mr. Coffey, the target bonus amount for 2020 is $3,800,000, with no pre-set split between cash and RSUs/PSUs. The target amounts for Ms. Wolfe and Mr. Coffey do not represent guarantees and will be subject to a performance review and final determinations by the MDC Committee, as with Mr. Finkelstein and Mr. Green.
The A&R Employment Agreement for Ms. Wolfe makes corresponding adjustments to the provisions regarding payments in case of her termination of employment before December 31, 2021 by reason of her death or Disability, by action of the Company without Cause, or by her for Good Reason. In case of her termination of employment (a) due to her death or Disability before
December 31, 2021 or (b) by action of the Company without Cause or by her for Good Reason before the payment of the 2020 bonus, she will be entitled to a lump sum payment of $6,750,000 (in addition to certain accrued benefits such as earned but unpaid salary and vested employee benefits). Before the payment of the 2020 bonus, she will not be covered by the Executive Severance Plan, but will become covered by that plan after that bonus payment date.
Except for the changes noted above, the A&R Employment Agreements are substantially the same as the Original Employment Agreements. The foregoing descriptions of the A&R Employment Agreements do not purport to be complete and are qualified in their entireties by reference to the text of each of these agreements, copies of which are filed as Exhibits 10.1, 10.2, 10.3, and 10.4, respectively, to this Current Report on Form 8-K and incorporated by reference herein.