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Section 1: DEF 14A (DEF 14A)

DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934 (Amendment No.     )

 

Filed by the Registrant

 

Filed by a Party other than the Registrant

 

Check the appropriate box:

 

Preliminary Proxy Statement

 

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

Definitive Proxy Statement

 

Definitive Additional Materials

 

Soliciting Material under Rule 14a-12

 

PennyMac Financial Services, Inc.
(Name of Registrant as Specified In Its Charter)

 

 

(Name(s) of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

No fee required.

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

(1)

  

Title of each class of securities to which transaction applies:

 

    

 

 

(2)

  

Aggregate number of securities to which transaction applies:

 

    

 

 

(3)

  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

    

 

 

(4)

  

Proposed maximum aggregate value of transaction:

 

    

 

 

(5)

  

Total fee paid:

 

    

 

 

Fee paid previously with preliminary materials.

 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

(1)

  

Amount Previously Paid:

 

    

 

 

(2)

  

Form, Schedule or Registration Statement No.:

 

    

 

 

(3)

  

Filing Party:

 

    

 

 

(4)

  

Date Filed:

 

    

 

 

 


Table of Contents

LOGO

 

   PennyMac Financial Services, Inc.

3043 Townsgate Road

Westlake Village, California 91361

April 3, 2020

Dear Stockholder:

You are cordially invited to attend the 2020 Annual Meeting of Stockholders, or the Annual Meeting, of PennyMac Financial Services, Inc. to be held on Thursday, May 28, 2020, at 11:00 a.m. Pacific Time. The Annual Meeting will be held at our corporate offices located at 3043 Townsgate Road, Westlake Village, California 91361.*

The Notice of 2020 Annual Meeting of Stockholders and Proxy Statement are attached to this letter and contain information about the matters on which you will be asked to vote at the Annual Meeting. We will transact no other business at the Annual Meeting, except for business properly brought before the Annual Meeting or any postponement or adjournment thereof by our Board of Directors. Only our stockholders of record at the close of business on March 30, 2020, the record date, are entitled to vote at the Annual Meeting.

Your vote is very important. Please carefully read the Notice of 2020 Annual Meeting of Stockholders and Proxy Statement so that you will know the matters on which we plan to vote at the Annual Meeting, and then vote your shares by proxy by mail, by Internet or by telephone as soon as possible to make sure that your shares are represented at the Annual Meeting. You may also cast your vote in person at the Annual Meeting. If your shares are held in an account at a brokerage firm or bank, you must instruct that firm or bank as to how to vote your shares.

ANNUAL MEETING ADMISSION: In order to attend the Annual Meeting in person, you will need to present your admission ticket, or an account statement showing your ownership of our common stock as of the record date, and valid government-issued photo identification. The indicated portion of your proxy card will serve as your admission ticket.

On behalf of our Board of Directors, we thank you for your participation and look forward to seeing you on May 28th.

Sincerely,

 

LOGO

  

LOGO

STANFORD L. KURLAND

  

DAVID A. SPECTOR

Chairman

  

President and Chief Executive Officer

* We intend to hold our Annual Meeting in person. However, we are monitoring developments regarding coronavirus disease 2019 (COVID-19) and are planning for the possibility that the Annual Meeting may be held solely by means of remote communication. If we take this step, we will issue a press release announcing such change in advance, file the announcement with the Securities and Exchange Commission as additional proxy material, and will provide details on how to access, participate in and vote at the Annual Meeting at www.proxyvote.com or on our Investor Relations website at www.ir.pennymacfinancial.com/2020AnnMtg. As always, we encourage you to vote your shares prior to the Annual Meeting.


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LOGO

  

PennyMac Financial Services, Inc.

3043 Townsgate Road

Westlake Village, California 91361

Notice of 2020 Annual Meeting of Stockholders

 

 

 

Date and Time:

  

Thursday, May 28, 2020 at 11:00 a.m. Pacific Time

Location:

   PennyMac Financial Services, Inc.
3043 Townsgate Road
Westlake Village, California 91361

Record Date:

  

March 30, 2020. Only stockholders of record at the close of business on the record date are entitled to receive notice of, and vote at, the 2020 Annual Meeting of Stockholders, or Annual Meeting, and any continuation, postponement or adjournment thereof.

Mailing Date:

  

We intend to mail the Notice Regarding the Availability of Proxy Materials, or the Proxy Statement and proxy card, as applicable, on or about April 3, 2020 to our stockholders of record on the record date.

Items of Business:       

     To elect the eleven (11) director nominees identified in the enclosed Proxy Statement to serve on our Board of Directors, each for a one-year term expiring at the 2021 annual meeting of stockholders;

  

     To ratify the appointment of our independent registered public accounting firm for the fiscal year ending December 31, 2020;

  

     To approve, by non-binding vote, our executive compensation; and

  

     To transact such other business as may properly come before the Annual Meeting and any postponement or adjournment thereof.

Attendance:

  

If you plan to attend the Annual Meeting, you will need to bring proof of ownership in order to be granted admission. Please read “INFORMATION CONCERNING VOTING AND SOLICITATION—Who can attend the Annual Meeting?” in the accompanying Proxy Statement. We intend to hold our Annual Meeting in person. However, we are monitoring developments regarding coronavirus disease 2019 (COVID-19) and are planning for the possibility that the Annual Meeting may be held solely by means of remote communication. If we take this step, we will issue a press release announcing such change in advance, file the announcement with the Securities and Exchange Commission as additional proxy material, and will provide details on how to access, participate in and vote at the Annual Meeting at www.proxyvote.com or on our Investor Relations website at www.ir.pennymacfinancial.com/2020AnnMtg.

Voting:

  

Whether or not you plan to attend the Annual Meeting, we encourage you to vote your shares by proxy by mail, by Internet or by telephone as soon as possible to make sure that your shares are represented at the Annual Meeting. You may also cast your vote in person at the Annual Meeting. If your shares are held in an account at a brokerage firm or bank, you must instruct that firm or bank as to how to vote your shares.

By Order of the Board of Directors,

 

LOGO

DEREK W. STARK

Secretary

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE

ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 28, 2020:

This Notice of 2020 Annual Meeting of Stockholders, Proxy Statement and 2019 Annual Report to Stockholders, which includes our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, are available at www.proxyvote.com.


Table of Contents
    TABLE OF CONTENTS  

 

Table of Contents

 

PROXY STATEMENT SUMMARY

     1  

 

CORPORATE GOVERNANCE

     6  

 

PROPOSAL I — ELECTION OF DIRECTORS

     16  

 

Director Nominees

     17  

Non-Management Director Compensation

     21  

2019 Director Compensation Table

     22  

Non-Management Director Stock Ownership Guidelines

     22  

 

AUDIT MATTERS

     23  

 

Report of the Audit Committee

     23  

Relationship with Independent Registered Public Accounting Firm

     24  

Fees to Registered Public Accounting Firm for 2019 and 2018

     24  

Pre-Approval Policies and Procedures

     24  

 

PROPOSAL II —  RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     25  

 

SECURITY OWNERSHIP INFORMATION

     26  

 

Security Ownership of Executive Officers and Directors

     26  

Security Ownership of Other Beneficial Owners

     27  

 

EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION

     28  

 

Our Executive Officers

     28  

Report of the Compensation Committee

     30  

Compensation Discussion and Analysis

     31  

Compensation Tables

     45  

CEO Pay Ratio

     53  

 

PROPOSAL III —  ADVISORY (NON-BINDING) VOTE TO APPROVE EXECUTIVE COMPENSATION

     54  

 

Supporting Statement

     54  

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     55  

 

ANNUAL REPORT ON FORM 10-K

     66  

 

OTHER MATTERS

     66  

 

INFORMATION CONCERNING VOTING AND SOLICITATION

     67  

 

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    PROXY STATEMENT SUMMARY  

 

Proxy Statement Summary

This summary contains highlights about our Board and the upcoming 2020 Annual Meeting of Stockholders, or Annual Meeting. This summary does not contain all of the information that you should consider in advance of the Annual Meeting and we encourage you to read the entire Proxy Statement before voting.

2020 Annual Meeting of Stockholders

 

 

 

 

  Date and Time:

 

  

 

Thursday, May 28, 2020, at 11:00 a.m. Pacific Time

 

    

 

  Location:

 

  

 

3043 Townsgate Road, Westlake Village, California 91361

 

  

 

  Record Date:

 

 

  

 

March 30, 2020

 

  

 

  Mail Date:

 

  

 

April 3, 2020

 

    

Voting Matters and Board Recommendations

 

 

 

  Matter

 

      

    Our Board Vote Recommendation    

 

 

Proposal I:

 

  

 

Election of eleven (11) directors to our Board of Directors

 

 

 

FOR each Director Nominee
identified in this Proxy Statement

 

 

Proposal II:

 

  

 

Ratification of the appointment of our independent registered public accounting firm

 

 

 

FOR

 

 

Proposal III:

 

  

 

Approval, by non-binding vote, of our executive compensation

 

 

 

FOR

 

Director Nominees

 

  Director Nominees    Age   

Director

Since

  

Principal Occupation /

Key Experience

 

Committee

Membership

 

Stanford L. Kurland

 

  

 

67

 

  

 

2012

 

  

 

Chairman of PennyMac Financial Services, Inc.

 

 

 

None

 

 

David A. Spector

 

  

 

57

 

  

 

2012

 

  

 

President and Chief Executive Officer of PennyMac Financial Services, Inc.

 

 

 

None

 

 

Anne D. McCallion

 

  

 

65

 

   2018   

 

Former Senior Managing Director and Chief Enterprise Operations Officer of PennyMac Financial Services, Inc.

 

 

 

Finance

 

Risk

 

 

Matthew Botein

 

  

 

47

 

  

 

2012

 

  

 

Managing Partner, Gallatin Point LLC

 

 

 

Compensation

 

Finance

 

James K. Hunt*

 

  

 

68

 

  

 

2013

 

  

 

Former Managing Partner and CEO, Middle Market Credit at Kayne Anderson Capital Advisors LLC

 

 

 

Nominating and Corporate
Governance

 

Compensation

 

 

Patrick Kinsella †

 

  

 

66

 

  

 

2014

 

  

 

Adjunct Professor at USC Marshall School of Business and Retired Senior Audit Partner with KPMG, LLP

 

 

 

Audit

 

Related Party Matters

 

Risk

 

† Audit Committee Financial Expert

* Independent Lead Director

 

LOGO   |  2020 Proxy Statement      1  


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    PROXY STATEMENT SUMMARY  

 

  Director Nominees   

 

Age

  

 

Director
Since

  

 

Principal Occupation /
Key Experience

 

 

 

Committee

 

Membership

Joseph Mazzella

 

  

 

67

 

  

 

2012

 

  

Retired Managing Director and General Counsel of Highfields Capital Management LP

 

 

 

Nominating and Corporate
Governance

 

Related Party Matters

 

 

Farhad Nanji

  

 

41

 

  

 

2012

 

  

 

Co-Founder of MFN Partners Management, L.P.

 

  Compensation

 

Nominating and Corporate
Governance

 

 

Jeffrey A. Perlowitz

  

 

63

 

  

 

2019

 

  

 

Retired Managing Director and Co-Head of Global Securitized Markets of Citigroup and/or its Predecessors

 

 

 

Finance

 

Risk

Theodore W. Tozer

  

 

63

 

  

 

2017

 

  

 

Senior Fellow at the Milken Institute’s Center for Financial Markets; Former President of Government National Mortgage Association

 

 

 

Audit

 

Related Party Matters

 

Risk

 

Emily Youssouf

  

 

68

 

  

 

2013

 

  

 

Clinical Professor at NYU Schack Institute of Real Estate

 

 

 

Audit

 

Finance

 

We believe our Board possesses deep and broad skill sets and specific experience and expertise that facilitate strong oversight and strategic direction for us as a leading specialty financial services firm focused on the production and servicing of U.S. mortgage loans and the management of investments related to the U.S. mortgage market.

 

 

 

LOGO

  

LOGO

 

LOGO

 

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    PROXY STATEMENT SUMMARY  

 

Corporate Governance Highlights

 

 

We continuously monitor developments, trends and best practices in corporate governance and consider feedback from stockholders and proxy advisory firms such as Institutional Shareholder Services, or ISS, as appropriate, when enhancing our governance, policies and structure.

 

 

  

 

 

 

Majority Voting Standard in the Election of Directors. Our Amended and Restated Bylaws provide for a majority voting standard for uncontested director elections and plurality voting standard for contested director elections.

 

     

 

    

 

 

 

Independent Lead Director. The independent directors of our Board elected James K. Hunt as our independent lead director for a three-year term that expires in February 2023.

 

 

  

 

 

 

Director Resignation Policy. Our Corporate Governance Guidelines include a requirement that any director nominee who fails to receive a majority vote, if required, for election or re-election will promptly tender his or her resignation to the Board.

 

   

 

    

 

 

 

Retirement Age. It is our general policy that no director having attained the age of 75 years shall be nominated for re-election or re-appointment to the Board.

 

 

  

 

 

 

Director Limitations on Number of Boards. A director who is currently serving as a chief executive officer of a public company, including our Chief Executive Officer, is not permitted to serve on more than two outside public company boards. No other director is permitted to serve on more than five outside public company boards.

 

   

 

    

 

 

 

Regular Executive Sessions. Our independent directors meet privately on a regular basis. Our independent lead director presides at such meetings.

 

 

  

 

 

 

Robust Stock Ownership Guidelines. We have robust stock ownership guidelines for our non-management directors (five times the base annual retainer) and executive officers (five times base salary for our President and Chief Executive Officer; three times base salary for all other executive officers).

 

   

 

    

 

 

 

Regular Board Evaluation. The Nominating and Corporate Governance Committee sponsors an annual self-assessment of the Board’s performance as well as the performance of each committee of the Board.

 

 

  

 

 

 

Stockholder Engagement. We engage in active discussions with our stockholders on a variety of topics throughout the year to ensure that we are addressing their concerns.

 

     

 

    

 

 

 

Annual Elections. Our Board is not classified and, therefore, we conduct annual elections for all directors who serve on our Board.

 

2019 Business Highlights

 

 

A summary of our full-year financial highlights is as follows:

Full-Year 2019 Highlights (1)

 

   

Total net revenue of $1.5 billion, up 50 percent from the prior year

 

   

Pretax income was $529.4 million, up 98 percent from the prior year and the highest level on record for PennyMac Financial

 

   

Diluted earnings per share of $4.89, up from $2.59 in 2018 and also a record

 

   

Record loan production of $117.6 billion in UPB, an increase of 74 percent from the prior year, which included $9.8 billion in UPB of consumer direct production, an increase of 209 percent from the prior year; we were the 3rd largest mortgage producer in the U.S., according to Inside Mortgage Finance

 

   

Servicing portfolio reached $368.7 billion in UPB, up 23 percent from December 31, 2018; we were the 6th largest servicer in the U.S. as of December 31, 2019, according to Inside Mortgage Finance

 

   

Investment management had $2.5 billion of assets under management at year end, up 56 percent from December 31, 2018, driven by $830 million in new common equity raised by PennyMac Mortgage Investment Trust (NYSE:PMT), the real estate investment trust we manage

 

   

Return on average common stockholders’ equity was 21.6%

 

 

(1)

For complete information regarding our Fiscal 2019 performance, stockholders should read “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited consolidated financial statements and accompanying notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which was filed with the Securities and Exchange Commission, or the SEC, on February 28, 2020 and is being made available to stockholders with this Proxy Statement as a part of our 2019 Annual Report to Stockholders.

 

LOGO   |  2020 Proxy Statement      3  


Table of Contents
    PROXY STATEMENT SUMMARY  

 

A summary of the substantial growth in our book value per share driven by strong return on equity (ROE) is provided below.

 

 

LOGO

 

 

LOGO

 

 

(1)

Compounded annual growth rate

(2)

Return on average common stockholders’ equity is calculated based on net income attributable to common stockholders as a percentage of average common equity during the year

 

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    PROXY STATEMENT SUMMARY  

 

Executive Compensation Highlights

 

 

Our compensation governance best practices are summarized as follows:

 

 

What We Do

 

 

 

What We Don’t Do

 

 

  

 

 

 

Heavy bias toward performance-based equity: Our Board seeks to ensure that our long-term equity incentive awards are significantly weighted toward performance-based equity vehicles.

 

 

 

û  

 

 

 

No minimum level of total compensation: We do not provide for guaranteed minimum levels of performance-based cash incentives or long-term equity awards in our employment agreements.

 

 

  

 

 

 

Minimum vesting periods: Our equity incentive plan provides that our equity awards are subject to a minimum vesting period of no less than one year on 95% of equity awards granted and our grants generally vest over three years, with approximately equal annual installments on the first, second and third anniversaries of the grant date.

 

 

 

û  

 

 

 

No automatic salary increases: Our named executive officers are not entitled to automatic base salary increases and none of the employment agreements with our named executive officers contain such provisions.

 

 

  

 

 

 

Clawback policy: Our Board maintains a clawback policy that allows us to recoup certain incentive compensation paid on the basis of erroneous financial statements that result in a material accounting restatement.

 

 

 

û  

 

 

 

No “single trigger” cash severance and equity or excise tax gross-ups: We do not provide for single trigger cash severance and equity vesting upon a Change in Control, if assumed. We also do not provide for excise tax gross-ups upon a Change in Control.

 

 

  

 

 

 

Balanced risk-taking approach to our compensation program: Our compensation program is designed to discourage excessive risk taking and encourage long-term decision making in alignment with the interests of our stockholders. We consult with our independent compensation consultant in this regard.

 

 

 

û  

 

 

 

No excessive perks: Our perquisites are limited to those with a clear business-related rationale.

 

 

  

 

 

 

Robust stock ownership guidelines: We impose robust stock ownership guidelines on our directors and executive officers to ensure that their interests are aligned with those of our stockholders.

 

 

 

û  

 

 

 

No gross-ups for perks: We do not provide excise tax gross-ups of perquisites for our executive officers.

 

 

  

 

 

 

Stockholder engagement: We value the perspectives of our stockholders and interact with stockholders through a variety of engagement activities.

 

 

 

û  

 

 

 

No re-pricing: Our equity incentive plan prohibits the re-pricing of stock options and stock appreciation rights without stockholder approval.

 

 

  

 

 

 

Consideration of stockholder feedback: We engage in careful consideration of stockholder feedback regarding compensation.

 

 

û  

 

 

 

No speculative or short-term trading: We prohibit our officers, employees and directors from engaging in speculative and short-term trading of our securities.

 

 

  

 

 

 

Comprehensive review of peer group: On an annual basis, we engage in a comprehensive review to assess and identify a relevant peer group of companies in our or a related industry.

 

 

 

û  

 

 

 

No hedging, pledging, short sales, or margin trading: We prohibit our officers, employees and directors from engaging in hedging, pledging, short sales, trading in publicly traded put or call options or trading on margin involving our securities.

 

 

  

 

 

 

Independent compensation consultant: We utilize the services of Pearl Meyer, which is engaged directly by the Compensation Committee as an outside independent compensation consultant to advise on executive compensation matters.

 

 

 

û  

 

 

 

No supplemental executive retirement plans: We do not maintain any supplemental executive retirement plans for named executive officers.

 

 

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Table of Contents
    CORPORATE GOVERNANCE  

 

Corporate Governance

Director Qualification and Selection Criteria

 

 

The Nominating and Corporate Governance Committee is responsible for developing the general criteria, subject to approval by the full Board, for use in identifying, evaluating and selecting qualified candidates for election or re-election to our Board. The Nominating and Corporate Governance Committee periodically reviews with our Board the appropriate skills and characteristics required of directors in the context of the current composition of our Board. Final approval of director candidates is determined by the full Board, and invitations to join our Board are extended by our Chairman on behalf of the entire Board.

The Nominating and Corporate Governance Committee, in accordance with our Corporate Governance Guidelines, seeks to create a board that is strong in its collective knowledge and has skills and experience with respect to accounting and finance, management and leadership, vision and strategy, business operations, business judgment, risk management, corporate governance, and knowledge of the mortgage and real estate investment trust sectors and the global markets. The Nominating and Corporate Governance Committee also focuses on issues of diversity, such as diversity of gender, race and national origin, education, professional experience, and differences in viewpoints and skills. We do not have a formal policy with respect to diversity; however, our Board and Nominating and Corporate Governance Committee believe that it is essential that our directors represent diverse viewpoints and backgrounds. In considering candidates for our Board, the Nominating and Corporate Governance Committee considers the entirety of each candidate’s credentials in the context of these standards and in light of the needs of our Board and our Company at that time, given the then current mix of director attributes. The Nominating and Corporate Governance Committee also considers a candidate’s accessibility and availability to serve effectively on our Board, and it conducts inquiries into the background and qualifications of potential candidates. With respect to the nomination of continuing directors for re-election, the individual’s past contributions to our Board are also considered.

Pursuant to a separate stockholder agreement with HC Partners LLC, or HCP, HCP has the right to nominate up to two individuals for election to our Board, depending on the percentage of the voting power of our outstanding shares of common stock that it holds, and we are obligated to use our best efforts to cause the election of those nominees. Based on current levels of ownership, HCP has the right to nominate two directors to the Board. HCP has elected to nominate one individual, Joseph Mazzella, for election to our Board. Although HCP has chosen not to exercise its right to nominate a second director at this time, it reserves the right to do so in the future as provided in the HCP stockholder agreement.

The Nominating and Corporate Governance Committee uses a variety of methods for identifying and evaluating nominees for director. The Nominating and Corporate Governance Committee assesses the appropriate size of our Board and whether any vacancies on our Board are expected due to retirement or otherwise. In the event that a vacancy is anticipated, or otherwise arises, the Nominating and Corporate Governance Committee considers whether to fill any such vacancy and, if so, identifies various potential candidates for director. These candidates are evaluated at regular or special meetings of the Nominating and Corporate Governance Committee, and may be considered at any point during the year. In evaluating such nominations, the Nominating and Corporate Governance Committee seeks to achieve a balance of knowledge, experience and capability on our Board.

Candidates may come to the attention of the Nominating and Corporate Governance Committee through current members of our Board, professional search firms or other persons. The Nominating and Corporate Governance Committee also will consider recommendations for nominees properly submitted by our stockholders. These recommendations should be submitted in writing to our Secretary at our principal executive offices located at 3043 Townsgate Road, Westlake Village, California 91361. If any materials are provided by a stockholder in connection with a recommendation for a director nominee, such materials are forwarded to the Nominating and Corporate Governance Committee. Following verification of the stockholder status of persons proposing candidates, recommendations will be aggregated and considered by the Nominating and Corporate Governance Committee, in the same manner as other recommendations, at its next regularly scheduled or special meeting. During 2019, the Nominating and Corporate Governance Committee did not retain an independent third party to assist in identifying appropriate director candidates for our Board.

Independence of Our Directors

 

 

The NYSE rules require that at least a majority of our directors be independent of our Company and management. The rules also require that our Board affirmatively determine that there are no material relationships between a director and us (either directly or as a partner, stockholder or officer of an organization that has a relationship with us) before such director can be deemed independent. We have adopted independence standards consistent with NYSE rules and the rules of the SEC. Our Board has reviewed both direct and indirect transactions and relationships that each of our directors has or had with us and our management.

 

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    CORPORATE GOVERNANCE  

 

As a result of this review, our Board affirmatively determined that Messrs. Botein, Hunt, Kinsella, Mazzella, Nanji, Perlowitz and Tozer and Ms. Youssouf are independent directors under NYSE rules, based upon the fact that none of these directors have any material relationships with us other than as directors and holders of our common stock.

Board of Directors Leadership

 

 

Our Board leadership structure is currently comprised of our Chairman, our President and Chief Executive Officer, our independent lead director, and our independent Board committees. We believe this structure, including the separation of the offices of the Chairman and the President and Chief Executive Officer, provides a well-functioning and effective balance between strong management leadership and appropriate safeguards and oversight by non-management Board members. As Chairman, Mr. Kurland is charged with providing overall leadership to our Board, presiding over the Board meetings, facilitating communication among the directors and between the Board and the Chief Executive Officer, and collaborating with the Nominating and Corporate Governance Committee in our Chief Executive Officer succession planning and Board evaluation process. As President and Chief Executive Officer, Mr. Spector has the in-depth focus and hands-on perspective of being ultimately responsible for strategic and business initiatives, day-to-day management decisions and leading our senior management team in the execution of such strategic and business initiatives.

Our Board believes that independent directors and management have different perspectives and roles in strategy development. Our independent directors bring experience, oversight and expertise from outside our Company and industry, while the Chairman and President and Chief Executive Officer bring company-specific experience and expertise. We believe Mr. Kurland, as our former chief executive officer, is well situated to serve as Chairman because we believe he is able to utilize the in-depth focus and perspective gained in running our Company to effectively and efficiently lead our Board. As the director most familiar with our business and industry, he is most capable of identifying new initiatives and businesses, strategic priorities and other critical and/or topical agenda items for discussion by our Board and then leading the discussion to ensure our Board’s proper oversight of these issues. Mr. Kurland served as the Executive Chairman of our Board through December 31, 2019, and, beginning on January 1, 2020 and continuing through December 31, 2022, shall serve as the non-executive Chairman of our Board, assuming he is re-elected to that post through such date.

Our Board believes that this leadership structure, which separates the Chief Executive Officer and Chairman roles, is appropriate at this time in light of our evolving business and operating environment, our need to facilitate the efficient information flow between senior management and our Board, our desire to provide guidance to senior management, and our continued focus on promoting strategy development and execution, all of which are essential to effective governance.

Independent Lead Director

 

 

We believe our Board leadership structure is also strengthened through the appointment of an influential independent lead director with a strong voice. The Independent lead director works with our Chairman and other directors to provide informed, independent oversight of our management and affairs. Among other things, the independent lead director reviews and provides input on Board meeting agendas and materials, coordinates with committee chairs to ensure the committees are fulfilling the responsibilities set forth in their respective charters, serves as the principal liaison between our Chairman and the independent directors, and chairs an executive session of the independent directors at each regularly scheduled Board meeting. Our Board has re-appointed Mr. Hunt as independent lead director for a three (3) year term that expires in February 2023.

Together, our Chairman and the independent lead director provide leadership to and work with our Board to define its structure and activities in the fulfillment of its responsibilities.

 

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    CORPORATE GOVERNANCE  

 

The Role of the Board in Risk Oversight

 

Our senior management is responsible for designing, implementing and maintaining an effective and appropriate approach for managing enterprise risk. Our Board and each of its committees, and in particular, the Risk Committee, have an active role in overseeing our risk management process, while supporting organizational objectives, improving long-term organizational performance and creating stockholder value. A fundamental part of risk management oversight is not only understanding the risks a company faces and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for our Company. The involvement of the full Board in determining our business strategy is a key part of its assessment of management’s appetite for risk and determination of what constitutes an appropriate level of risk for our Company. While our Board has the ultimate oversight responsibility for the risk management process, particularly with respect to those risks inherent in the operation of our businesses and the implementation of our strategic plan, the committees of our Board also share responsibility for overseeing specific areas of risk management as follows:

 

 

Committee

 

  

 

Primary Risk Oversight Responsibility

 

Audit

  

The Audit Committee focuses on risks associated with internal controls and securities, financial and accounting compliance, and receives an annual risk assessment report from our internal auditors.

Compensation

  

The Compensation Committee focuses on oversight of our compensation policies and practices, including whether such policies and practices balance risk taking and rewards in an appropriate manner so as not to encourage excessive risk taking.

Finance

  

The Finance Committee focuses on risks relating to our Company’s liquidity and capital resources and our investment policies and strategies.

Nominating and Corporate Governance

  

The Nominating and Corporate Governance Committee focuses on risks associated with proper board governance, including the independence of our directors and the assessment of the performance and effectiveness of each member and Committee of our Board, as well as risks associated with corporate sustainability.

Related Party Matters

  

The Related Party Matters Committee focuses on risks arising out of potential conflicts of interest between us or any of our subsidiaries, on the one hand, and (i) PMT and its subsidiaries, (ii) any other non-wholly-owned entity that we may manage or over which we may have control (whether through ownership, voting power, contract or otherwise), and (iii) any other identified related party, on the other hand.

Risk

  

The Risk Committee oversees our enterprise risk management function in relation to our business activities and focuses on credit risk, mortgage compliance risk and operational risk, including cybersecurity risk.

While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board is regularly informed through committee reports about the nature of all such risks.

 

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    CORPORATE GOVERNANCE  

 

Committees of the Board of Directors

 

 

Our Board has established six principal committees: the Audit Committee, the Compensation Committee, the Finance Committee, the Nominating and Corporate Governance Committee, the Related Party Matters Committee and the Risk Committee. Our Board committees have also adopted written charters that govern their conduct, each of which is available on our website at www.ir.pennymacfinancial.com.

The current chairs and members of the committees are identified in the following table:

 

  Directors

 

  

Audit

 

  

Compensation

 

  

Finance

 

  

 

Nominating
and
Corporate
Governance

 

  

 

Related
Party
Matters

 

  

  Risk  

 

 

  Non-Management Directors

 

                 

 

  Matthew Botein

 

      CC

 

   X

 

        

 

  James K. Hunt*

 

     

 

X

 

     

 

CC

 

     

 

  Patrick Kinsella

 

  

 

CC

 

           

 

X

 

  

 

X

 

 

  Stanford L. Kurland

 

                 

 

  Anne D. McCallion

 

        

 

X

 

        

 

X

 

 

  Joseph Mazzella

 

           

 

X

 

  

 

CC

 

  

 

  Farhad Nanji

 

     

 

X

 

     

 

X

 

     

 

  Jeffrey A. Perlowitz

 

        

 

X

 

        

 

X

 

 

  Theodore W. Tozer

 

  

 

X

 

           

 

X

 

  

 

CC

 

 

  Emily Youssouf

 

  

 

X

 

     

 

CC

 

        

 

  Management Directors

 

                 

 

  David A. Spector

 

                             

†     – Chairman

*     – Independent Lead Director

CC – Committee Chair

 

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    CORPORATE GOVERNANCE  

 

The primary committee responsibilities, current committee membership and number of meetings held by each such committee of our Board during 2019 are summarized below:

 

   

 

Audit Committee

 

     

 

Primary Responsibilities

 

 

Members:

     

 

The Audit Committee assists our Board in overseeing:

 

  our accounting and financial reporting processes;

 

  the integrity and audits of our financial statements;

 

  our internal control function;

 

  our compliance with related legal and regulatory requirements;

 

  the effectiveness of our compliance programs as they relate to applicable laws and regulations governing securities, financial and accounting matters;

 

  the qualifications and independence of our independent registered public accounting firm; and

 

  the performance of our independent registered public accounting firm and our internal auditors.

 

The Audit Committee is also responsible for preparing an audit committee report to be included in our annual proxy statement, reviewing and discussing management’s discussion and analysis of financial condition and results of operations to be included in our SEC filings, the engagement, retention and compensation of our independent registered public accounting firm, reviewing with our independent registered public accounting firm the plans and results of the audit engagement, approving professional services provided by our independent registered public accounting firm, considering the range of audit and permissible non-audit fees, and reviewing the adequacy of our internal accounting controls.

 

Patrick Kinsella

Theodore W. Tozer

Emily Youssouf

   

 

Meetings in 2019: 10

   

 

Mr. Kinsella serves as an “audit committee financial expert,” as that term is defined by the SEC. Each of the members of the Audit Committee is “financially literate” under the rules of the NYSE.

 

Our Board has determined that all of the directors serving on the Audit Committee are independent under the applicable rules of the NYSE and SEC. For additional information on the Audit Committee, please see the section below entitled “Report of the Audit Committee.”

 

   

 

   

 

Compensation Committee

 

     

 

Primary Responsibilities

 

 

Members:

     

 

The principal functions of the Compensation Committee are to:

 

  evaluate the performance of our Chief Executive Officer and other executive officers;

 

  review and/or recommend to the Board the compensation of our Chief Executive Officer and other executive officers;

 

  adopt and administer compensation policies, plans and benefit programs for our executive officers and all other members of our executive team;

 

  review and recommend to our Board compensation plans, policies and programs;

 

  prepare the compensation committee report on executive compensation to be included in our annual proxy statement;

 

  review and discuss our compensation discussion and analysis to be included in our annual proxy statement;

 

  recommend to our Board the compensation for our independent directors; and

 

  administer the issuance of any securities under the PennyMac Financial Services, Inc. 2013 Equity Incentive Plan, as amended, or the 2013 Plan.

 

The Compensation Committee may form, and delegate authority to, subcommittees when it deems appropriate to the extent permitted under applicable law.

 

Matthew Botein

James K. Hunt

Farhad Nanji

   

 

Meetings in 2019: 5

   

 

Our Board has determined that all of the directors serving on the Compensation Committee are independent under the applicable rules of the NYSE and SEC. For additional information on the Compensation Committee, please see the section below entitled “Report of the Compensation Committee.”

 

 
     

 

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    CORPORATE GOVERNANCE  

 

   

 

Finance Committee

 

     

 

Primary Responsibilities

 

 

Members:

     

 

The Finance Committee is responsible for overseeing the financial objectives, policies, procedures and activities of our Company, including a review of our capital structure, sources of funds, liquidity and financial position. In connection with these responsibilities of the Finance Committee, its principal functions are to:

 

  review, assess and monitor our capital structure, liquidity, capital adequacy and reserves;

 

  review and assess any policies we may establish from time to time that relate to our liquidity management, capital structure and dividend approvals;

 

  review our short- and long-term investment strategy, investment policies and the performance of our investments;

 

  monitor our capital budget; and

 

  review our policies and procedures on derivatives transactions.

 

 

Matthew Botein

Anne D. McCallion

Jeffrey A. Perlowitz

Emily Youssouf

   

 

Meetings in 2019: 5

   

 

    

    

    

    

 

 

   

 

   

 

Nominating and Corporate
Governance Committee

 

     

 

Primary Responsibilities

 

 

Members:

     

 

The principal functions of the Nominating and Corporate Governance Committee are to:

 

  seek, consider and recommend to the full Board qualified candidates for election as directors and then recommend nominees for election as directors at the annual meeting of stockholders;

 

  recommend to our Board individuals qualified to be appointed as our executive officers;

 

  periodically prepare and submit to our Board for adoption the Nominating and Corporate Governance Committee’s selection criteria for director nominees;

 

  review and make recommendations to our Board on matters involving the general operation of our Board and our corporate governance guidelines;

 

  annually recommend to our Board nominees for each of its committees;

 

  annually facilitate the assessment of the performance of the individual committees and our Board as a whole and reporting thereon to our Board; and

 

  oversee our policies, practices and initiatives regarding corporate sustainability.

 

 

James K. Hunt

Joseph Mazzella

Farhad Nanji

   

 

Meetings in 2019: 4

   

 

Our Board has determined that all of the directors serving on the Nominating and Corporate Governance Committee are independent under the applicable rules of the NYSE.

 

 

 

   

 

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    CORPORATE GOVERNANCE  

 

   

 

Related Party Matters Committee

 

     

 

Primary Responsibilities

 

 

Members:

     

 

The principal functions of the Related Party Matters Committee are to:

 

  establish policies and procedures related to the identification and management of certain transactions, and resolve other potential conflicts of interest, between our Company and any of our subsidiaries, on the one hand, and PMT and its subsidiaries and any other non-wholly-owned entity that we manage or over which we have control (whether through ownership, voting power, contract or otherwise), on the other hand;

 

  establish policies and procedures related to the identification of any other transactions in which certain related parties, including our directors, executive officers and their family members, have a direct or indirect interest;

 

  oversee and administer all such policies; and

 

  review and, if necessary, approve and/or make recommendations to the Board regarding all such transactions, including, but not limited to, our management agreement, flow servicing agreement, mortgage banking services agreement, MSR recapture agreement, and master spread acquisition and MSR servicing agreements with PMT, and any amendments of or extensions to such agreements.

 

 

Patrick Kinsella

Joseph Mazzella

Theodore W. Tozer

 

   

 

Meetings in 2019: 4

   

 

Our Board has determined that all of the directors serving on the Related Party Matters Committee are independent under the applicable rules of the NYSE.

 

 

 

 

   

 

   

 

Risk Committee

 

     

 

Primary Responsibilities

 

 

Members:

     

 

The principal function of the Risk Committee is to assist our Board in fulfilling its oversight responsibilities relating to: (i) our Company’s aggregate risk profile; (ii) specific risks expressly delegated to the Risk Committee, including credit risk, mortgage compliance risk, and operational risk; and (iii) management’s approach for assessing, monitoring and controlling such aggregate and specific risks. In carrying out its duties, the responsibilities of the Risk Committee include, but are not limited to, the following:

 

  reviewing, discussing and overseeing our management’s establishment and operation of our Company’s enterprise risk management (and any significant changes thereto);

 

  reviewing annually a schedule of all identified risks facing our Company and the alignment of such risks with our management committees and committees of our Board;

 

  reviewing annually our enterprise risk management policy;

 

  reviewing and overseeing credit risk, mortgage compliance risk, and operational risk (including risks arising from cybersecurity), as well as the establishment and operation of policies and procedures and remediation for any deficiencies with respect to such specific risks; and

 

  directing management to evaluate the effectiveness of our risk management.

 

 

Patrick Kinsella

Anne D. McCallion

Jeffrey A. Perlowitz

Theodore W. Tozer

 

   

 

Meetings in 2019: 4

   

 

    

    

    

    

 

 

 

   

 

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    CORPORATE GOVERNANCE  

 

Board of Directors and Committee Meetings

 

During Fiscal 2019, our full Board held six regular meetings. All directors are expected to make every effort to attend all meetings of the Board and meetings of the committees of which they are members. Each of our current directors who served on the Board during Fiscal 2019 attended at least 83% of the aggregate number of meetings held in Fiscal 2019 for the period during which such director served, with respect to meetings of our Board and each committee on which such director served.

Executive Sessions of the Independent Directors

 

Our Corporate Governance Guidelines require that our Board hold at least four regularly scheduled meetings each year and that our independent directors meet in executive session without management on a regularly scheduled basis. These executive sessions, which are designed to promote unfettered discussions among our independent directors, are presided over by the independent lead director, Mr. Hunt. During Fiscal 2019, our non-management directors, all of whom were independent, held four meetings in executive session.

Attendance by Members of our Board of Directors at the 2019 Annual Meeting of Stockholders

 

We expect each member of the Board to attend our annual meetings of stockholders except for absences due to causes beyond the reasonable control of the director. Each of the current members of our Board attended the 2019 annual meeting of stockholders.

Board Evaluations and Refreshment

 

As described in our Corporate Governance Guidelines, it is our general policy that no director having attained the age of 75 years shall be nominated for re-election or re-appointment to the Board, although the Board may waive this policy in individual cases. In addition, the charters of each of the Audit Committee, Compensation Committee, Finance Committee, Nominating and Corporate Governance Committee, Related Party Matters Committee and Risk Committee require an annual performance evaluation. The Nominating and Corporate Governance Committee oversees the annual board assessment process and the implementation of the annual committee assessments. The Nominating and Corporate Governance Committee typically engages an external evaluator to facilitate the board and committee assessment process. The key areas of focus for the evaluation are Board operations, Board accountability and committee performance. The results of the evaluation are reviewed with the Nominating and Corporate Governance Committee and the full Board.

Codes of Business Conduct and Ethics

 

We have adopted a Code of Business Conduct and Ethics, which sets forth the basic principles and guidelines for resolving various legal and ethical questions that may arise in the workplace and in the conduct of our business. This code is applicable to all of our officers and directors, as well as to the employees of PNMAC.

In addition, we have adopted a Code of Ethics for the Chairman, Chief Executive Officer and Senior Financial Officers, which sets forth specific policies to guide these individuals in the performance of their duties. The Code of Business Conduct and Ethics and the Code of Ethics for the Chairman, Chief Executive Officer and Senior Financial Officers are available on our website at www.ir.pennymacfinancial.com.

Corporate Governance Guidelines

 

We have adopted Corporate Governance Guidelines, available on our website at www.ir.pennymacfinancial.com, which, in conjunction with the charters and key practices of the committees of our Board, provide the framework for the governance of our Company. In connection with the change to a majority voting standard in our Amended and Restated Bylaws, our Board also amended and restated our Corporate Governance Guidelines to provide that if any nominee for director fails to receive a majority vote for election or re-election, if so required, the director will promptly tender to the Board for its consideration his or her offer to resign from the Board.

 

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    CORPORATE GOVERNANCE  

 

Corporate Sustainability and Social Responsibility

 

 

Commitment to Advancing ESG Priorities in Alignment with our Strategic Objectives. With oversight from our Board and the Nominating and Corporate Governance Committee, we are committed to being responsive to our stockholders and stakeholders as it relates to our environmental, social, and governance (ESG) principles and continuously improving our ESG and corporate sustainability related disclosures. Our Board believes that it is important to establish a robust corporate sustainability program and framework that will support our corporate initiatives. As part of our corporate sustainability program, we expect to issue a comprehensive corporate sustainability report that utilizes Sustainability Accounting Standards Board (SASB) industry-specific standards relevant to the mortgage finance industry, as well as other relevant standards and guidelines.

We strive not only to drive high operational and financial performance but also to serve a greater social purpose through our core businesses, which are centered around the essential public good of homeownership. Mortgage banking allows us to serve our customers throughout the country by facilitating home purchases, refinancings that make homes more affordable, and, when necessary, loss mitigation alternatives designed to avoid foreclosure and keep our customers and their families in their homes.

We also encourage and support principles of corporate sustainability through Board governance best practices, in our operations and throughout our communities. Corporate sustainability goals are included in our annual corporate strategic plan and are linked to compensation, including variable pay, where applicable. We believe these principles promote the sustainable, long-term growth of our organization for the benefit of our stockholders and the housing industry for the benefit of our customers, improving the environment in which we live. We hold ourselves accountable for managing our social, environmental and economic impact through a number of initiatives.

Corporate Governance. We amended the Nominating and Corporate Governance Committee Charter to provide that this committee has specific oversight responsibility relating to our corporate sustainability practices, including environmental stewardship and corporate social responsibility, and will make recommendations to the Board, as appropriate. Our Board has established a set of principles, guidelines and practices that support sustainable financial performance and long-term value creation for our stockholders.

Board Diversity. Currently, two women serve on our Board, representing 18% of our total Board members. In addition, we have a number of directors who represent other diverse backgrounds and experiences. Our Board believes that these sorts of diversity factors are essential in promoting our long-term sustainable growth. Our Board maintains a policy regarding the evaluation of director candidates which states that the Board in its selection of director candidates will consider the overall Board balance of diversity of viewpoints, backgrounds and experiences. Our Board has also established director selection criteria which provides that the Board in its selection of director candidates will consider factors that contribute to Board diversity in the broadest sense, including gender, ethnicity, geography, education, and personal and professional experiences.

Environmental Sustainability. We seek to operate our facilities in an environmentally sustainable manner that manages our impact on the environment by investing in sustainable products and services, committing to increased waste recycling, focusing on energy efficiency and engaging in conservative water consumption practices. We are committed to environmental sustainability and energy conservation and recognize the importance of being a responsible steward of the environment.

Diversity and Inclusion. We believe that building a diverse and inclusive, high-performing workforce where our employees bring diverse perspectives and varied experiences to work every day allows us to develop better and more innovative solutions for our customers. 52% of our employees are women. During Fiscal 2017, we established a mentorship program that is designed to promote opportunities for women at our company to strengthen networks, exchange ideas and build skills and relationships.

Human Capital. Our long-term sustainability as a company is highly dependent upon our people. Our goal is to recruit and develop the best talent, provide a supportive work environment and promote healthy living. We support the U.S. military through our continued focus on recruiting and creating opportunities for veterans. We have also partnered with a third party to establish a comprehensive, fully integrated wellness program designed to enhance the productivity of our employees. We believe it is important to support human rights in every aspect of our operations. Our commitment to human rights is grounded in our Code of Business Conduct and Ethics, our various Company policy statements, and our vendor master services agreements. We have not been linked to any labor and human rights violations.

 

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    CORPORATE GOVERNANCE  

 

Communications with our Board of Directors

 

 

Our stockholders and other interested persons may send written communications to the Board, committees of the Board and individual directors (including our independent lead director or the independent/non-management directors as a group) by mailing those communications to:

[Specified Addressee]

c/o PennyMac Financial Services, Inc.

3043 Townsgate Road

Westlake Village, California 91361

Email: [email protected]

Attention: Investor Relations

Generally, these communications are sent by us directly to the specified addressee. Any communication that is primarily commercial, offensive, illegal or otherwise inappropriate, or does not substantively relate to the duties and responsibilities of our Board, may not be forwarded.

 

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    PROPOSAL I – ELECTION OF DIRECTORS  

 

PROPOSAL I – ELECTION OF DIRECTORS

We have eleven (11) directors. The Board has nominated Stanford L. Kurland, David A. Spector, Anne D. McCallion, Matthew Botein, James K. Hunt, Patrick Kinsella, Joseph Mazzella, Farhad Nanji, Jeffrey A. Perlowitz, Theodore W. Tozer and Emily Youssouf for election as directors, and each nominee has consented to being named in this Proxy Statement and has agreed to serve if elected. If our director nominees are elected at this year’s Annual Meeting, they will serve until our annual meeting of stockholders in 2021 and until their successors have been duly elected and qualified.

Because this is considered an uncontested election under our Amended and Restated Bylaws, a nominee for director is elected to the Board if he or she receives a majority of the votes cast for his or her election, meaning the number of shares voted for such nominee’s election exceeds the number of shares voted against such nominee’s election. Abstentions and broker non-votes will not affect the election of directors. In tabulating the voting results for the election of directors, only “FOR” and “AGAINST” votes are counted. If an incumbent director receives a greater number of votes against his or her election than votes for such election, such director shall tender his or her resignation as provided in our Corporate Governance Guidelines. The Nominating and Corporate Governance Committee of the Board will then act on an expedited basis to determine whether to accept the director’s tendered resignation and will submit such recommendation for prompt consideration by the Board. In considering whether to accept or reject the tendered resignation, the Nominating and Corporate Governance Committee and the Board will consider any factors they deem relevant.

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR STANFORD L. KURLAND, DAVID A. SPECTOR, ANNE D. MCCALLION, MATTHEW BOTEIN, JAMES K. HUNT, PATRICK KINSELLA, JOSEPH MAZZELLA, FARHAD NANJI, JEFFREY A. PERLOWITZ, THEODORE W. TOZER AND EMILY YOUSSOUF AS DIRECTORS TO SERVE UNTIL OUR 2021 ANNUAL MEETING OF STOCKHOLDERS AND UNTIL THEIR RESPECTIVE SUCCESSORS ARE DULY ELECTED AND QUALIFIED.

The following paragraphs provide the name and age (as of April 3, 2020) of each director, as well as each director’s business experience over the last five years or more. Immediately following the description of each director’s business experience is a description of the particular experience, skills and qualifications that were instrumental in the Nominating and Corporate Governance Committee’s determination that the director should serve on our Board.

 

 

Name

 

  

 

Age

 

  

 

Position

 

 

Stanford L. Kurland

 

  

 

67

 

  

 

Director, Chairman

 

 

David A. Spector

 

  

 

57

 

  

 

Director

 

 

Anne D. McCallion

 

  

 

65

 

  

 

Director

 

 

Matthew Botein

 

  

 

47

 

  

 

Director

 

 

James K. Hunt

 

  

 

68

 

  

 

Independent Lead Director

 

 

Patrick Kinsella

 

  

 

66

 

  

 

Director

 

 

Joseph Mazzella

 

  

 

67

 

  

 

Director

 

 

Farhad Nanji

 

  

 

41

 

  

 

Director

 

 

Jeffrey A. Perlowitz

 

  

 

63

 

  

 

Director

 

 

Theodore W. Tozer

 

  

 

63

 

  

 

Director

 

 

Emily Youssouf

 

  

 

68

 

  

 

Director

 

 

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    PROPOSAL I – ELECTION OF DIRECTORS  

 

Director Nominees

 

 

 

 

STANFORD L. KURLAND

 

  

 

Mr. Kurland has been a member of our Board since our formation in December 2012 and has been our Chairman since January 2020. Prior thereto, he had been our executive chairman from January 2017 through December 2019 and our chairman of the board and chief executive officer from February 2013 through December 2016. Mr. Kurland also served as the chief executive officer of PNMAC from May 2013 through December 2016 and, prior thereto, served as chairman of the board and chief executive officer from its formation in January 2008 to May 2013. In addition, Mr. Kurland has been the executive chairman of PennyMac Mortgage Investment Trust, or PMT, since January 2017 and, prior thereto, had been the chairman of the board and chief executive officer of PMT from its formation in May 2009 through December 2016. He has also served as the chairman of PNMAC Capital Management, LLC, or PCM, since its formation in March 2008, and the chairman of PennyMac Loan Services, LLC, or PLS, since its formation in February 2008. Prior to PNMAC’s formation, Mr. Kurland served as a director and, from January 1979 to September 2006, held several executive positions, including president, chief financial officer and chief operating officer, at Countrywide Financial Corporation, or Countrywide, a diversified financial services company. Mr. Kurland holds a BS from California State University, Northridge. We believe Mr. Kurland is qualified to serve on our Board because of his experience as our previous chief executive officer and as an accomplished financial services executive with more than 40 years of experience in the mortgage banking arena.

LOGO

 

 Board Member Since: 2012

 Age: 67

 

 

 

DAVID A. SPECTOR

 

  

 

Mr. Spector has been a member of our Board since our formation in December 2012 and has been our President and Chief Executive Officer since January 2017. He served as our executive managing director, president and chief operating officer from February 2016 through December 2016 and, prior thereto, as president and chief operating officer from February 2013 to February 2016. Mr. Spector also has been president and chief executive officer of PNMAC since January 2017 and, prior thereto, served in a variety of similar executive positions at PNMAC from January 2008 through December 2016. In addition, Mr. Spector has been a member of the board of PMT since its formation in May 2009 and chairman of the board of directors of PNMAC Mortgage Opportunity Fund, L.P. and PNMAC Mortgage Opportunity Fund, LLC since May 2008. Prior to joining PNMAC, Mr. Spector was co-head of global residential mortgages for Morgan Stanley, a global financial services firm, based in London. Before joining Morgan Stanley in September 2006, Mr. Spector was the senior managing director, secondary marketing, at Countrywide, where he was employed from May 1990 to August 2006. Mr. Spector holds a BA from the University of California, Los Angeles. We believe Mr. Spector is qualified to serve on our Board because of his experience as a member of our executive management team and as an experienced executive with broad mortgage banking expertise in portfolio investments, interest rate and credit risk management, and capital markets activity that includes pricing, trading and hedging.

LOGO

 

 Board Member Since: 2012

 Age: 57

 

 

 

 

ANNE D. MCCALLION

 

 

  

 

Ms. McCallion has been a member of our Board since February 2018. Ms. McCallion served as our Senior Managing Director and Chief Enterprise Operations Officer from January 2017 until her retirement in June 2019. Prior thereto, she served as our senior managing director and chief financial officer from February 2016 through December 2016 and as our chief financial officer from January 2013 to February 2016. Ms. McCallion also served in a variety of similar executive positions at PNMAC from May 2009 until her retirement. Ms. McCallion served as senior managing director and chief enterprise operations officer of PMT from January 2017 until her retirement in June 2019. Prior thereto, she served as its chief financial officer from its formation in 2009 through December 2016. She also was a member of the technical staff at the Financial Accounting Standards Board. Ms. McCallion holds a BS degree from Gannon University and an MBA degree from Ashland University. She is also a Certified Public Accountant (inactive). We believe Ms. McCallion is qualified to serve on our Board because of her prior experience as a seasoned executive with significant financial expertise and considerable knowledge in the financial and operational aspects of the mortgage banking business.

LOGO

 

 Board Member Since: 2018

 Age: 65

 

 

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    PROPOSAL I – ELECTION OF DIRECTORS  

 

 

MATTHEW BOTEIN

 

  

 

Mr. Botein has been a member of our Board since our formation in December 2012. Since January 2017, Mr. Botein has served as managing partner at Gallatin Point LLC, a private investment and advisory firm. Since January 2017, he also has served as a consultant to BlackRock, Inc., or BlackRock, a global investment management firm, as part of a two year initial term during which he will advise BlackRock on certain aspects of its alternative investment business. Prior thereto, from November 2009 to January 2017, he was employed at BlackRock and held the position of managing director and co-head of BlackRock Alternative Investors and the title of chief investment officer for alternative investments. He previously served as chairman of Botein & Co., LLC, a private investment and advisory firm, from July 2009 through November 2009 and as a managing director of Highfields Capital Management LP, or Highfields, an investment management firm, from 2003 through June 2009. Mr. Botein also currently serves on the boards of Northeast Bancorp, a bank holding company, Hunt Capital Holdings, a real asset investment manager, and Fortuna Holdings Ltd. He formerly served on the boards of First American Corporation, PennyMac Mortgage Investment Trust and CoreLogic, Inc. Mr. Botein holds an AB from Harvard College and an MBA from the Harvard Business School. We believe Mr. Botein is qualified to serve on our Board because of his considerable experience in the financial services industry, where he has managed portfolio investments in the banking, insurance, asset management, capital markets and financial processing sectors.

LOGO

 

 Board Member Since: 2012

 Age: 47

 

 Committees:

  Compensation (Chair)

   Finance

 

 

JAMES K. HUNT

Independent Lead Director

 

  

 

Mr. Hunt has been a member of our Board since April 2013 and has been appointed to serve as our independent lead director. Mr. Hunt is currently retired. From November 2015 until his retirement in August 2016, Mr. Hunt served as the managing partner and CEO, middle market credit at Kayne Anderson Capital Advisors LLC, a leading alternative investment firm in the areas of energy, real estate, credit and specialty growth capital. From August 2014 to November 2015, Mr. Hunt served as non-executive chairman of the board of THL Credit, Inc., an externally-managed, non-diversified closed-end management investment company. Mr. Hunt served as chief executive officer and chief investment officer of THL Credit, Inc. and of THL Credit Advisors, a registered investment advisor that provides administrative services to THL Credit, Inc., from April 2010 to July 2014 and, prior thereto, held similar executive positions with predecessor entities since May 2007. Previously, Mr. Hunt was chief executive officer and managing partner of Bison Capital Asset Management, LLC, a private equity firm, from 2001 to 2007. Prior to co-founding Bison Capital, Mr. Hunt was the president of SunAmerica Corporate Finance and executive vice president of SunAmerica Investments (subsequently, AIG SunAmerica). Mr. Hunt currently serves on the board of CION Ares Diversified Credit Fund, a diversified, closed-end management investment company, and Hunt Capital Holdings. Mr. Hunt formerly served on the boards of THL Credit, Inc., THL Credit Advisors, Primus Guaranty, Ltd., Fidelity National Information Services, Inc. and Lender Processing Services, Inc. Mr. Hunt received a BBA from the University of Texas at El Paso and an MBA from the Wharton School of the University of Pennsylvania. We believe Mr. Hunt is qualified to serve on our Board because of his experience in capital markets and in managing financial services companies.

 

LOGO

 

 Board Member Since: 2013

 Age: 68

 

 Committees:

  Compensation

  Governance and Nominating (Chair)

 

 

 

 

PATRICK KINSELLA

  

 

Mr. Kinsella has been a member of our Board since July 2014. Mr. Kinsella has served as an adjunct professor at the USC Marshall School of Business since August 2011. Prior to his retirement as a senior audit partner with KPMG LLP, or KPMG, in May 2013, Mr. Kinsella spent over 35 years at KPMG serving clients generally concentrated in the financial services sector, including banks, thrifts, mortgage companies, automotive finance companies, alternative investment companies and real estate companies. Mr. Kinsella also currently serves on the board of directors of Wrap Technologies, Inc., a developer of security products. Mr. Kinsella received a BS from California State University, Northridge and is a licensed certified public accountant in the State of California. We believe Mr. Kinsella is qualified to serve on our Board because of his extensive experience in providing professional accounting and auditing services to the financial services industry.

LOGO

 

 Board Member Since: 2014

 Age: 66

 

 Committees:

  Audit (Chair)

  Related Party Matters

  Risk

 

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    PROPOSAL I – ELECTION OF DIRECTORS  

 

 

JOSEPH MAZZELLA

 

  

 

Mr. Mazzella has been a member of our Board since our formation in December 2012. Mr. Mazzella retired in March 2017 after serving as the managing director and the general counsel of Highfields, which he joined in 2002. Prior to joining Highfields, Mr. Mazzella was a partner at the law firm of Nutter, McClennen & Fish, L.L.P., in Boston, Massachusetts. Prior to private practice, he was an attorney at the Securities and Exchange Commission from 1978 to 1980, and previously served as a law clerk in the Superior Court of the District of Columbia. Mr. Mazzella has served on multiple public company boards of directors, including Alliant Techsystems, Inc. and Data Transmission Networks Corporation, and he served as chairman of the board of Insurance Auto Auctions, Inc. Mr. Mazzella received a BA from City College of New York and a JD from Rutgers University School of Law. We believe Mr. Mazzella is qualified to serve on our Board because of his broad experience and strong business and legal backgrounds in the financial services industry.

LOGO

 Board Member Since: 2012

 Age: 67

 Committees:

  Nominating and Corporate Governance

  Related Party Matters (Chair)

 

 

FARHAD NANJI

 

  

 

Mr. Nanji has been a member of our Board since our formation in December 2012. In December 2016, Mr. Nanji co-founded MFN Partners Management, L.P., a value-oriented investment management firm based in Boston, Massachusetts. Prior thereto, until December 2015, Mr. Nanji served as a managing director of Highfields, where he focused on portfolio investments in distressed securities, restructurings, structured credit and global financial services from 2006. Prior to joining Highfields, Mr. Nanji was an associate with HighVista Strategies, an investment management firm, and he also served as an engagement manager in the financial institutions group at McKinsey & Company, a global consulting firm. Mr. Nanji received an MBA from Harvard Business School and a B.Com. degree from McGill University. We believe Mr. Nanji is qualified to serve on our Board because of his expertise in the mortgage and financial services businesses.

LOGO

 Board Member Since: 2012

 Age: 41

 Committees:

  Compensation

  Governance and Nominating

 

 

JEFFREY A. PERLOWITZ

 

  

Mr. Perlowitz has been a member of our Board since February 2019. He is currently retired. From 1998 until his retirement in 2016, Mr. Perlowitz served as managing director and co-head of global securitized markets at Citigroup and predecessor entities, where he was responsible for sales and trading of residential mortgage loans, commercial mortgages and consumer products. He holds a B.S. in economics and accounting from The State University of New York at Albany. We believe Mr. Perlowitz is qualified to serve on our Board because of his extensive mortgage finance background and expertise in the securitization of residential mortgage loans.

LOGO

 Board Member Since: 2019

 Age: 63

 Committees:

  Finance

  Risk

 

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    PROPOSAL I – ELECTION OF DIRECTORS  

 

 

THEODORE W. TOZER

 

  

Mr. Tozer has been a member of our Board since August 2017. Mr. Tozer currently serves as a senior fellow at the Milken Institute’s Center for Financial Markets, where he leads the Institute’s housing finance reform work. Prior thereto, Mr. Tozer served as the president of the Government National Mortgage Association, or Ginnie Mae, from February 2010 to January 2017. Before joining Ginnie Mae, Mr. Tozer served as senior vice president of capital markets at National City Mortgage Company. He also has served as a charter member of the National Lender Advisory Boards of both Fannie Mae and Freddie Mac, chairman of the Capital Markets Committee of the Mortgage Bankers Association of America (MBA), and as a member of the Residential Board of Governors of the MBA. Mr. Tozer received a B.S. degree in Accounting and Finance from Indiana University in 1979, and is a Certified Public Accountant (inactive) and a Certified Management Accountant. We believe Mr. Tozer is qualified to serve on our Board because of his numerous years of experience in the mortgage and financial services businesses and his deep understanding of mortgage banking and agency relations.

LOGO

 

 Board Member Since: 2017

 Age: 63

 

 Committees:

  Audit

  Related Party Matters

  Risk (Chair)

 

 

EMILY YOUSSOUF

 

  

Ms. Youssouf has been a member of our Board since November 2013. Ms. Youssouf has served as a clinical professor at the NYU Schack Institute of Real Estate since 2009. Ms. Youssouf served as vice chair of the New York City Housing Development Corporation from 2011 to 2013 and as a member of its board from 2013 to 2014. Previously, she served as an independent consultant from 2008 to 2011, during which time her clients included Rockefeller Foundation, Washington Square Partners and various real estate investors. Prior thereto, she was a managing director with JPMorgan Securities, Inc., a broker-dealer, from 2007 to 2008, and the president of the NYC Housing Development Corporation from 2003 to 2007. Ms. Youssouf has also held various senior positions at Natlis Settlements, LLC, Credit Suisse First Boston, Daiwa Securities America, Prudential Securities, Merrill Lynch and Standard & Poor’s. Ms. Youssouf currently serves as a board member of numerous organizations, including the JP Morgan Exchange-Traded Fund Trust where she serves as the chair of the Governance and Nominating Committee and as a member of the Audit and Valuation Committee, the NYC Health and Hospitals Corporation, the NYC School Construction Authority, the NYS Job Development Authority and the TransitCenter. Ms. Youssouf is a graduate of Wagner College and holds an MA in Urban Affairs and Policy Analysis from The New School for Social Research. We believe Ms. Youssouf is qualified to serve on our Board because of her numerous years of experience in the investment banking, finance and real estate industries and deep understanding of the housing market.

LOGO

 

 Board Member Since: 2013

 Age: 68

 

 Committees:

  Audit

  Finance (Chair)

 

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    PROPOSAL I – ELECTION OF DIRECTORS  

 

Non-Management Director Compensation

 

 

The Compensation Committee reviews and recommends to our Board the form and level of director compensation and seeks outside advice from our independent compensation consultants on market practices when changes are contemplated. Director compensation was reviewed during September 2019 by our independent compensation consultants who found that our ongoing compensation was not an outlier relative to certain industry, S&P 600, and Russell 3000 benchmarks. The compensation program for our non-management directors is intended to be competitive and fair so that we can attract the best talent to our Board, and recognize the time and effort required of a director given the size and complexity of our operations. In addition to cash compensation, we provide equity grants and have stock ownership guidelines to align the directors’ interests with our stockholders’ interests and to motivate our directors to focus on our long-term growth and success. Management directors who also serve as our executive officers are not paid any fees for serving on our Board or for attending Board meetings.

The following table summarizes the annual retainer fees of our non-management directors during Fiscal 2019:

 

 

Base Annual Retainer, all non-management directors

 

  

 

$

 

 

80,000

 

 

 

 

Additional Base Annual Retainer, independent lead director

 

  

 

$

 

 

30,000

 

 

 

 

Base Annual Retainer, all non-management committee members:

 

  

 

Audit Committee

 

  

 

$

 

 

10,000

 

 

 

 

Compensation Committee

 

  

 

$

 

 

7,750

 

 

 

 

Finance Committee

 

  

 

$

 

 

7,750

 

 

 

 

Nominating and Corporate Governance Committee

 

  

 

$

 

 

5,750

 

 

 

 

Related Party Matters Committee

 

  

 

$

 

 

5,750

 

 

 

 

Risk Committee

 

  

 

$

 

 

10,000

 

 

 

 

Additional Annual Retainer, all committee chairs:

 

  

 

Audit Committee

 

  

 

$

 

 

12,000

 

 

 

 

Compensation Committee

 

  

 

$

 

 

10,750

 

 

 

 

Finance Committee

 

  

 

$

 

 

10,750

 

 

 

 

Nominating and Corporate Governance Committee

 

  

 

$

 

 

7,750

 

 

 

 

Related Party Matters Committee

 

  

 

$

 

 

7,750

 

 

 

 

Risk Committee

 

  

 

$

 

 

12,000

 

 

 

Our directors are also eligible to receive certain types of equity-based awards under the 2013 Plan. During Fiscal 2019, each of Messrs. Botein, Hunt, Kinsella, Mazzella, Nanji, Perlowitz and Tozer and Ms. Youssouf received a grant of 4,450 time-based restricted stock units, or RSUs, on March 15, 2019 and Ms. McCallion received a grant of 4,485 time-based RSUs on July 1, 2019, in each case with a grant date fair value of approximately $102,000. Subject to continued service through each vesting date, these RSUs generally vest in full on the one (1) year anniversary of the date of the grant, except in the case of Ms. McCallion, whose RSUs vested in full on March 15, 2020. Prior to the vesting of an RSU, such RSU is generally subject to forfeiture upon termination of service to us.

Each independent director newly elected or appointed to our Board is entitled to receive a one-time initial RSU grant with a grant date fair value of approximately $102,000 in RSUs (annualized for the annual equity award cycle).

Further, all members of our Board will be reimbursed for their reasonable out of pocket costs and expenses in attending all meetings of our Board and its committees and certain other Company-related functions.

Policy Regarding Receipt of Shares in Lieu of Cash Director Fees. During 2014, the Board adopted a policy whereby non-management director fees may be paid in cash or common stock at the election of each non-management director. The number of shares of common stock delivered in lieu of any cash payment of director fees shall be equivalent in value to the amount of forgone director fees divided by the

 

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    PROPOSAL I – ELECTION OF DIRECTORS  

 

market value (as defined in our 2013 Plan) of the common stock on the last market trading day preceding the day on which the director fees otherwise would have been paid in cash to the non-management director, rounded down to the nearest whole share.

Change of Control. Upon a change of control (as defined in our 2013 Plan), all outstanding equity awards granted to non-management directors will be assumed, or substantially equivalent rights will be substituted, or the awards otherwise will be continued in a manner satisfactory to the Compensation Committee, by the acquiring or succeeding entity or its affiliate.

2019 Director Compensation Table

 

 

The table below summarizes the compensation earned by each non-management director who served on our Board for Fiscal 2019.

 

 

Name(1)

 

    

 

Fees Earned
or Paid
in Cash
($)
(2)

 

    

 

Stock
Awards
($)
(3)(4)

 

    

 

Total  
($)  

 

 

 

Matthew Botein

 

    

 

 

 

 

        106,250

 

 

 

 

  

 

 

 

 

102,000

 

 

 

 

  

 

 

 

 

208,250  

 

 

 

 

 

James K. Hunt

 

    

 

 

 

 

132,369

 

 

 

 

  

 

 

 

 

102,000

 

 

 

 

  

 

 

 

 

234,369  

 

 

 

 

 

Patrick Kinsella

 

    

 

 

 

 

117,750

 

 

 

 

  

 

 

 

 

102,000

 

 

 

 

  

 

 

 

 

219,750  

 

 

 

 

 

Joseph Mazzella

 

    

 

 

 

 

 

 

 

 

  

 

 

 

 

201,250

 

 

 

 

  

 

 

 

 

201,250  

 

 

 

 

 

Anne D. McCallion

 

    

 

 

 

 

45,402

 

 

(5) 

 

  

 

 

 

 

102,000

 

 

 

 

  

 

 

 

 

147,402  

 

 

 

 

 

Farhad Nanji

 

    

 

 

 

 

 

 

 

 

  

 

 

 

 

197,342

 

 

 

 

  

 

 

 

 

197,342  

 

 

 

 

 

Jeffrey Perlowitz

 

    

 

 

 

 

84,075

 

 

 

 

  

 

 

 

 

106,478

 

 

(6) 

 

  

 

 

 

 

190,823  

 

 

 

 

 

Theodore W. Tozer

 

    

 

 

 

 

116,017

 

 

 

 

  

 

 

 

 

102,000

 

 

 

 

  

 

 

 

 

218,017  

 

 

 

 

 

Emily Youssouf

 

    

 

 

 

 

108,103

 

 

 

 

  

 

 

 

 

102,000

 

 

 

 

  

 

 

 

 

210,103  

 

 

 

 

 

(1)

Mr. Kurland, our Chairman, and Mr. Spector, a director and our President and Chief Executive Officer, are not included in this table as they were officers of our Company during Fiscal 2019 and thus receive no additional compensation for their services as directors. Messrs. Kurland and Spector and Ms. McCallion received compensation as officers of our Company for Fiscal 2019. Compensation for Messrs. Kurland and Spector is included in the “2019 Summary Compensation Table.”

(2)

Reflects fees earned by the director in Fiscal 2019, whether or not paid in such year. During all or part of Fiscal 2019, each of Messrs. Hunt, Mazzella and Nanji elected to receive his director fees in shares of common stock in lieu of cash.

(3)

Reflects the grant date fair value, as determined in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, Compensation—Stock Compensation, or ASC 718, of RSUs granted to Messrs. Botein, Hunt, Kinsella, Nanji, Mazzella, Perlowitz and Tozer and Ms. Youssouf on March 15, 2019 and granted to Ms. McCallion on July 1, 2019. For more information on the assumptions used in our estimates of value, please refer to Note 21—Stock-based Compensation in our Annual Report on Form 10-K filed on February 28, 2020. As of December 31, 2019, each of our directors held an aggregate number of RSUs in the following amounts: Messrs. Botein, Hunt, Kinsella, Mazzella and Nanji and Ms. Youssouf—8,891, Mr. Tozer—8,183, Mr. Perlowitz – 4,645 and Ms. McCallion – 12,074.

(4)

Each of Messrs. Mazzella and Nanji elected to receive shares of our common stock in lieu of cash director fees during all or a portion of Fiscal 2019.

(5)

Reflects fees paid in cash to Ms. McCallion during Fiscal 2019 in her capacity as a non-management director beginning July 1, 2019.

(6)

Includes a one-time initial equity grant of 195 RSUs with a grant date fair value of approximately $4,751 that Mr. Perlowitz received upon his appointment to our Board on February 20, 2019.

Non-Management Director Stock Ownership Guidelines

 

 

Non-management directors are subject to robust stock ownership guidelines whereby each such director is expected to hold common stock and unvested RSUs with an aggregate market value equal to at least five times the base annual retainer. Non-management directors are expected to meet the ownership guidelines within five years from the date of appointment or election to the Board. Each non-management director who has been a member of our Board for five years or more is in compliance with our stock ownership guidelines. The Nominating and Corporate Governance Committee will annually review each director’s progress toward meeting the stock ownership guidelines.

 

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    AUDIT MATTERS  

 

Audit Matters

Report of the Audit Committee

 

 

The Board of Directors has determined that all of the members of the Audit Committee meet the independence and experience requirements of The New York Stock Exchange, or the NYSE, and that Mr. Kinsella is an “audit committee financial expert” within the meaning of the applicable rules of the Securities and Exchange Commission, or the SEC, and the NYSE.

The Audit Committee met 10 times in 2019. The Audit Committee’s agenda is established by the Chair of the Audit Committee. The Audit Committee engaged Deloitte & Touche LLP, or Deloitte, as the Company’s independent registered public accounting firm and reviewed with the Company’s Chief Financial Officer and Deloitte the overall audit scope and plans, the results of the external audit examination, evaluations by the independent registered public accounting firm of the Company’s internal controls and the quality of its financial reporting.

The Audit Committee has reviewed and discussed the audited financial statements with management, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. The Audit Committee also discussed with Deloitte other matters required to be discussed by a registered public accounting firm with the Audit Committee under applicable standards of the Public Company Accounting Oversight Board, or the PCAOB. The Audit Committee received and discussed with Deloitte its annual written report on its independence from the Company’s and its management, which is made pursuant to applicable requirements of the PCAOB and considered with Deloitte whether the provision of non-audit services is compatible with its independence.

In performing all of these functions, the Audit Committee acts only in an oversight capacity and, necessarily, in its oversight role, the Audit Committee relies on the work and assurances of the Company’s management, which has the primary responsibility for financial statements and reports, and of Deloitte, which, in its report, expresses an opinion on the conformity of the Company’s annual financial statements to generally accepted accounting principles and on the effectiveness of its internal control over financial reporting as of year-end.

In reliance on these reviews and discussions, and the report of Deloitte, the Audit Committee recommended to the Board of Directors, and the Board of Directors approved, the inclusion of the Company’s audited financial statements in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 28, 2020.

The foregoing report has been furnished by the current members of the Audit Committee:

Patrick Kinsella, Chair

Theodore W. Tozer

Emily Youssouf

 

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    AUDIT MATTERS  

 

Relationship with Independent Registered Public Accounting Firm

 

 

In addition to performing the audits of our financial statements in Fiscal 2019 and Fiscal 2018, Deloitte provided other audit-related and non-audit-related services for us during these years.

Fees to Registered Public Accounting Firm for 2019 and 2018

 

 

The following table shows the fees billed by Deloitte for the audit and other services it provided to us in respect of Fiscal 2019 and Fiscal 2018.

 

     

 

2019

 

    

 

2018

 

 

 

Audit Fees (1)

 

  

 

$

 

 

2,253,349

 

 

 

 

  

 

$

 

 

1,934,275

 

 

 

 

 

Audit-Related Fees (2)

 

  

 

 

 

 

514,427

 

 

 

 

  

 

 

 

 

499,315

 

 

 

 

 

Tax Fees

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

14,085

 

 

 

 

 

All Other Fees (3)

 

  

 

 

 

 

30,000

 

 

 

 

  

 

 

 

 

30,000

 

 

 

 

  

 

 

    

 

 

 

 

Total

 

  

 

$

 

 

2,797,776

 

 

 

 

  

 

$

 

 

2,477,675

 

 

 

 

 

(1)

Audit Fees consist of fees for professional services rendered for the annual audit and reviews of the consolidated financial statements included in our quarterly reports on Form 10-Q and the audit of the annual financial statements of certain of our subsidiaries.

(2)

Audit-Related Fees consist of fees for professional services provided in connection with the issuance of comfort letters and consents in connection with SEC filings and other compliance related testing.

(3)

All Other Fees consist of certain agreed upon procedures related to certain of our financing transactions.

Pre-Approval Policies and Procedures

 

 

The Audit Committee approved all services performed by Deloitte during Fiscal 2019 in accordance with applicable SEC requirements. The Audit Committee has also pre-approved the use of Deloitte for certain audit-related and non-audit-related services, setting a specific limit on the amount of such services that we may obtain from Deloitte before additional approval is necessary. In addition, the Audit Committee has delegated to the chair of the Audit Committee the authority to approve both audit-related and non-audit-related services provided by Deloitte, provided that the chair will present any decision to the full Audit Committee for ratification at its next scheduled meeting.

 

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    PROPOSAL II – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   

 

PROPOSAL II – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee is presenting a proposal to ratify its appointment of our independent registered public accounting firm, Deloitte & Touche LLP and its affiliated entities, or Deloitte, which has served as our independent registered public accounting firm since our formation. During this time, Deloitte has performed accounting and auditing services for us. We expect that representatives of Deloitte will be present at the Annual Meeting, will have the opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions. If the appointment of Deloitte is not ratified, the Audit Committee will reconsider the appointment.

OUR BOARD OF DIRECTORS AND OUR AUDIT COMMITTEE UNANIMOUSLY RECOMMEND A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2020.

 

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    SECURITY OWNERSHIP INFORMATION  

 

Security Ownership Information

Security Ownership of Executive Officers and Directors

 

The following table sets forth certain information regarding the beneficial ownership of shares of common stock by (1) each of our named executive officers, (2) each of our current directors and director nominees, and (3) all of our current directors and executive officers as a group. Unless otherwise indicated, all shares are owned directly and the indicated person has sole voting and investment power.

 

   

 

Common Stock
Beneficially Owned
(1)

 

   

 

Number

 

  

 

Percentage

 

 

  Executive Officers and Directors

 

        

  Stanford L. Kurland (2)

 

     

 

9,256,662

 

 

      

 

11.56

 

%

 

  David A. Spector (3)

 

     

 

2,099,911

 

 

      

 

2.64

 

%

 

  Doug Jones (4)

 

     

 

900,637

 

 

      

 

1.14

 

%

 

  Vandad Fartaj (5)

 

     

 

1,047,863

 

 

      

 

1.32

 

%

 

  Andrew S. Chang

 

     

 

1,112,455

 

 

      

 

1.40

 

%

 

  Matthew Botein

 

     

 

407,566

 

 

      

 

*

 

 

  James K. Hunt

 

     

 

75,503

 

 

    

  Patrick Kinsella

 

     

 

35,810

 

 

      

 

*

 

 

  Joseph Mazzella (6)

 

     

 

677,944

 

 

      

 

*

 

 

  Anne D. McCallion (7)

 

     

 

358,279

 

 

      

 

*

 

 

  Farhad Nanji

 

     

 

185,600

 

 

      

 

*

 

 

  Jeffrey A. Perlowitz

 

     

 

4,645

 

 

      

 

*

 

 

  Theodore W. Tozer

 

     

 

9,265

 

 

      

 

*

 

 

  Emily Youssouf

 

     

 

31,967

 

 

      

 

*

 

 

  Directors and executive officers as a group (16 persons)

 

     

 

17,457,352

 

 

      

 

21.48

 

%

 

 

*

Represents less than 1.0%.

(1)

Based on 79,190,245 shares of common stock outstanding as of the record date. Beneficial ownership is determined in accordance with Rule 13d-3 under the Exchange Act. A person is deemed to be the beneficial owner of any shares of common stock if that person has or shares voting power or investment power with respect to those shares or has the right to acquire beneficial ownership at any time within 60 days of the record date. As used herein, “voting power” is the power to vote or direct the voting of shares and “investment power” is the power to dispose or direct the disposition of shares. None of the shares have been pledged as security.

(2)

Includes 8,249,990 shares of common stock owned by Kurland Family Investments, LLC and 64,695 shares of common stock owned by the 1998 Kurland Revocable Trust.

(3)

Includes 465,604 shares of common stock owned by ST Family Investment Company LLC.

(4)

Includes 711,192 shares of common stock held in a family trust.

(5)

Includes 845,254 shares of common stock held in a family trust.

(6)

Includes 296,031 shares of common stock owned by the Mazzella Family Irrevocable Trust. Mr. Mazzella is not a trustee of that entity, however, and disclaims beneficial ownership of the common stock held by that entity.

(7)

Includes 228,606 shares of common stock held in a family trust.

 

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    SECURITY OWNERSHIP INFORMATION  

 

Security Ownership of Other Beneficial Owners

 

 

The following table sets forth certain information relating to the beneficial ownership of shares of our common stock by each person or entity known to our Company to be the beneficial owner of more than five percent of our shares of our common stock, based on our review of publicly available statements of beneficial ownership filed with the SEC on Schedules 13D and 13G as of the record date. Beneficial ownership reflected in the table below is based on 79,190,245 shares of common stock outstanding as of the record date and review of publicly available statements of beneficial ownership filed with the SEC on Schedules 13D and 13G through February 14, 2020.

 

   

 

Common Stock
Beneficially Owned

 

   

 

Number

 

  

 

Percentage

 

 

  5% Stockholders

 

        

  HC Partners LLC (1)

  200 Clarendon Street, 59th Floor

  Boston, Massachusetts 02116

 

     

 

15,741,237

 

 

      

 

19.88

 

%

 

  BlackRock, Inc. (2)

  55 East 52nd Street

  New York, New York 10022

 

     

 

8,246,597

 

 

      

 

10.41

 

%

 

  T. Rowe Price Associates, Inc. (3)

  100 E. Pratt Street

  Baltimore, Maryland 212025

 

     

 

6,715,577

 

 

      

 

8.48

 

%

 

  Kurland Family Investments, LLC

  3043 Townsgate Road

  Westlake Village, California 91361

 

     

 

8,314,990

 

 

      

 

10.50

 

%

 

 

(1)

As reported in Amendment No. 2 to Schedule 13G filed with the SEC on February 14, 2020 by HC Partners, LLC, or HCP. In the Schedule 13G amendment, HCP disclosed that it has the sole voting power and sole dispositive power over 15,741,237 shares of common stock as of December 31, 2019.

(2)

As reported in Amendment No. 3 to Schedule 13D filed with the SEC on February 13, 2020 by BlackRock, Inc., or BlackRock. In the Schedule 13D amendment, BlackRock disclosed that its holdings consist of 466,274 shares of common stock acquired in its role as an investment adviser for certain client accounts and 7,780,323 shares of common stock held by KLB Corp. (d/b/a The BlackRock Foundation), or the Foundation. BlackRock may be deemed to have voting and dispositive power over the shares held by the Foundation, and therefore, may be deemed to beneficially own such shares. BlackRock also reported that it has the sole voting power over 8,242,288 shares of common stock and sole dispositive power over 8,246,597 shares of common stock as of February 11, 2020.

(3)

As reported in Amendment No. 1 to Schedule 13G filed with the SEC on February 14, 2020 by T. Rowe Price Associates, Inc., or T. Rowe Price. In the Schedule 13G amendment, T. Rowe Price disclosed that it has the sole voting power over 1,677,200 shares of common stock and sole dispositive power over 6,715,577 shares of common stock as of December 31, 2019.

 

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Table of Contents
    EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION  

 

Executive Officers and Executive Compensation

Our Executive Officers

 

 

The following sets forth certain information with respect to our current executive officers:

 

 

Name

 

 

 

Age

 

  

 

Position Held with the Company

 

 

 

David A. Spector

 

 

 

57

  

 

 

Director, President and Chief Executive Officer

 

 

Andrew S. Chang

 

 

 

42

 

  

 

 

Senior Managing Director and Chief Financial Officer

 

 

Vandad Fartaj

 

 

 

45

 

  

 

 

Senior Managing Director and Chief Investment Officer

 

 

Jeffrey P. Grogin

 

 

 

59

 

  

 

 

Senior Managing Director and Chief Enterprise Operations Officer

 

 

Doug Jones

 

 

 

63

 

  

 

 

Senior Managing Director and Chief Mortgage Banking Officer

 

 

David M. Walker

 

 

 

64

 

  

 

 

Senior Managing Director and Chief Risk Officer

Biographical information for Mr. Spector is provided above under the caption “Proposal I - Election of Directors.” Certain biographical information for the other executive officers is set forth below.

Andrew S. Chang. Mr. Chang has been our Senior Managing Director and Chief Financial Officer since January 2017. Prior thereto, he served as our senior managing director and chief business development officer from February 2016 through December 2016 and as our chief business development officer from February 2013 to February 2016. Mr. Chang also has served in a variety of similar executive positions at PNMAC since May 2008. Mr. Chang is responsible for overseeing our financial management, reporting and controls and tax management, as well as our corporate development and investor relations activities. Prior to joining PNMAC, from June 2005 to May 2008, Mr. Chang was employed at BlackRock and was a senior member in its advisory services practice, specializing in financial strategy and risk management for banks and mortgage companies. Mr. Chang is an experienced financial services executive with substantial experience in corporate finance and mortgage banking.

Vandad Fartaj. Mr. Fartaj has been our Senior Managing Director and Chief Investment Officer since September 2018. Prior thereto, he served as senior managing director and chief capital markets officer from February 2016 to September 2018 and as chief capital markets officer from February 2013 to February 2016. Mr. Fartaj also has served in a variety of similar executive positions at PNMAC since April 2008. Mr. Fartaj is responsible for all capital markets and investment-related activities, including the development and execution of investment strategies, secondary marketing, hedging activities and capital markets strategies with government-sponsored enterprises. In addition, Mr. Fartaj is responsible for developing and managing relationships with Wall Street broker-dealers and fixed income investors. Prior to joining PNMAC, from November 1999 to April 2008, Mr. Fartaj was employed in a variety of positions at Countrywide Securities Corporation, including managing the strategy and execution of the whole loan conduit. Mr. Fartaj is an experienced mortgage banking executive with substantial experience in capital markets, mortgage-related investments, and interest rate and credit risk management.

Jeffrey P. Grogin. Mr. Grogin has been our Senior Managing Director and Chief Enterprise Operations Officer since July 2019. Prior thereto, he served as the senior managing director and chief administrative officer from February 2018 to June 2019. Mr. Grogin served as our senior managing director and chief administrative and legal officer from February 2016 to February 2018 and, prior thereto, as our chief administrative and legal officer and assistant secretary from March 2015 to February 2016. Mr. Grogin also has served in a variety of similar executive positions at PNMAC since April 2008. Mr. Grogin is responsible for regulatory relations, all aspects of human resources, social media administration, corporate training and learning functions, facilities, legal, strategic planning, business continuity, and procurement and vendor relations. Prior to joining PNMAC, Mr. Grogin was a founding and managing partner of Samaha Grogin, LLP, a law firm representing local, national and international clients in specialized litigation and complex transactional matters. He also was an associate at Gibson, Dunn & Crutcher, where he worked on mergers and acquisitions, securities, and mortgage banking-related matters. Mr. Grogin is an owner of Snood, LLC, a computer games publisher, where he has served as president since 1999. Mr. Grogin has significant experience in real estate, regulatory matters, mergers and acquisitions, securities, and mortgage banking law.

Doug Jones. Mr. Jones has been our Senior Managing Director and Chief Mortgage Banking Officer since January 2017 and the president of PLS since March 2017. Prior thereto, he served as our senior managing director and chief institutional mortgage banking officer from February 2016 through December 2016, as our chief institutional mortgage banking officer from March 2015 to February 2016, and as our

 

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    EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION  

 

chief correspondent lending officer from February 2013 to March 2015. Mr. Jones also has served in a variety of similar executive positions at PNMAC since June 2011. Mr. Jones is responsible for all business activities relating to our loan production, loan servicing and application development operations. Prior to joining PNMAC, Mr. Jones worked in several executive positions, including senior managing director, correspondent lending, at Countrywide (and Bank of America Corporation, as its successor) from 1997 until 2011, where he was responsible for managing and overseeing correspondent and warehouse lending operations. Mr. Jones is an experienced mortgage banking executive with significant experience in the correspondent production and warehouse lending businesses.

David M. Walker. Mr. Walker has been our Senior Managing Director and Chief Risk Officer since February 2016. Prior thereto, he served as our chief risk officer from July 2015 to February 2016, as chief credit and enterprise risk officer from May 2013 to July 2015, and as our chief credit officer from February 2013 to May 2013. Mr. Walker also has served in a variety of similar executive positions at PNMAC since January 2008. Mr. Walker is responsible for enterprise risk management, credit risk management, mortgage compliance management and internal audit. From June 2002 to April 2007, Mr. Walker served in a variety of executive positions at Countrywide Bank, N.A., including chief credit officer and chief lending officer. From October 1992 to June 2002, Mr. Walker served in a variety of executive positions at Countrywide, including executive vice president of secondary marketing and managing director and chief credit officer. Mr. Walker is a seasoned financial services executive with significant experience in credit risk management.

 

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Table of Contents
    REPORT OF THE COMPENSATION COMMITTEE  

 

Report of the Compensation Committee

Our Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K and, based on such review and discussions, the Compensation Committee recommended that our Board of Directors include the Compensation Discussion and Analysis in this Proxy Statement and our 2019 Annual Report on Form 10-K.

The Compensation Committee

Matthew Botein, Chair

James K. Hunt

Farhad Nanji

 

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    COMPENSATION DISCUSSION AND ANALYSIS  

 

Compensation Discussion and Analysis

Table of Contents

 

 

 

2019 Named Executive Officers

 

 

 

31

Executive Summary of 2019 Compensation

 

 

 

31

Executive Compensation Objectives and Philosophy

 

 

 

33

Performance-Based Compensation Mix

 

 

 

33

2019 Compensation Program Overview

 

 

 

34

Compensation Decisions Made in Fiscal 2019

 

 

 

34

Executive Compensation Decision Making Process

 

 

 

38

Peer Group and Benchmarking

 

 

 

39

Executive Stock Ownership Guidelines

 

 

 

40

Clawback Provisions

 

 

 

41

Trading Controls and Anti-Pledging and Anti-Hedging Policies

 

 

 

41

Employment and Change-in-Control Arrangements with Named Executive Officers

 

41

     

This compensation discussion and analysis provides a detailed description of our executive compensation programs and policies, the material compensation decisions made under such programs and policies with respect to our named executive officers, and the material factors that were considered in making those decisions. This narrative discussion should be read together with the compensation tables and related disclosures set forth below.

2019 Named Executive Officers

 

 

Our “named executive officers,” consisting of our Chief Executive Officer, our Chief Financial Officer and our next three most highly compensated executives during Fiscal 2019, were:

 

   

Stanford L. Kurland, Former Executive Chairman* of the Board of Directors;

 

   

David A. Spector, President and Chief Executive Officer;

 

   

Doug Jones, Senior Managing Director and Chief Mortgage Banking Officer;

 

   

Vandad Fartaj, Senior Managing Director and Chief Investment Officer; and

 

   

Andrew S. Chang, Senior Managing Director and Chief Financial Officer.

 

 

*

Mr. Kurland assumed the role of Non-Executive Chairman of the Board of Directors, effective as of January 1, 2020.

Executive Summary of 2019 Compensation

 

 

Our Executive Compensation Program

The goals of our executive compensation program are to:

 

   

Create a pay-for-performance culture that rewards executives for high Company and individual performance;

 

   

Align the interests of our executives with those of our stockholders;

 

   

Facilitate the attraction, motivation and retention of highly talented executive leaders who will be crucial to our long-term success and ultimate sustainability; and

 

   

Encourage our executives to focus on the achievement of our annual and long-term business goals.

 

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    COMPENSATION DISCUSSION AND ANALYSIS  

 

How We Pay Our Named Executive Officers

In order to achieve these objectives, the executive compensation program for our named executive officers consists of the following primary elements:

 

   

Annual Base Salary;

 

   

Annual Performance-Based Cash Incentives; and

 

   

Long-Term Equity Awards comprised of performance-contingent and time-based awards.

Our named executive officers also participate in our broad-based retirement and benefit programs generally available to all other employees and receive certain perquisites.

Pay-for-Performance Philosophy and Total Versus Realized Pay

Consistent with our pay-for-performance philosophy, a significant portion of our named executive officers’ 2019 compensation consisted of variable performance-based annual and long-term incentives. As an illustration of our commitment to pay for performance, below is our CEO’s total compensation over the last three years as set forth in the “2019 Summary Compensation Table” of this Proxy Statement and our past annual proxy statements, compared to the total amount of compensation actually realized by our CEO for each year.

 

 

Year

 

 

Salary

($)

 

   

Bonus

($)

 

   

Total Cash

($)

 

   

All Other
Compensation

($)

 

   

 

Total
Grant Date
Fair Value of
Long-Term
Equity

Incentive
Opportunity

($)(1)

 

   

Total
Realized
Value of
Long-Term
Equity
Incentive
Opportunity

($)(2)

 

   

Total
Grant Date
Compensation

($)

 

   

Total Realized
Compensation

($)

 

 

 

2019

 

 

 

 

 

 

900,000

 

 

 

 

 

 

 

 

 

7,155,000

 

 

 

 

 

 

 

 

 

8,055,000

 

 

 

 

 

 

 

 

 

64,617

 

 

 

 

 

 

 

 

 

2,004,640

 

 

 

 

 

 

 

 

 

1,702,737

 

 

 

 

 

 

 

 

 

10,124,258

 

 

 

 

 

 

 

 

 

9,822,355

 

 

 

 

 

2018

 

   

 

750,000

 

 

 

   

 

2,900,000

 

 

 

   

 

3,650,000

 

 

 

   

 

76,271

 

 

 

   

 

2,051,348

 

 

 

   

 

1,986,072

 

 

 

   

 

5,777,619

 

 

 

   

 

5,712,343

 

 

 

 

2017

 

 

 

 

 

 

741,667

 

 

 

 

 

 

 

 

 

3,000,000

 

 

 

 

 

 

 

 

 

3,741,667

 

 

 

 

 

 

 

 

 

174,603

 

 

 

 

 

 

 

 

 

2,061,729

 

 

 

 

 

 

 

 

 

430,962

 

 

 

 

 

 

 

 

 

5,977,999

 

 

 

 

 

 

 

 

 

4,347,232

 

 

 

 

 

(1)

This amount includes the grant date fair value, as determined in accordance with ASC 718, of RSUs, performance-based RSUs, or PSUs, and nonstatutory stock options awarded on March 15, 2019, March 9, 2018 and March 6, 2017. The performance-based RSUs included in this column are reported at target payout levels. See the “2019 Grants of Plan-Based Awards” table for additional details.

(2)

For Fiscal 2019, this amount includes the vesting of 9,233 RSUs on March 6, 2019, 7,058 RSUs on March 9, 2019 and 58,134 PSUs on March 15, 2019 based on the fair market value of our common stock on the respective vesting dates.

 

 

LOGO

 

    

Note: Total Realized Compensation is not a substitute for Total Compensation. Total Compensation is as set forth in the Summary Compensation Table in this and prior Proxy Statements. Total Realized Compensation includes long-term incentive awards (e.g., nonstatutory stock options and time-based and performance-based RSUs), only to the extent they were “realized,” i.e., to the extent they were exercised or vested during the years described.

 

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    COMPENSATION DISCUSSION AND ANALYSIS  

 

Executive Compensation Objectives and Philosophy

 

 

The overall objectives of our executive compensation program are to attract, motivate, reward and retain high-quality talent. We believe that in order to achieve these objectives, our compensation and benefits programs must be competitive with executive compensation arrangements generally provided to similarly situated executive officers in our business markets, as well as at other companies in our industry where we compete for talent. The various components of our executive compensation program are designed to create a pay-for-performance culture that rewards executives for high company and individual performance, aligns the interests of our executives with those of our stockholders, facilitates the attraction, motivation and retention of highly talented executive leaders, and encourages our executives to focus on the achievement of our annual and long-term business goals.

Our Compensation Committee aims to position the total compensation of our named executive officers at a level commensurate with the total compensation paid to other executives holding comparable positions at companies similar in industry, size, structure, scope and sophistication with which we compete for executive talent. Our Compensation Committee has structured our executive compensation program to meet these objectives.

Performance-Based Compensation Mix

 

 

We have three primary elements of total compensation: base salary, annual performance-based cash incentives, and long-term equity awards. As illustrated by the segments in the following graphs, 91% of our CEO’s target total compensation opportunity was performance-based and aligned with our stockholders in the form of annual performance-based cash bonus incentives and long-term equity compensation. For our other Named Executive Officers as a group, 93% of their total compensation opportunity also was performance-based.

 

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    COMPENSATION DISCUSSION AND ANALYSIS  

 

2019 Compensation Program Overview

 

 

Our executive compensation program consists of three primary elements: annual base salary, annual performance-based cash bonuses and long-term equity awards. The following table provides a snapshot of those primary elements and describes why each element is provided.

 

 

Compensation

Element

 

 

 

Characteristics

 

      

 

Performance

Based?

 

 

 

Primary Purpose

 

         

 

Annual Base Salary

 

 

 

Competitive fixed

compensation

 

     

No

 

 

 

  Provides a competitive fixed amount of cash compensation based on individual performance, level of responsibility, experience, internal equity and reasonable pay levels

  Supports attraction and retention of talented executives

 

         

 

Annual Performance-

Based Cash Incentives

 

 

 

Variable compensation

opportunity contingent on achievement of corporate financial, operational and strategic goals and individual performance

 

     

Yes

 

 

 

  Aligns executive compensation with annual performance

  Provides reasonable short-term incentive opportunity for achieving financial, operational and strategic objectives

  Supports attraction and retention of talented executives

 

         

 

Long-Term Equity

Awards

(nonstatutory stock options and performance-based and time-based RSUs)

 

 

 

Variable compensation

opportunity contingent on measurable and objective performance criteria established at the beginning of the measurement period, stock price performance and individual performance

 

      Yes  

 

  Creates incentives for long-term performance

  Provides reasonable long-term incentive opportunity for achieving financial, operational and strategic objectives

  Aligns our executives’ long-term interests with those of our stockholders

  Recognizes executive’s individual performance and future contributions

  Supports attraction and retention of talented executives

  Provides a direct correlation of realized pay to operating and stock price performance

  Provides a total compensation opportunity with payouts varying based on our operating, financial and stock price performance

 

Our named executive officers also receive other benefits, which may include health, dental and vision insurance; vacation, holidays and sick days; life, accidental death and dismemberment and long-term disability insurance; 401(k) plan matching; and gross-ups related to payment of self-employment tax liabilities. In addition, certain of our named executive officers receive minimal perquisites including an automobile allowance and payment for tax advice and financial counseling.

We tailor our executive compensation program each year to provide what we consider to be a proper balance of these basic elements. In recent years, the executive compensation program has been weighted toward long-term equity awards and performance-based cash incentives, rather than toward annual base salaries, in order to ensure that a significant portion of compensation is tied to company and stock performance and to maximize retention. We continue to assess the compensation elements for our executive officers, including our named executive officers, and are committed to ensuring that our executive compensation program remains generally consistent with market practices and focused on long-term performance.

Compensation Decisions Made in Fiscal 2019

 

 

In making compensation decisions during Fiscal 2019, the Compensation Committee considered the 2019 say-on-pay advisory vote. The Compensation Committee also considers additional factors, which are summarized below.

Annual Base Salaries

In setting annual base salaries, the Compensation Committee generally considers benchmarking data derived from a review of the proxy statement disclosures of our peer group, various survey sources, and, in the case of the named executive officers other than Mr. Kurland, recommendations and assessments by the Executive Chairman regarding the performance of the other named executive officers.

 

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    COMPENSATION DISCUSSION AND ANALYSIS  

 

The Compensation Committee uses the data from these market surveys to ensure that it establishes reliable points of reference to determine whether and to what extent it is establishing competitive levels of compensation for our named executive officers.

In connection with the annual compensation review in March 2019, the Compensation Committee approved the following annual base salaries of our named executive officers:

 

 

Name

 

  

 

2018
Annual
Base
Salary

 

    

 

2019
Annual
Base
Salary

 

    

 

Percentage
Change

 

 

 

Stanford L. Kurland

 

  

 

$

 

 

1,000,000  

 

 

 

 

  

 

$

 

 

900,000  

 

 

 

 

  

 

 

 

 

(10.0)%  

 

 

 

 

 

David A. Spector

 

  

 

$

 

 

750,000  

 

 

 

 

  

 

$

 

 

900,000  

 

 

 

 

  

 

 

 

 

20.0%   

 

 

 

 

 

Doug Jones

 

  

 

$

 

 

500,000  

 

 

 

 

  

 

$

 

 

550,000  

 

 

 

 

  

 

 

 

 

10.0%   

 

 

 

 

 

Vandad Fartaj

 

  

 

$

 

 

325,000  

 

 

 

 

  

 

$

 

 

350,000  

 

 

 

 

  

 

 

 

 

7.7%   

 

 

 

 

 

Andrew S. Chang

 

  

 

$

 

 

325,000  

 

 

 

 

  

 

$

 

 

325,000  

 

 

 

 

  

 

 

 

 

—      

 

 

 

 

The annual base salary for Mr. Kurland decreased by 10% and ranked in line with the median of annual base salaries paid for comparable positions at peer companies. The annual base salary for Mr. Spector increased by 20.0% and ranked in line with the median of annual base salaries paid for comparable positions at peer companies. The annual base salary for Mr. Jones increased by 10.0% and ranked between the median and 75th percentile of annual base salaries paid for comparable positions at peer companies. These annual base salary adjustments were pursuant to the terms of the employment agreements with each of Messrs. Kurland, Spector and Jones and brought their annual base salaries to the appropriate market levels for their respective roles and responsibilities. The annual base salary for Mr. Fartaj increased by 7.7% and ranked slightly below the median of the annual base salaries paid for comparable positions at peer companies. This annual base salary increase for Mr. Fartaj was in recognition of his individual performance in his role as Chief Investment Officer. The Compensation Committee believed that these annual base salaries were appropriate given the competitive market for their services, as well as their individual performances and strong leadership skills.

Annual Performance-Based Cash Incentives

We believe that our executive compensation program objectives have resulted in decisions regarding executive compensation that have appropriately encouraged growth in our businesses and the achievement of financial goals, thus benefiting our stockholders and generating long-term stockholder value. To determine annual performance-based cash incentive amounts, the Compensation Committee first sets a target level of performance-based cash incentive for each named executive officer for the fiscal year based on competitive market data. Each named executive officer’s potential performance-based cash incentive payout varies based on such individual’s level of responsibility and position within our organization.

The annual performance-based cash incentives paid to our named executive officers are based on the achievement of actual earnings per share, or EPS, and pretax income as compared to EPS and pretax income targets set at the beginning of each year as well as the individual performance of each named executive officer. We believe that EPS and pretax income are appropriate measures for annual performance-based cash incentives because they provide our named executive officers with an incentive to achieve favorable current results, while also producing sustainable long-term stockholder value. In setting EPS and pretax income targets, we consider our current and historical performance, the performance of companies in industries in which we compete, and current and anticipated market conditions.

Actual performance-based cash incentives are determined based on actual EPS and pretax income achieved relative to targets for EPS and pretax income, as well as target performance-based cash incentive amounts set for each named executive officer; however, adjustments to such amounts are sometimes made by the Compensation Committee based on market factors, the named executive officer’s individual performance as compared to such named executive officer’s key performance indicators, and the named executive officer’s contribution to the execution of our strategic initiatives during the fiscal year.

The following additional factors related to management’s execution of certain strategic objectives were considered in determining and approving final performance-based cash incentives for our named executive officers: (1) the completion of a multi-year initiative to develop a proprietary, work flow-driven servicing system, (2) the initiation of a cash dividend, (3) the implementation of initiatives to drive operational efficiency and reduce costs, (4) the development of more granular pricing and margin management systems, (5) the identification and launch of new mortgage products, and (6) the refinement of customer facing portals to enhance loan officer and broker productivity.

 

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    COMPENSATION DISCUSSION AND ANALYSIS  

 

Based on the overall assessment of these factors and recommendations made by the Executive Chairman, the Compensation Committee approved the annual performance-based cash incentive amounts for Messrs. Spector, Jones, Fartaj and Chang. The Compensation Committee then reviewed and approved management’s recommendation regarding annual performance-based cash incentive amounts. Based on the factors above, the Compensation Committee also approved the annual performance-based cash incentive paid to Mr. Kurland.

The table below summarizes the actual annual performance-based cash incentives earned during Fiscal 2019:

 

 

Name

 

  

 

Actual
Performance-Based
Cash Incentives

 

 

 

Stanford L. Kurland

 

  

 

$

 

 

8,500,000  

 

 

 

 

David A. Spector

 

  

 

$

 

 

6,400,000  

 

 

 

 

Doug Jones

 

  

 

$

 

 

4,000,000  

 

 

 

 

Vandad Fartaj

 

  

 

$

 

 

2,400,000  

 

 

 

 

Andrew S. Chang

 

  

 

$

 

 

2,400,000  

 

 

 

Additional Discretionary Payments

 

 

The Board determined that, in light of the Company’s exceptional financial performance and success during fiscal 2019, strong stock price performance, consistent track record of book value growth, execution of its strategic and operational initiatives, including the implementation of a quarterly cash dividend, and proven ability to drive long-term sustainable growth for stockholders, it would award an additional discretionary cash payment to certain employees across various levels of the company, including the Company’s named executive officers. The Board believes that the contributions of these individuals were critical in driving the Company’s exceptional financial performance and success. For Fiscal 2019, the following additional discretionary cash payments were awarded to the Company’s named executive officers: $1,712,000 to Mr. Kurland, $755,000 to Mr. Spector, $340,000 to Mr. Jones, $299,000 to Mr. Fartaj, and $299,000 to Mr. Chang. These additional discretionary cash payments are reflected in the Summary Compensation Table under the heading “Bonus.”

Long-Term Equity Awards

In determining the equity awards granted in Fiscal 2019, the Compensation Committee considered, among other factors, the recommendations of management and various reports provided by our independent compensation consultant. The Compensation Committee also considered (i) the value of the proposed equity awards; (ii) the historical equity awards previously granted to each named executive officer and the corresponding values at the time of the consideration of the 2019 grants; (iii) the value of share grants to our named executive officers providing comparable services at our industry and sector peers; (iv) the anticipated contribution by the named executive officer in future fiscal years, taking into account the role, responsibility and scope of each position and the Compensation Committee’s perception regarding the quality of the services provided by each named executive officer in carrying out those responsibilities; (v) our financial and operating performance in the past year and our perceived future prospects; and (vi) general market practices. The Compensation Committee considered these multiple factors in determining whether to increase or decrease the target amounts from the prior year’s equity award grants. There was no formulaic approach in the use of these various factors in determining the number of shares to award to each named executive officer. The share amounts were determined on a subjective basis, using the various factors, in the Compensation Committee’s sole discretion.

 

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For Fiscal 2019, the Compensation Committee approved the following mix of long-term incentive elements, generally consistent with approvals made in Fiscal Year 2018, with a continued emphasis on performance-based equity awards. An illustration of the mix of long-term incentive elements is provided below:

 

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Non-Statutory Stock Options

During Fiscal 2019, our named executive officers were awarded non-statutory stock options. The stock option award agreement provides for the award of stock options to purchase the optioned shares. In general, and except as otherwise provided by the Compensation Committee, one-third (1/3) of the optioned shares will vest on each of the first, second, and third anniversaries of the vesting commencement date, subject to the recipient’s continued service through each anniversary (with certain exceptions as specified under the award agreement or the provisions of our 2013 Plan), and each stock option will have a term of ten years from the date of grant. Additionally, the vested stock options expire (1) immediately upon termination of the holder’s employment or other association with us for cause, (2) one year after the holder’s employment or other association is terminated due to death or disability, and (3) three months after the holder’s employment or other association is terminated for any other reason.

Performance-Based Restricted Stock Units

During Fiscal 2019, our named executive officers also were awarded performance-based RSUs. The performance-based RSU award agreement provides for the award of performance-based RSUs to obtain, upon the vesting of each RSU, a variable number of shares of our common stock. The number of shares received upon vesting of performance-based RSUs is determined based on the attainment of the performance goals, subject to conditions including continued employment throughout the performance period.

Return on equity, or ROE, was the sole measure of company performance for the performance-based RSUs granted during Fiscal 2019. Vesting of the target award amount is tied to the achievement of certain ROE metrics during the performance period, with 80% of the target amount earned if the threshold performance level is met, 100% of the target amount earned if the target performance level is met and 130% of the target amount earned if the highest performance level is met. The payout that is determined based on the ROE component is then multiplied by a factor of 0% to 100% for named executive officers based on an individual effectiveness rating ranging from unsatisfactory to outstanding. Holders of performance-based RSUs do not have any voting rights or dividend rights with respect to those units until the RSUs are settled. A summary of the performance measures contained in the performance-based RSUs granted to our named executive officers during Fiscal 2019 is provided below:

 

 

  2019 PSU Awards

 

Performance-
Based
Restricted
Stock Units

 

 

Performance Component

  Performance Target  

 

% of
Targeted
Award

 

 

1. PNMAC ROE (1)

 

 

 

12.0% - Cumulative Annualized ROE

 

 

100%

 

 

 

2. Individual Effectiveness (2)

 

 

 

4 - Outstanding

 

 

 

0% to 100%

 

 

(1)

Calculated by dividing GAAP pre-tax income by average stockholders’ equity for the period, as reported by the company. The payout scale for component 1 is 0% to 130%.

(2)

Based on individual overall achievement of goals over the three-year performance period. The range of the multiplier is 0% to 100%.

 

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Performance Measures for 2020 Performance-Based Restricted Stock Unit Grants

In light of stockholder feedback regarding our performance-based RSU design plan, the Compensation Committee revised the performance-based metrics for performance-based RSUs granted in February of 2020. Vesting of all such performance-based RSUs is now contingent upon the achievement of two performance goal components: after-tax return on equity and a leverage ratio modifier component based on total recourse debt to equity. The Committee believes leverage ratio is an appropriate measure to ensure prudent risk taking in the achievement of strong financial performance, including after-tax return on equity.

Time-Based Restricted Stock Units

During Fiscal 2019, all of our named executive officers other than our Chairman were awarded time-based RSUs. These time-based RSUs, which vest in three equal installments beginning on the first anniversary of the grant date, are to be settled in an equal number of shares of common stock upon vesting.

The table below summarizes the grant date fair value of the annual long-term equity awards made on March 15, 2019:

 

 

Name

 

 

 

Grant Date
Fair Value of
Performance-
Based PSUs

 

    

 

Number of
Performance-
Based PSUs

 

    

 

Grant Date
Fair Value of
Time-Based
RSUs

 

    

 

Number of
Time-Based
RSUs

 

    

 

Grant Date
Fair Value
of Stock
Options

 

    

 

Number of
Stock
Options

 

    

 

Total Grant  
Date Fair Value  
of Long-Term  
Equity Incentive  
Opportunity  

 

 

 

S. Kurland

 

 

 

$

 

 

2,966,283

 

 

 

 

  

 

 

 

 

    129,419

 

 

 

 

  

 

 

 

 

                —

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

$930,057

 

 

 

 

  

 

 

 

 

        107,849

 

 

 

 

  

 

 

 

 

        $3,896,341  

 

 

 

 

D. Spector

 

 

 

$

 

 

1,017,419

 

 

 

 

  

 

 

 

 

44,390

 

 

 

 

  

 

 

 

 

$   508,709

 

 

 

 

  

 

 

 

 

      22,195

 

 

 

 

  

 

 

 

 

$478,512

 

 

 

 

  

 

 

 

 

55,488

 

 

 

 

  

 

 

 

 

$2,004,640  

 

 

 

 

D. Jones

 

 

 

$

 

 

508,709

 

 

 

 

  

 

 

 

 

22,195

 

 

 

 

  

 

 

 

 

$   254,343

 

 

 

 

  

 

 

 

 

11,097

 

 

 

 

  

 

 

 

 

$239,256

 

 

 

 

  

 

 

 

 

27,744

 

 

 

 

  

 

 

 

 

$1,002,309  

 

 

 

 

V. Fartaj

 

 

 

$

 

 

412,491

 

 

 

 

  

 

 

 

 

17,997

 

 

 

 

  

 

 

 

 

$   206,234

 

 

 

 

  

 

 

 

 

8,998

 

 

 

 

  

 

 

 

 

$193,999

 

 

 

 

  

 

 

 

 

22,496

 

 

 

 

  

 

 

 

 

$   812,724  

 

 

 

 

A. Chang

 

 

 

$

 

 

408,411

 

 

 

 

  

 

 

 

 

17,819

 

 

 

 

  

 

 

 

 

$   204,194

 

 

 

 

  

 

 

 

 

8,909

 

 

 

 

  

 

 

 

 

$192,084

 

 

 

 

  

 

 

 

 

22,274

 

 

 

 

  

 

 

 

 

$   804,690  

 

 

 

Each of the stock options has an exercise price of $22.92 and a Black-Scholes Value of $8.62 at the date of grant. Each of the performance-based and time-based RSUs has a grant date fair value of $22.92, which is based on our closing stock price on the NYSE on the date of grant.

Compensation Decisions Made in 2020

 

 

In response to feedback received from stakeholders regarding our executive compensation program, the Compensation Committee revised the performance-based metrics for performance-based RSUs granted in February of 2020. Vesting of all such performance-based RSUs is now contingent upon the achievement of two performance goal components: after-tax return on equity and a leverage ratio modifier component based on total recourse debt to equity. The Committee believes leverage ratio is an appropriate measure to ensure prudent risk taking in the achievement of strong financial performance, including after-tax return on equity.

Executive Compensation Decision Making Process

 

 

Role of the Compensation Committee. The Compensation Committee has overall responsibility for recommending to our Board the compensation of our CEO and determining the compensation of our other named executive officers, including the Executive Chairman in respect of Fiscal 2019. Members of the Compensation Committee are appointed by the Board. During Fiscal 2019, the Compensation Committee consisted of three members of the Board, Messrs. Botein, Hunt and Nanji, none of whom served as our executive officers. Each of Messrs. Botein, Hunt and Nanji qualified as an “independent director” under the rules of the NYSE. Each of Messrs. Hunt and Nanji also qualified as an “outside director” under Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, and served as a member of a subcommittee of the Compensation Committee that was formed to approve the grant of awards to certain individuals for purposes of Section 162(m) of the Code. See the section entitled “CORPORATE GOVERNANCE—Committees of the Board of Directors.” Each year, the Compensation Committee conducts an evaluation of each named executive officer to determine if changes in such officer’s compensation are appropriate based on the considerations described below. At the Compensation Committee’s request, the Chairman and the CEO provide input for the Compensation Committee regarding the performance and appropriate compensation of the named executive officers. The Compensation Committee gives considerable weight to their evaluation of the other named executive officers because of their direct knowledge of each such officer’s performance and contributions.

 

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The Role of the Outside Independent Compensation Consultant. Our Compensation Committee has the sole authority to retain, compensate and terminate any independent compensation consultant of its choosing in assessing our compensation program and determining the appropriate, competitive levels of compensation for our executive officers. Pursuant to such authority, the Compensation Committee utilized Pearl Meyer & Partners, or Pearl Meyer, as its independent compensation consultant during Fiscal 2019. Pearl Meyer provided the following services to the Compensation Committee:

 

   

Attended Compensation Committee meetings and prepared certain meeting materials in connection with such meetings;

   

Reviewed the Company’s peer group for executive compensation purposes for Fiscal 2019 and provided recommendations for changes to such peer group;

   

Evaluated the competitive positioning of our named executive officers’ base salaries, annual incentive and long-term incentive compensation relative to our peer companies to support Fiscal 2019 decision-making;

   

Advised on Fiscal 2019 target award levels within the annual and long-term incentive program and, as needed, on actual compensation actions;

   

Conducted a review of the competitive market data (including base salary, annual incentive and long-term incentive targets) for our named executive officers;

   

Assessed our executive compensation peer group and recommended changes as necessary;

   

Assessed compensation levels within our peer group for named executive officers and other executive officers;

   

Reviewed historical financial performance for peer group companies under metrics used in our long-term incentive plan;

   

Provided market research on various issues as requested by our Company;

   

Prepared materials for and participated in Compensation Committee meetings, as requested;

   

Consulted with our Compensation Committee regarding compensation strategy, internal communications related to equity compensation and compensation best practices;

   

Assisted in compensation plan designs and modifications, as requested;

   

Assessed whether our compensation programs might encourage inappropriate risk taking that could have a material adverse effect on us; and

   

Assisted with the preparation of this Compensation Discussion and Analysis for this Proxy Statement.

Assessment of Outside Independent Compensation Consultant Conflicts of Interest. Under rules promulgated by the SEC, the Compensation Committee must determine, after taking into account six independence-related factors, whether any work completed by a compensation consultant raised any conflict of interest. Factors considered by the Compensation Committee include the following six factors specified by the NYSE rules: (1) other services provided to us by the compensation consultant; (2) what percentage of the compensation consultant’s total revenue is made up of fees from us; (3) policies or procedures of the compensation consultant that are designed to prevent a conflict of interest; (4) any business or personal relationships between individual consultants involved in the engagement and Compensation Committee members; (5) any shares of our common stock owned by individual consultants involved in the engagement; and (6) any business or personal relationships between our executive officers and the compensation consultant or the individual consultants involved in the engagement. For Fiscal 2019, the Compensation Committee did not identify any conflict of interest with respect to Pearl Meyer.

Peer Group and Benchmarking

 

 

The Use of Peer Group and Competitive Market Data. On an annual basis we engage in a comprehensive review of peer companies with our independent compensation consultant. To assist in decision-making regarding our compensation and benefits program, our management and the Compensation Committee review competitive market data from a “peer group” of publicly traded companies in specific industries in which we compete for executive talent, among other factors, to assist in decision-making regarding our compensation and benefits programs. The market data reviewed includes both peer proxy data and survey data of companies similar in industry, size, structure, scope and sophistication. Proxy data was gathered from proxy statements and other publicly filed documents.

Since our peer group was initially established in 2013, we have undertaken comprehensive annual reviews of the appropriateness of such peer group. The Compensation Committee reviews other public companies similar in industry, size, structure, scope and sophistication.

 

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How We Establish our Peer Group. The Compensation Committee updated its peer group used for evaluating Fiscal 2019 compensation decisions based on objective criteria as presented in the table below:

 

     

 

Objective Criteria Considered

 

     

 

Fiscal 2019 Peer Group

 

   Companies in the financial services and specialty finance industries

   Companies with market capitalizations within a reasonable range of our pro forma capitalization

   Companies with pretax income within a reasonable range

   Companies with revenue within a reasonable range

   Competitors for executive talent

   Companies of comparable scope and complexity

   Competitors for equity investor capital

   Companies that identify us as their direct peer

   Companies with similar pay practices

     

   Black Knight, Inc.

   CoreLogic, Inc.

   Essent Group Ltd.

   Flagstar Bancorp, Inc.

   iStar Inc.

   Ladder Capital Corp.

   MGIC Investment Corp.

   Mr. Cooper Group, Inc.

   NMI Holdings, Inc.

   Ocwen Financial Corporation

   OneMain Holdings, Inc.

   Radian Group Inc.

   Redwood Trust, Inc.

   Walker & Dunlop Inc.

 

Compensation Policies and Practices As They Relate to Our Risk Management. We have designed our executive compensation program to reward strong Company and individual performance. Company performance objectives are based on our overall performance rather than on only a few discrete performance measures related to a particular aspect of our Company’s business. We believe that this structure, as further explained below, minimizes risks resulting from compensation practices.

Our Compensation Committee believes that its compensation policies and practices for all employees of PNMAC, including our named executive officers, do not create risks that are reasonably likely to have a material adverse effect on us. We believe that appropriate safeguards are in place with respect to our compensation programs and policies that assist in mitigating excessive risk-taking that could harm the value of our Company or reward poor judgment by executives and employees.

In that regard, the Compensation Committee requested assistance from our independent compensation consultant in reviewing our compensation policies and practices. Based on its review, the Compensation Committee concluded that our compensation policies and practices as they apply to our named executive officers are designed with an appropriate balance of risk and reward in relation to our overall business strategy and do not create risks that are reasonably likely to have a material adverse effect on our Company.

As part of the review, numerous factors were noted that reduce the likelihood of excessive risk-taking, which include, but are not limited to, the following:

 

   

Our compensation mix is balanced among fixed components such as salary and benefits, variable components such as annual performance-based cash incentives, and long-term equity awards including performance-based RSUs and stock options;

   

Our Compensation Committee has ultimate authority to determine, and adjust, if appropriate, compensation provided to our executive officers, including each of the named executive officers;

   

Incentive compensation paid to named executive officers and other senior managers is subject to clawback upon a material accounting restatement as a result of erroneous data in our financial statements;

   

Our named executive officers are subject to stock ownership guidelines that require a certain minimum level of stock ownership; and

   

Our Compensation Committee has the authority to retain any advisor it deems necessary to fulfill its obligations.

Executive Stock Ownership Guidelines

 

 

Our executive stock ownership guidelines, which are approved by our Compensation Committee, are intended to further the objective of aligning the interests of our executives with those of our stockholders. These stock ownership guidelines provide that our named executive officers and other executive officers should accumulate a minimum number of shares equal in value to a multiple of their base salary over a specified time frame.

 

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A summary of the stock ownership guidelines (as a multiple of base salary) are set forth in the following table:

 

 

Executive Officer Title

  

 

Stock Ownership

Guideline

 

  

 

  Compliant  

 

 

President and Chief Executive Officer

 

  

 

5x

 

  

 

 

 

Other Executive Officers

 

  

 

3x

 

  

 

 

For purposes of the guidelines, stock ownership includes common stock owned directly, in-the-money value of exercisable stock options and unvested time-based RSUs. The types and amounts of stock-based awards are intended, in part, to facilitate the accumulation of sufficient shares by our executives to allow them to meet the stock ownership guidelines within the applicable timeline. Each executive officer is expected to meet the respective level of stock ownership within five years of becoming subject to such guidelines. The Compensation Committee will annually review each executive officer’s compliance with or progress toward meeting the stock ownership guidelines. Each of our executive officers is presently in compliance with our stock ownership guidelines.

Clawback Provisions

 

 

During 2018, we adopted a policy regarding the recoupment of incentive compensation which provides that if we issue a material accounting restatement as a result of erroneous data in our financial statements, our Board or an authorized Board committee will have the authority, in its sole discretion, to recover any incentive compensation that (i) is received by any executive officer or any other officer with a title of senior managing director or higher during the two fiscal years immediately preceding the date of such accounting restatement issuance, and (ii) exceeds the amount that would have been paid to such individual(s) under the accounting restatement, calculated on a pre-tax basis.

Trading Controls and Anti-Pledging and Anti-Hedging Policies

 

 

Our named executive officers, directors and certain other employees are required to obtain preclearance prior to entering into any transaction involving company securities. Trading is generally permitted only during open trading windows. Any such individuals who are subject to preclearance restrictions may enter into trading plans under Rule 10b5-1 of the Exchange Act, but these trading plans may be entered into only during an open trading window and must be pre-approved as well.

We also prohibit our named executive officers, directors and other employees from pledging any company securities or entering into margin accounts involving company securities. We prohibit these transactions because of the potential that sales of company securities could occur outside trading periods and without the required preclearance approval.

In addition, our named executive officers, directors and other employees are prohibited from entering into hedging transactions involving company securities.

Employment and Change-in-Control Arrangements with Named Executive Officers

 

 

Employment Agreements. On December 28, 2018, we entered into employment agreements by and among us, PNMAC and each of Mr. Kurland (the “Kurland Agreement”), Mr. Spector (the “Spector Agreement”) and Mr. Jones (the “Jones Agreement”) for terms commencing on January 1, 2019 and expiring on December 31, 2022, unless earlier terminated in accordance with the provisions set forth in each such agreement. The terms of the employment agreements are described below.

Pursuant to the Kurland Agreement, Mr. Kurland served as the Executive Chairman of our Board through December 31, 2019, and, beginning on January 1, 2020 and continuing through the end of the term, shall serve as the Non-Executive Chairman of our Board, assuming he is re-elected to that post through the end of such term. Mr. Spector shall continue to serve as a member of our Board and as our President and Chief Executive Officer and the President and Chief Executive Officer of PNMAC throughout the term of the Spector Agreement. Mr. Jones shall continue to serve as our Senior Managing Director and Chief Mortgage Banking Officer and the Senior Managing Director and Chief Mortgage Banking Officer of PNMAC throughout the term of the Jones Agreement.

 

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Base Salary and Incentive Compensation

The Kurland Agreement provided Mr. Kurland with an annual base salary of no less than $900,000 from January 1, 2019 through and including December 31, 2019. During that time, Mr. Kurland was also entitled to receive cash and equity incentive compensation, with such compensation awarded at levels based on annual performance targets determined by our Board and the Compensation Committee of our Board. From January 1, 2020 and for so long as Mr. Kurland remains on our Board as Non-Executive Chairman, Mr. Kurland will also be entitled to receive (i) annual director fees in cash in amount equal to 2.5 times the annual retainer fees of the highest paid non-employee Board member, and (ii) annual equity awards in an amount equal to 2.5 times the amount granted to any other non-employee Board member.

The Spector Agreement provides Mr. Spector with an annual base salary of no less than $900,000, which amount increased to $1,000,000 on January 1, 2020. The Jones Agreement provides Mr. Jones with an annual base salary of no less than $550,000, which amount increased to $600,000 on January 1, 2020. During the terms of their employment agreements, each of Mr. Spector and Mr. Jones is also entitled to receive annual cash and equity incentive compensation, with such compensation awarded at levels based on annual performance targets determined by our Board and the compensation committee of our Board.

All equity awards are granted pursuant to our 2013 Plan and are subject to vesting requirements as specified in the relevant award agreement. Pursuant to the Kurland Agreement, any unvested awards shall immediately vest upon the death or disability of the executive, a termination by us or PNMAC other than for cause (as defined in the Kurland Agreement), or a termination by the executive for good reason (as defined in the Kurland Agreement) unless such termination is the result of the expiration of the term of the Kurland Agreement or Mr. Kurland’s termination by resignation for good reason at his option at any time on or after January 1, 2020.

Pursuant to the Spector Agreement and the Jones Agreement, any unvested awards shall immediately vest upon the death or disability of the executive, a termination by us or PNMAC other than for cause (as defined in the employment agreements), or a termination by the executive for good reason (as defined in the employment agreements) unless such termination is the result of the expiration of the term of the Spector Agreement or the Jones Agreement. If such termination is the result of the expiration of term of the Spector Agreement or the Jones Agreement, any such unvested awards shall continue to vest, if applicable, in accordance with their terms, and the termination date of each of the Spector Agreement or the Jones Agreement shall be deemed to be the retirement date as defined in the related award document; provided, however, that if the related award document does not contain any reference to retirement or a retirement date, then the affected unvested awards shall immediately become fully vested and non-forfeitable.

All nonstatutory stock options granted pursuant to our 2013 Plan are exercisable, subject only to vesting provisions, for a period of ten years from the date of grant, and are eligible for cashless exercise in all circumstances.

Other Benefits

The employment agreements provide for medical benefits, reimbursement for expenses related to tax advice and financial counseling not to exceed $25,000. The employment agreements also provide for the annual accrual of twenty days of paid time off for Mr. Spector and Mr. Jones, in each case at the executive’s regular base pay rate during each year of the term, an automobile allowance of up to $1,500 per month for Mr. Spector, reimbursement of reasonable business expenses, and participation in such other benefits programs as are provided to our executives generally.

Payments Upon Specific Termination Events

Pursuant to the employment agreements, upon a termination due to death or disability, a termination by us or PNMAC other than for cause, a termination by the executive for good reason, or a termination by us or PNMAC as a result of or in connection with a change of control, in addition to any other amounts required by law to be paid to him, the executive would be entitled to any performance-based cash incentives earned but unpaid for the year prior to the year in which the termination date occurs and the pro rata portion of any performance-based cash incentives earned but unpaid for the year during which the termination date occurs. In any such termination event, any unvested equity awards granted pursuant to the 2013 Plan shall vest immediately. We will also generally reimburse the executive or his estate for any amounts paid by him or his estate for coverage of him and his family under our group health medical benefits plan pursuant to the Consolidated Omnibus Budget Reconciliation Act, or COBRA, for as long as the executive or his family is eligible to receive such benefits under COBRA. Upon a termination due to death, the executive’s estate will also receive a continuing payment of executive’s annual base salary as of the termination date for a period of six months following such termination.

 

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Upon a termination of Mr. Spector’s or Mr. Jones’ employment as a result of or in connection with a change of control or by us or PNMAC other than for cause, or upon a termination by Mr. Spector or Mr. Jones for good reason, the executive shall also receive a severance payment equal to two years of executive’s annual base salary plus two years of the executive’s cash incentive compensation (based on the average performance-based cash incentive received in the most recent two years), with such amounts to be paid in 24 monthly installments. Upon termination of Mr. Spector’s or Mr. Jones’ employment by us or PNMAC for cause, the executive shall receive his annual base salary through the termination date, any accrued but unused paid time off and reimbursement of any unreimbursed incurred expenses. Pursuant to the employment agreement, each executive is subject to a non-solicitation covenant for a period of 18 months following a termination of employment.

Consulting Services

Upon the expiration of the term of the Kurland Agreement or upon a termination of Mr. Kurland’s employment by us or PNMAC other than for cause or a termination by Mr. Kurland for good reason, Mr. Kurland shall serve as a consultant to us for an 18-month period commencing on the termination date. During the consulting period, Mr. Kurland will receive a consulting fee of $1.5 million, with approximately $1 million of such amount paid in 18 monthly installments of $55,555 and the remainder paid upon the completion of the consulting period; provided, however, that such compensation will cease if the executive engages in services for a business that competes with us.

Upon the expiration of the term of the Spector Agreement, Mr. Spector shall serve as a consultant to us for an 18-month period commencing on the termination date. During the consulting period, Mr. Spector will receive a consulting fee of $1.5 million, with approximately $1 million of such amount paid in 18 monthly installments $55,555 and the remainder paid upon the completion of the consulting period; provided, however, that such compensation will cease if the executive engages in services for a business that competes with us.

Upon the expiration of the term of the Jones Agreement, Mr. Jones shall serve as a consultant to us for an 18-month period commencing on the termination date. During the consulting period, Mr. Jones will receive a consulting fee of $1 million, with approximately $750,000 of such amount paid in 18 monthly installments of $41,666 and the remainder paid upon the completion of the consulting period; provided, however, that such compensation will cease if the executive engages in services for a business that competes with us.

For purposes of the employment agreement, Mr. Kurland will have “good reason” to terminate the Kurland Agreement (a) at his option at any time on or after January 1, 2020, or (b) if we (or any resulting or surviving entity in the event of certain transactions) or PNMAC (1) materially breaches the Kurland Agreement; (2) requires Mr. Kurland to report to anyone other than our Board; (3) requires Mr. Kurland to be based anywhere more than fifty (50) miles from the office where he is located as of the effective date of the Kurland Agreement; (4) takes any other action which results in a material diminution or adverse change in Mr. Kurland’s status, title, position, compensation, or responsibilities, other than an insubstantial action not taken in bad faith and remedied promptly after receipt of notice by Mr. Kurland; or (5) fails to indemnify and advance all expenses to Mr. Kurland in response to a proper request for indemnity and advancement.

For purposes of the employment agreement, each of Mr. Spector and Mr. Jones will have “good reason” to terminate his employment agreement, as applicable, if we (or any resulting or surviving entity in the event of certain transactions) or PNMAC (1) materially breaches the Spector Agreement or Jones Agreement; (2) requires Mr. Spector to report to anyone other than our Board or Mr. Jones to report to anyone other than the President and Chief Executive Officer; (3) requires Mr. Spector to be based anywhere more than fifty (50) miles from the office where he is located as of the effective date of the Spector Agreement or requires Mr. Jones to be based anywhere more than fifteen (15) miles from the office where he is located as of the effective date of the Jones Agreement; (4) takes any other action which results in a material diminution or adverse change in Mr. Spector’s or Mr. Jones’ status, title, position, compensation, or responsibilities, other than an insubstantial action not taken in bad faith and remedied promptly after receipt of notice by Mr. Spector or Mr. Jones; or (5) fails to indemnify and advance all expenses to Mr. Spector or Mr. Jones in response to a proper request for indemnity and advancement.

Potential Payments Upon Termination or Change in Control. Pursuant to our 2013 Plan and subject to any contrary provisions in any applicable award agreement or employment agreement, upon the occurrence of a change of control:

 

   

all outstanding unvested awards and awards subject to a risk of forfeiture, other than awards conditioned on the achievement of performance goals, will immediately become vested in full and no longer be subject to any risk of forfeiture unless they are assumed or otherwise continued in a manner satisfactory to the Committee, or substantially equivalent rights are provided in substitution for such awards, in each case by the acquiring or succeeding entity or one of its affiliates; and

 

   

if a pro rata portion of the performance goals under awards conditioned on the achievement of performance goals or other business objectives has been achieved as of the effective date of the change of control, then such performance goals or other

 

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Table of Contents
    COMPENSATION DISCUSSION AND ANALYSIS  

 

 

business objectives shall be deemed satisfied as of such change of control with respect to a pro rata portion of the number of shares subject to the original award. The pro rata portion of the performance goals or other business objectives and the number of shares subject to the original awards shall each be based on the length of time within the performance period which has elapsed prior to the change of control. The pro rata portion of any award deemed earned in this manner will be paid out within 30 days following the change of control. The remaining portion of such an award that is not eligible to be deemed earned as of the change of control will be deemed to have been satisfied, earned, or forfeited as of the change of control in such amounts as the Committee shall determine in its sole discretion unless that remaining portion is assumed by the acquiring or succeeding entity or one of its affiliates, which will be deemed to occur if that remaining portion is subjected to (i) comparable performance goals based on the post-change of control business of the acquiror or succeeding entity or one of its affiliates, and (ii) a measurement period using a comparable period of time to the original award, each in a manner satisfactory to the Committee.

A change of control is defined as the occurrence of any of the following: (1) a transaction, as described above, unless securities possessing more than 50% of the total combined voting power of the resulting entity or ultimate parent entity are held by one or more persons who held securities possessing more than 50% of the total combined voting power of our Company immediately prior to the transaction; (2) any person or group of persons, excluding us and certain other related entities, directly or indirectly acquires beneficial ownership of securities possessing more than 20% of the total combined voting power of our Company, unless pursuant to a tender or exchange offer that our Board recommends stockholders accept; (3) over a period of no more than 36 consecutive months there is a change in the composition of our Board such that a majority of our directors ceases to be composed of individuals who either (i) have been directors continuously since the beginning of that period, or (ii) have been elected or nominated for election as members of our Board during such period by at least a majority of the remaining members of our Board who have been directors continuously since the beginning of that period; or (4) a majority of the members of our Board vote in favor of a decision that a change of control has occurred.

 

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Table of Contents
    COMPENSATION TABLES  

 

Compensation Tables

2019 Summary Compensation Table

 

 

The following “2019 Summary Compensation Table” presents compensation earned by our principal executive officer, our principal financial officer and our next three most highly compensated persons serving as executive officers as of the end of Fiscal 2019. We refer to these executive officers as our “named executive officers.”

 

Name and Principal Position(1)

 

  

Year

 

    

Salary

($)

 

    

Bonus

($)(1)

 

    

Stock
Awards

($)(2)

 

    

Option

Awards

($)(3)

 

    

 

All Other

Compensation

($)(4)

 

    

Total

($)

 

 

Stanford L. Kurland

 

Executive Chairman of the Board

of Directors

     2019        900,000        10,212,000        2,966,283        930,057        62,454        15,070,795  
     2018        1,000,000        3,825,000        2,999,980        970,512        73,828        8,869,320  
     2017        1,000,000        4,250,000        2,999,982        990,304        218,055        9,458,341  

 

David A. Spector

President and

 

Chief Executive Officer

  

 

 

 

2019

 

 

  

 

 

 

900,000

 

 

  

 

 

 

7,155,000

 

 

  

 

 

 

1,526,128

 

 

  

 

 

 

478,512

 

 

  

 

 

 

64,617

 

 

  

 

 

 

10,124,258

 

 

     2018        750,000        2,900,000        1,549,937        501,411        76,271        5,777,619  
     2017        741,667        3,000,000        1,566,578        495,152        174,603        5,977,999  

 

Doug Jones

  

 

 

 

2019

 

 

  

 

 

 

550,000

 

 

  

 

 

 

4,340,000

 

 

  

 

 

 

763,053

 

 

  

 

 

 

239,256

 

 

  

 

 

 

269,130

 

 

  

 

 

 

6,161,439

 

 

Senior Managing Director and

     2018        500,000        1,500,000        774,968        250,701        291,726        3,317,395  

 

Chief Mortgage Banking Officer

     2017        448,958        1,500,000        783,280        247,576        327,210        3,307,024  

 

Vandad Fartaj

  

 

 

 

2019

 

 

  

 

 

 

350,000

 

 

  

 

 

 

2,699,000

 

 

  

 

 

 

618,725

 

 

  

 

 

 

193,999

 

 

  

 

 

 

345,096

 

 

  

 

 

 

4,206,820

 

 

Senior Managing Director and

     2018        325,000        1,050,000        619,955        200,564        311,626        2,507,146  

 

Chief Investment Officer

     2017        325,000        925,000        626,624        198,055        340,101        2,414,780  

 

Andrew S. Chang

  

 

 

 

2019

 

 

  

 

 

 

325,000

 

 

  

 

 

 

2,699,000

 

 

  

 

 

 

612,606

 

 

  

 

 

 

192,084

 

 

  

 

 

 

283,860

 

 

  

 

 

 

4,112,550

 

 

Senior Managing Director and

     2018        325,000        832,500        619,955        200,564        285,406        2,263,426  

Chief Financial Officer

     2017        325,000        925,000        626,624        198,055        333,390        2,408,069  

 

(1)

The amounts in this column represent the total amount of bonus earned by the named executive officers for Fiscal 2019, Fiscal 2018 and Fiscal 2017, whether or not paid in such years. For Fiscal 2019, the amounts also include additional discretionary cash payments for the Company’s exceptional financial performance during the fiscal year in the following amounts: $1,712,000 to Mr. Kurland, $755,000 to Mr. Spector, $340,000 to Mr. Jones, $299,000 to Mr. Fartaj, and $299,000 to Mr. Chang.

(2)

The amounts shown in this column in respect of 2019, 2018 and 2017 represent the grant date fair value, as determined in accordance with ASC 718, of time-based RSUs awarded on March 15, 2019, March 9, 2018 and March 6, 2017 in the amounts of: (i) 22,195, 21,174 and 27,700 for Mr. Spector; 11,097, 10,587 and 13,850 for Mr. Jones; 8,998, 8,469 and 11,080 for Mr. Fartaj; and 8,909, 8,469 and 11,080 for Mr. Chang, respectively. Also includes the grant date fair value, as determined in accordance with ASC 718, of the (a) performance-based RSUs awarded on March 15, 2019, March 9, 2018 and March 6, 2017 in the amounts of (i) 129,419, 122,950 and 166,204 for Mr. Kurland; (ii) 44,390, 42,348 and 59,091 for Mr. Spector; (iii) 22,195, 21,174 and 29,545 for Mr. Jones; (iv) 17,997, 16,939 and 23,636 for Mr. Fartaj; and 17,819, 16,939 and 23,636 for Mr. Chang, respectively, pursuant to our 2013 Plan. See “—2019 Outstanding Equity Awards at Fiscal Year-End” below. The value of the performance-based RSUs awarded on March 15, 2019, March 9, 2018 and March 6, 2017, assuming that the highest level of performance conditions will be achieved and based on a grant date fair value per share of $22.92, $24.40 and $18.05, is $3,856,152, $3,899,974 and $3,899,977 for Mr. Kurland; $1,322,644, $1,343,269 and $1,386,570 for Mr. Spector; $661,311, $671,634 and $693,273 for Mr. Jones; $536,236, $537,288 and $554,619 for Mr. Fartaj, and $530,919, $537,288 and $554,619 for Mr. Chang, respectively.

(3)

The amounts shown in this column represent the grant date fair value, as determined in accordance with ASC 718, of the nonstatutory stock options awarded on March 15, 2019, March 9, 2018 and March 6, 2017 in the amounts of 107,849, 102,459 and 138,504 for Mr. Kurland; 55,488, 52,935, and 69,252 for Mr. Spector; 27,744, 26,467 and 27,771 for Mr. Jones; 22,496, 21,174 and 27,700 for Mr. Fartaj; and 22,274, 21,174 and 27,700 for Mr. Chang, respectively, pursuant to our 2013 Plan. See “—2019 Outstanding Equity Awards at Fiscal Year-End” below.

(4)

All Other Compensation for all five named executive officers consists of insurance premiums, gross-up payments for the payment of self-employment tax liabilities by each named executive officer, financial counseling and other payments. We did not provide any gross-up payments to the named executive officers during Fiscal 2019; $20,648 for Mr. Kurland, $17,477 for Mr. Spector, $14,305 for Mr. Jones, $12,084 for Mr. Fartaj and $12,084 for Mr. Chang during Fiscal 2018; and $160,136 for Mr. Kurland, $116,516 for Mr. Spector, $65,146 for Mr. Jones, $43,411 for Mr. Fartaj and $43,411 for Mr. Chang during Fiscal 2017. PNMAC paid insurance premiums on behalf of the named executive officers in the following amounts: $18,655 for Mr. Kurland, $21,558 for Mr. Spector, $11,825 for Mr. Jones, $25,244 for Mr. Fartaj and $8,417 for Mr. Chang during Fiscal 2019; $16,459 for Mr. Kurland, $22,490 for Mr. Spector, $8,921 for Mr. Jones, $22,888 for Mr. Fartaj and $7,811 for Mr. Chang during Fiscal 2018; and $14,919 for Mr. Kurland, $20,323 for Mr. Spector, $7,378 for Mr. Jones, $20,596 for Mr. Fartaj and $7,055 for Mr. Chang during Fiscal 2017. PNMAC paid an automobile allowance to the named executive officers in the following amounts: $18,750 for Mr. Kurland and $18,000 for Mr. Spector during Fiscal 2019; $15,750 for each of Mr. Kurland and Mr. Spector during Fiscal 2018; and $18,000 for each of Mr. Kurland and Mr. Spector during Fiscal 2017.

 

    

We paid or provided reimbursement for expenses related to tax advice and financial counseling to the named executive officers in the following amounts: $25,000 for Mr. Kurland, $25,000 for Mr. Spector, $15,130 for Mr. Fartaj and $15,130 for Mr. Chang during Fiscal 2019; $20,970 for Mr. Kurland, $20,555 for Mr. Spector, $14,760 for Mr. Fartaj and $11,685 for Mr. Chang during Fiscal 2018; and $25,000 for Mr. Kurland, $19,765 for Mr. Spector, and $14,400 for each of Mr. Fartaj and Mr. Chang during Fiscal 2017.

 

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Table of Contents
    COMPENSATION TABLES  

 

    

With respect to Mr. Jones, All Other Compensation also includes a $6,372 contribution paid by PNMAC to his 401(k) plan, $900 for mobile phone expenses, and $249,973 in time-based and performance-based restricted share units awarded by PMT to Mr. Jones for Fiscal 2019, consistent with its compensation program and philosophy, and recorded by PNMAC as a portion of its compensation expense; a $17,607 contribution paid by PNMAC to his 401(k) plan (a portion of which includes missed matching contributions for Fiscal 2017), $900 for mobile phone expenses, and $249,993 in time-based and performance-based restricted share units awarded by PMT to Mr. Jones for Fiscal 2018, consistent with its compensation program and philosophy, and recorded by PNMAC as a portion of its compensation expense; and a $3,792 contribution paid by PNMAC to his 401(k) plan, $900 for mobile phone expenses, and $249,994 in time-based and performance-based restricted share units awarded by PMT to Mr. Jones for Fiscal 2017, consistent with its compensation program and philosophy, and recorded by PNMAC as a portion of its compensation expense.

 

    

With respect to Mr. Fartaj, All Other Compensation also includes a $3,778 contribution paid by PNMAC to his 401(k) plan, $900 for mobile phone expenses, and $299,984 in time-based and performance-based restricted share units awarded by PMT to Mr. Fartaj for Fiscal 2019, consistent with its compensation program and philosophy, and recorded by PNMAC as a portion of its compensation expense; an $11,000 contribution paid by PNMAC to his 401(k) plan, $900 for mobile phone expenses, and $249,993 in time-based and performance-based restricted share units awarded by PMT to Mr. Fartaj for Fiscal 2018, consistent with its compensation program and philosophy, and recorded by PNMAC as a portion of its compensation expense; and a $10,800 contribution paid by PNMAC to his 401(k) plan, $900 for mobile phone expenses, and $249,994 in time-based and performance-based restricted share units awarded by PMT to Mr. Fartaj for Fiscal 2017, consistent with its compensation program and philosophy, and recorded by PNMAC as a portion of its compensation expense.

 

    

With respect to Mr. Chang, All Other Compensation also includes a $10,231 contribution paid by PNMAC to his 401(k) plan and $249,973 in time-based and performance-based restricted share units awarded by PMT to Mr. Chang for Fiscal 2019, consistent with its compensation program and philosophy, and recorded by PNMAC as a portion of its compensation expense; a $3,833 contribution paid by PNMAC to his 401(k) plan and $249,993 in time-based and performance-based restricted share units awarded by PMT to Mr. Chang for Fiscal 2018, consistent with its compensation program and philosophy, and recorded by PNMAC as a portion of its compensation expense; and a $17,629 contribution paid by PNMAC to his 401(k) plan (a portion of which includes missed matching contributions for Fiscal 2016), $900 for mobile phone expenses, and $249,994 in time-based and performance-based restricted share units awarded by PMT to Mr. Chang for Fiscal 2017, consistent with its compensation program and philosophy, and recorded by PNMAC as a portion of its compensation expense.

 

    

In addition, time-based and performance-based restricted share units were awarded by PMT to Mr. Kurland and Mr. Spector during Fiscal 2019, Fiscal 2018 and Fiscal 2017, consistent with its compensation program and philosophy. These restricted share units were granted on March 15, 2019, March 12, 2018 and February 23, 2017, and have grant date fair values, as determined in accordance with ASC 718, of $1,091,970, $1,091,967 and $1,091,991 for Mr. Kurland, and $747,969, $747,988 and $747,988 for Mr. Spector, respectively. These grant date fair values are not included in All Other Compensation for Mr. Kurland and Mr. Spector.

 

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    COMPENSATION TABLES  

 

2019 Grants of Plan-Based Awards

 

 

The following table provides information about plan-based awards granted under our 2013 Plan to our named executive officers in Fiscal 2019:

 

           

 

Estimated Future Payouts
Under Equity Incentive Plan Awards(1)

    

All Other Stock
Awards:
Number of
Shares of
Stock or Units
(#)

 

    

All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)(2)

 

    

Exercise
Price of
Option
Awards
($/sh)

 

    

Grant
Date Fair
Value of
Stock and
Option
Awards
($)(3)

 

 

Name

 

  

Grant
Date

 

    

Threshold
(#)

 

    

Target
(#)

 

    

Maximum
(#)

 

 

Stanford L. Kurland

                       

PSUs

     03/15/19        103,535        129,419        168,244                 2,966,283  

RSUs

     03/15/19                           

Stock Options

     03/15/19                    107,849        22.92        930,057  

David A. Spector

                       

PSUs

     03/15/19        35,512        44,390        57,707                 1,017,419  

RSUs

     03/15/19                 22,195              508,709  

Stock Options

     03/15/19                    55,488        22.92        478,512  

Doug Jones

                       

PSUs

     03/15/19        17,756        22,195        28,853                 508,709  

RSUs

     03/15/19                 11,097              254,343  

Stock Options

     03/15/19                    27,744        22.92        239,256  

Vandad Fartaj

                       

PSUs

     03/15/19        14,397        17,997        23,396                 412,491  

RSUs

     03/15/19                 8,998              206,234  

Stock Options

     03/15/19                    22,496        22.92        193,999  

Andrew S. Chang

                       

PSUs

     03/15/19        14,255        17,819        23,164                 408,411  

RSUs

     03/15/19                 8,909              204,194  

Stock Options

 

    

 

03/15/19

 

 

 

                                        

 

22,274

 

 

 

    

 

22.92

 

 

 

    

 

192,084

 

 

 

 

(1)

Represents the potential payout range of performance-based RSUs granted in Fiscal 2019. Awards vest based on the pre-tax ROE of PNMAC for fiscal years 2019 through 2021. The combined maximum payout under the performance goals is 130% of the target award. If ROE for a fiscal year is less than the threshold ROE, no portion of the granted RSUs will become vested. In addition to the performance conditions, the named executive officers must satisfy a service condition in order for the award to vest.

(2)

One-third (1/3) of the nonstatutory stock options will vest on each of the first, second, and third anniversaries of the vesting commencement date, subject to the recipient’s continued service through each anniversary.

(3)

Represents the grant date fair value, as determined in accordance with ASC 718, of time-based RSUs, performance-based RSUs and nonstatutory stock options awarded during Fiscal 2019.

 

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Table of Contents
    COMPENSATION TABLES  

 

2019 Outstanding Equity Awards at Fiscal Year-End

 

 

The following table provides information about outstanding equity awards of our named executive officers as of the end of Fiscal 2019:

 

           

 

Option Awards(1)

    

 

Stock Awards

 

Name

 

  

Grant

Date

 

    

Number of

Securities

Underlying

Unexercised

Options (#)

Exercisable

 

    

Number of

Securities

Underlying

Unexercised

Options (#)

Unexercisable

 

    

Option

Exercise

Price

($/sh)

 

    

Option

Expiration

Date

 

    

Number
of

Unearned

Shares or

Units of

Stock

Granted

That Have

Not
Vested
(#)

 

   

Market
Value of
Unearned

Shares
or Units
of Stock

Granted

That

Have Not
Vested
($)
(2)

 

 

 

Stanford L. Kurland

  

 

 

 

03/15/2019

 

 

  

 

 

 

 

 

  

 

 

 

107,849

 

 

  

 

 

 

22.92

 

 

  

 

 

 

03/14/2029

 

 

  

 

 

 

129,419

 

(3) 

 

 

 

 

4,405,423

 

 

     03/09/2018        34,153        68,306        24.40        03/08/2028        122,950 (4)      4,185,218  
     03/06/2017        92,336        46,168        18.05        03/05/2027        166,204 (5)      5,657,584  
     03/07/2016        188,086               11.28        03/06/2026               
     03/03/2015        161,529               17.52        03/02/2025               
     02/26/2014        191,098               17.26        02/25/2024               
  

 

 

 

06/13/2013

 

 

  

 

 

 

107,656

 

 

  

 

 

 

 

 

  

 

 

 

21.03

 

 

  

 

 

 

06/12/2023

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

David A. Spector

  

 

 

 

03/15/2019

 

 

  

 

 

 

 

 

  

 

 

 

55,488

 

 

  

 

 

 

22.92

 

 

  

 

 

 

03/14/2029

 

 

  

 

 

 

66,585

 

(3) 

 

 

 

 

2,266,553

 

 

     03/09/2018        17,645        35,290        24.40        03/08/2028        56,464 (4)      1,922,035  
     03/06/2017        46,168        23,084        18.05        03/05/2027        68,325 (5)      2,325,783  
     03/07/2016        71,161               11.28        03/06/2026               
     03/03/2015        61,120               17.52        03/02/2025               
     02/26/2014        72,301               17.26        02/25/2024               
  

 

 

 

06/13/2013

 

 

  

 

 

 

40,735

 

 

  

 

 

 

 

 

  

 

 

 

21.03

 

 

  

 

 

 

06/12/2023

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

Doug Jones

  

 

 

 

03/15/2019

 

 

  

 

 

 

 

 

  

 

 

 

27,744

 

 

  

 

 

 

22.92

 

 

  

 

 

 

03/14/2029

 

 

  

 

 

 

33,292

 

(3) 

 

 

 

 

1,133,260

 

 

     03/09/2018        8,822        17,645        24.40        03/08/2028        28,232 (4)      961,017  
     03/06/2017        23,084        11,542        18.05        03/05/2027        34,162 (5)      1,162,874  
     03/07/2016        27,771               11.28        03/06/2026               
     03/03/2015        23,829               17.52        03/02/2025               
     02/26/2014        28,216               17.26        02/25/2024               
  

 

 

 

06/13/2013

 

 

  

 

 

 

15,882

 

 

  

 

 

 

 

 

  

 

 

 

21.03

 

 

  

 

 

 

06/12/2023

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

Vandad Fartaj

  

 

 

 

03/15/2019

 

 

  

 

 

 

 

 

  

 

 

 

22,496

 

 

  

 

 

 

22.92

 

 

  

 

 

 

03/14/2029

 

 

  

 

 

 

26,995

 

(3) 

 

 

 

 

918,910

 

 

     03/09/2018        7,058        14,116        24.40        03/08/2028        22,585 (4)      768,793  
     03/06/2017        18,466        9,234        18.05        03/05/2027        27,330 (5)      930,313  
     03/07/2016        27,771               11.28        03/06/2026               
     03/03/2015        23,829               17.52        03/02/2025               
     02/26/2014        28,216               17.26        02/25/2024               
  

 

 

 

06/13/2013

 

 

  

 

 

 

15,882

 

 

  

 

 

 

 

 

  

 

 

 

21.03

 

 

  

 

 

 

06/12/2023

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

Andrew S. Chang

  

 

 

 

03/15/2019

 

 

  

 

 

 

 

 

  

 

 

 

22,274

 

 

  

 

 

 

22.92

 

 

  

 

 

 

03/14/2029

 

 

  

 

 

 

26,728

 

(3) 

 

 

 

 

909,821

 

 

     03/09/2018        7,058        14,116        24.40        03/08/2028        22,585 (4)      768,793  
     03/06/2017        18,466        9,234        18.05        03/05/2027        27,330 (5)      930,313  
     03/07/2016        27,771               11.28        03/06/2026               
     03/03/2015        23,829               17.52        03/02/2025               
     02/26/2014        28,216               17.26        02/25/2024               
    

 

 

 

06/13/2013

 

 

  

 

 

 

15,882

 

 

  

 

 

 

 

 

  

 

 

 

21.03

 

 

  

 

 

 

06/12/2023

 

 

          

 

 

 

 

 

 

(1)

One-third (1/3) of the optioned shares will vest on each of the first, second, and third anniversaries of the vesting commencement date, subject to the recipient’s continued service through each anniversary.

(2)

Per share value of stock awards is $34.04 based on the closing price of our common stock on the NYSE on December 31, 2019.

(3)

The indicated number of unearned units consists of time-based RSUs (for all named executive officers other than Mr. Kurland) and performance-based RSUs with a performance period that ends on December 31, 2021 and is described above under the heading “—Elements of our Executive Compensation Program—Annual Long-Term Equity Awards.” Based on current performance levels, the performance-based RSUs are reported at the target payout level.

(4)

The indicated number of unearned units consists of time-based RSUs (for all named executive officers other than Mr. Kurland) and performance-based RSUs with a performance period that ends on December 31, 2020 and is described above under the heading “—Elements of our Executive Compensation Program—Annual Long-Term Equity Awards.” Based on current performance levels, the performance-based RSUs are reported at the target payout level.

(5)

The indicated number of unearned units consists of time-based RSUs (for all named executive officers other than Mr. Kurland) and performance-based RSUs with a performance period that ends on December 31, 2019 and is described above under the heading “—Elements of our Executive Compensation Program—Annual Long-Term Equity Awards.” Based on current performance levels, these RSUs are reported at the target payout level.

 

48    LOGO   |  2020 Proxy Statement


Table of Contents
    COMPENSATION TABLES  

 

2019 Option Exercises and Stock Vested

 

 

The following table provides information regarding exercises of options to purchase shares of common stock and stock awards (RSUs and PSUs) that vested for our named executive officers during Fiscal 2019:

 

    

 

Option Awards

    

 

Stock Awards(1)

 

Name

 

  

Number of
Shares Acquired
on Exercise

(#)

 

    

Value Realized
on Exercise

($)

 

    

Number of
Shares Acquired
on Vesting

(#)

 

    

Value Realized
on Vesting
($)
(2)

 

 

 

Stanford L. Kurland

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

156,739

 

 

 

 

  

 

 

 

 

3,410,641

 

 

 

 

 

David A. Spector

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

72,017

 

 

 

 

  

 

 

 

 

1,583,485

 

 

 

 

 

Doug Jones

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

36,008

 

 

 

 

  

 

 

 

 

791,732

 

 

 

 

 

Vandad Fartaj

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

28,806

 

 

 

 

  

 

 

 

 

633,376

 

 

 

 

 

Andrew S. Chang

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

28,806

 

 

 

 

  

 

 

 

 

633,376

 

 

 

 

 

(1)

Amounts reported in these columns consist of vested RSUs and PSUs. If the named executive officer sold a portion of the common stock acquired upon vesting of RSUs or PSUs to satisfy the tax obligation with respect to such vesting, the number of shares of common stock acquired is less than the amount shown. The number of shares of common stock acquired and the value realized on vesting as reflected in this column have not been reduced to reflect the sale of common stock to satisfy any tax obligations. The allocation of RSUs and PSUs is as follows:

 

    

 

RSUs

    

 

PSUs

 

 

Name

 

  

Number of
Shares Acquired
on Vesting

(#)(1)

 

    

Value Realized
on Vesting

($)

 

    

Number of
Shares Acquired
on Vesting

(#)(2)

 

    

Value Realized
on Vesting

($)

 

 

 

Stanford L. Kurland

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

156,739

 

 

 

 

  

 

 

 

 

3,410,641

 

 

 

 

 

David A. Spector

 

  

 

 

 

 

16,291

 

 

 

 

  

 

 

 

 

370,887

 

 

 

 

  

 

 

 

 

55,726

 

 

 

 

  

 

 

 

 

1,212,598

 

 

 

 

 

Doug Jones

 

  

 

 

 

 

8,146

 

 

 

 

  

 

 

 

 

185,455

 

 

 

 

  

 

 

 

 

27,862

 

 

 

 

  

 

 

 

 

606,277

 

 

 

 

 

Vandad Fartaj

 

  

 

 

 

 

6,516

 

 

 

 

  

 

 

 

 

148,346

 

 

 

 

  

 

 

 

 

22,290

 

 

 

 

  

 

 

 

 

485,030

 

 

 

 

 

Andrew S. Chang

 

  

 

 

 

 

6,516

 

 

 

 

  

 

 

 

 

148,346

 

 

 

 

  

 

 

 

 

22,290

 

 

 

 

  

 

 

 

 

485,030

 

 

 

 

 

  (1)

Amounts reported in this column represent an RSU awards that vested on March 6, 2019 and March 9, 2019.

 
  (2)

Amounts reported in this column represent a PSU award that vested on March 17, 2020 and the payout of shares of common stock pursuant to the award was determined based on our return on equity (ROE) (100% of the award) for the period of January 1, 2017 through December 31, 2019 as measured against the target performance goal set by the Compensation Committee of the Board when the award was granted in 2017. The payout percentage for the award was 94.31%.

 

 

(2)

The value realized on vesting is calculated by multiplying the number of shares of common stock received upon vesting of RSUs and PSUs by the fair market value of our common stock on the respective vesting dates.

 

LOGO   |  2020 Proxy Statement      49  


Table of Contents
    COMPENSATION TABLES  

 

Potential Payments Upon Termination of Employment or Change in Control

 

 

The information below describes and estimates certain compensation that would become payable under existing plans and arrangements assuming the named executive officer’s employment had terminated or a “change in control” had occurred on December 31, 2019. These benefits are in addition to benefits available generally to salaried employees.

Potential Payments Pursuant to Employment Agreements

As described in the “Employment Agreements” in the Compensation Discussion and Analysis section of this Proxy Statement, three of our named executive officers, Mr. Kurland, Mr. Spector and Mr. Jones, currently have employment agreements in place with PNMAC. These employment agreements provide for severance payments, accelerated vesting of equity awards, and other benefits in the event the executive’s employment is terminated due to disability or death, terminated by us or PNMAC for “cause,” terminated by us or PNMAC “other than for cause,” or terminated by the executive for “good reason.”.

 

 

Name

 

  

 

Benefit

 

  

 

Disability

 

    

 

Death

 

    

 

Termination

For Cause or

Voluntary

Resignation

 

    

 

Termination

Other than

For Cause

or Resignation

For Good Reason

 

 

 

Stanford L. Kurland

 

  

 

Consulting Fees(1)

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

$   1,500,000

 

 

 

 

  

 

Base Salary

 

  

 

 

 

 

 

 

 

 

  

 

$

 

 

450,000

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

COBRA Benefits Continuation

 

  

 

$

 

 

39,185

 

 

 

 

  

 

$

 

 

48,644

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

$        24,322

 

 

 

 

  

 

Cash Incentive-Based Compensation

 

  

 

$

 

 

10,212,000

 

 

 

 

  

 

$

 

 

10,212,000

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

$ 10,212,000

 

 

 

 

  

 

Accelerated Vesting – Stock Options(2)

 

  

 

$

 

 

2,595,977

 

 

 

 

  

 

$

 

 

2,595,977

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

$   2,595,977

 

 

 

 

  

 

Accelerated Vesting – Performance-Based RSUs(3)

 

  

 

$

 

 

14,248,225

 

 

 

 

  

 

$

 

 

14,248,225

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

$ 14,248,225

 

 

 

 

  

 

Aggregate Payment Amount

 

  

 

$

 

 

27,095,387

 

 

 

 

  

 

$

 

 

27,554,846

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

$ 28,580,524

 

 

 

 

 

David A. Spector

 

  

 

Consulting Fees(1)

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

Base Salary

 

  

 

 

 

 

 

 

 

 

  

 

$

 

 

450,000

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

$   1,800,000

 

 

 

 

  

 

COBRA Benefits Continuation

 

  

 

$

 

 

55,905

 

 

 

 

  

 

$

 

 

69,399

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

$        34,700

 

 

 

 

  

 

Cash Incentive-Based Compensation